Earnings Call: Q3 2019

Nov 28, 2018

Welcome to the Quarterly Results Call. My name is Adrienne, and I'll be your operator for today's call. And answer session. Please note this conference is being recorded. I'll now turn the call over to Scott Pagan. Scott Pagan, you may begin. Thanks, Adrian, and good afternoon, everyone. Joining me on the call today are Ed Ryan, CEO and Alan Brett, CFO. I'm interested everyone has received a copy of our financial results press release that was issued earlier today. Portions of today's call, other than historical performance, include statements of forward looking information within the meaning of applicable securities laws. These statements are made under the Safe Harbor provisions of those laws. These forward looking statements include statements related to Descartes' operating performance, financial results and condition Descartes' gross margins and any growth in those gross margins cash flow and use of cash, business outlook, baseline revenues, baseline operating expenses and baseline calibration, anticipated and potential revenue losses and gains, anticipated recognition and expensing of specific revenues and expenses, potential acquisitions and acquisition strategy, cost reduction and integration initiatives and other matters that may constitute forward looking statements. These forward looking statements involve known and unknown risks, uncertainties, assumptions and other factors that may cause the actual results, performance or achievements of Descartes to differ materially from the anticipated results, performance or achievements implied by such forward looking statements. These factors are outlined in the press release and in the section entitled Certain Factors That May Affect Future Results and documents filed and furnished with the SEC, the OSC and other securities commissions across Canada, including our MD and A filed today. We provide forward looking statements solely for the purpose of providing information about management's current expectations and plans relating to the future. You're cautioned that such information may not be appropriate for other purposes. We don't 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, except as is required by law. And with that, let me turn the call over to Ed. Great. Thanks, Scott. Good afternoon, everyone, and welcome to the call. Thank you for joining us today. We had another great quarter here at Descartes. We've got a lot going on and we're really seeing the impact of our network volumes as we continue to make more and more solutions available on the global logistics network. Supply chain and customer delivery used to be an afterthought for most companies. Those days are gone. Today's customer wants choice and visibility for the deliveries at the point of purchase. Providing that level of choice and visibility will cripple you if you don't have the appropriate data, systems, connectivity and assets available at the right times. This is hard enough to get right in a stable business environment, but in an environment where of uncertainty fueled by trade wars, sanctions, Brexit and stock market volatility, it's even harder. At Descartes, this is what we do. We're very good at it. We help isolate our customers from complexity and we help them use their supply chain as a competitive advantage. We believe this is best done by having all of the participants in the supply chain connected in one place, shippers, carriers, logistics intermediaries and government agencies. In order for those parties to want to get connected, we believe there needs to be tools and content available for type of participant. This belief drives our internal and external investment plans. We continue to add solutions to our network to help companies of all types and sizes with deliveries of all types and sizes operate more efficiently. We also believe it's a long game and we believe that operating a stable, profitable and trusted business that generates a lot of cash, positions us very well in the market in these uncertain and dynamic times. On today's call, I'll provide an update on some of the key trends in the market and what we're doing about it for our customers. After that, Alan will go through our quarterly and year to date financial results in more detail and I'll finish up with some comments about our calibration for Q4 and our operating plans moving forward. But first, let's start by going over some of the key financial highlights for the Q3 of fiscal 2019. We had another record quarter of operating results and we're very happy with our key metrics demonstrating how we're growing internally and successfully integrating acquisitions. Our adjusted EBITDA continues to grow nicely. For the quarter, we generated $24,000,000 of adjusted EBITDA, an increase of 17% over Q3 of last year. Revenue for the quarter was up 13% from Q3 last year coming in at $70,000,000 We continue to convert our EBITDA into cash, generating $19,200,000 of cash in the quarter and consistent with our long term operating plans, we've been investing cash back into our business through focused R and D investments and by combining with complementary businesses. So all in all, another great quarter here at Descartes. We have a stable cash generating business and we're well positioned to continue our growth. So now let's switch gears and talk about some market trends. Given the time of year, it seems fitting to start with e commerce. As we're all reading in the news, it was another record breaking year for Black Friday and Cyber Monday. The rise of e commerce and players like Amazon has fundamentally changed the goalpost for how companies need to think about their supply chains. More people are using mobile devices to either purchase goods or do research on what to buy. And there is an expectation these days for goods to be delivered as quickly as possible and if not the same day or next day in a definitive time window. Customers now also want to know where their stuff is in real time. The change has been consumer led, but is now increasingly prevalent in the B2B world. This is not just about adding more trucks to make more deliveries. There are only so many trucks and drivers you can add and doing so costs a lot of money. And customers in many cases have an expectation that the delivery is free. I'm not sure these mega low price delivery expectations can persist in the long run, but regardless they're here now and they're real. As a result of all this, supply chains in the commercial landscape is evolving. Traditional brick and mortar retailers had to create new omni channel strategies, in some cases shutting down some of their stores and acquiring or partnering with online players. Traditional online players such as Amazon are setting up physical spaces to help with fulfillment as well as some retail stores. Both online and traditional retailers are thinking about where to store inventory to meet price and delivery expectations. Many malls are shutting down and are being repurposed, in some cases as distribution centers. So it really seems like the successful model is going to be some sort of hybrid of purely online and traditional brick and mortar. And as if things weren't complicated enough, the current global regulatory environment means that whatever worked yesterday can quickly be impacted by sanctions, free trade agreements, new tariffs and new duties. Cost inputs to the problem today will almost certainly be different tomorrow and your supply chain needs to be flexible. This doesn't just put pressure on retailers and manufacturers. It also impacts the carriers that need to move the goods, the logistics intermediaries that are often in the middle and the government agencies that are trying to keep consumers safe and protect their borders. It's a challenge for all parties involved and while different parties have different considerations, they all need to work together and they all need access to a lot of the same information to operate effectively. And that's exactly what we do here with our global logistics network. We help all of the participants in the supply chain connect, exchange information and then use applications on the network to leverage information to help them make better decisions. We have one home for shippers, carriers and logistics intermediaries to manage the lifecycle shipments, large shipments, small shipments, partial shipments, international shipments, domestic shipments, air shipments, road shipments, ocean shipments, rail shipments and any combination therein. In a world where e commerce continues to impact the supply chain landscape, we believe that our network of connected parties coupled with our applications and content is the right tool to help all of the participants in the supply chain collaborate and improve the productivity and security of their operations. And we're committed to continuing to advance our global logistics network's ability to serve e commerce shipments with acquisitions that deal with the high volume small package needs, particularly to e commerce such as our recent acquisitions of Velocity Mail, Shiprush and even MacroPoint. So with that, let's talk about another market trend, which in some ways is a byproduct of the wider e commerce trend and is a great example of how we use information in our network to help our customers. Let's spend some time on real time visibility. Real time visibility is something we've been working on for more than a decade here at Descartes. So it's not really new for us, but it's gaining a lot of traction in the market. As consumers have gotten used to tracking their goods in real time and watching the route their taxi is taking to their house, that thirst for real time knowledge has permeated into the B2B market. Our investments in this space go back a long way. For us, we're not just talking about tracking a certain type of shipment in a certain geography. Remember, regardless of the size or type of shipment or geography, we want to be able to help our customers collect information and improve decision making and shipment execution. We believe you'll increasingly see this multimodal differentiation reflected in the success or our success in the market. We're thinking about this differently than our competitors who are typically focused on one particular mode or geography. We're also looking to differentiate ourselves by doing more with the information we collect. Knowing where your stuff is of course helpful, but if you don't put that into context and line it up with the information about where you should be, you're missing opportunities. When you're tracking thousands of shipments, you don't really need to focus on the ones that are moving smoothly. You want to identify the ones with problems early so you can take action. 2 of our recent investments, Pinpoint and MacroPoint are doing just that. We're collecting real time information for shipments and lining that up with information about where those goods should be. In the case of pinpoint, we're typically helping fleet owners leverage telematics technology to gain insights into the locations of vehicles as well as comply with the hours of service regulations for drivers. And then we also look to marry that information up with routing solutions like Descartes Route Planner, so that we can help companies adjust to new information in real time and alter their plans when needed. With MacroPoint, we're typically helping freight brokers and shippers gain insight into shipments that are being moved by someone else. And with a connected network of millions of assets, we're collecting information about 1,000 and 1,000 of deliveries every day. We then look to take that information a step further with our capacity matching product. If you can take information about where trucks are going to be when they complete their delivery and overlay upcoming demand, you start to really save people money by filling that backlog capacity. It's estimated that more than 15% of miles driven in the United States are empty miles, which is in large part due to trucks returning from their outbound delivery base back to base with empty space. If we can help companies move the needle on this, we can save them time and money and we can reduce the number of empty model driven. We're talking about a lot of money to be saved here, which is particularly relevant in today's tight truck capacity market. Our initial focus is to help freight brokers and logistics service providers leverage real time capacity matching to better identify carrier capacity inside their own network and based on an opt in model with other consenting freight brokers. Just to be clear on this again today, it's not an open load board or a capacity portal or a marketplace. And like many other solutions Descartes provides, our MacroPoint capacity matching solution is designed to support the broker, the 3PL or the logistics service provider not compete with them. We continue to onboard new customers including some cross sell successes from our Aljex freight broker customer base and the pipeline continues to grow as demand in this area remains strong. We're really happy with the progress we've seen in capacity matching and the MacroPoint visibility business is going from strength to strength. And we're also very happy with the integration of the team into the wider Descartes family. And finally, on the market side, an update on what we're seeing out there right now wouldn't be complete without some comments on the changing regulatory environment for global trade. Things are pretty hairy out there from a regulatory standpoint. Just look at the news on any given day. On one hand, governments continue to roll fiscal filing market, the landscape for duties and taxes has never been more dynamic with potential trade wars looming, new duties and taxes being considered by various governments nearly daily and of course Brexit right around the corner. In both cases, there's a lot going on and having good information and systems is vital to help companies continue to do business and operate efficiently. On the security filing side, this is a market that continues to evolve as governments look to reach deeper into the supply chain to collect data from various parties. It generally starts with the carrier filing initiative, where the governments ask for the carriers to follow a manifest of what's coming into or leaving the country. And from there, governments have also started to ask for additional filing from the forwarder and eventually shippers will be required to file as well. At this point, we're helping our customers with more than 100 programs in nearly 50 countries, but more than 160 countries have signed up to the SAFE Framework and are expected to introduce more programs over time. The SAFE Framework is a World Customs Organization, WCO initiative to encourage automated electronic processes for fiscal and security filings. As new programs and countries go live, we continue to add to our global security filing framework for our customers and the fact that we have carriers, shippers and the forwarders already moving most of this information on our network means we're in a great position to keep growing here as initiatives come up and in particular as it moves from carrier only filings into forwarder and then shipper filings. A recent example of that is ACAS, which is a new initiative that requires additional information from forwarders for filing to be made. That initiative went live this summer and we continue to sign up new customers there. On the fiscal filing side, this is where things are getting pretty complicated right now and a lot of supply chains are having to rethink their strategies. Duties and tariffs have a large impact on the total landed cost of goods and when they change companies need to adapt and to figure out what they need to do next, they need information and tools that leverage that information. We're seeing it right now in our content business. Our customs info product collects and normalizes duties and tax information for more than 175 countries and our team has never been busier. Every day we're fielding calls from customers looking for information to help assess the impact of changing tariffs and we're seeing more and more interest in our various seminars and white papers focused on the shifting trade patterns. As a result, we're seeing some good growth in that part of the business and we expect it to continue. Before handing the call over to Alan to talk a little bit more about financials, I'd like to thank some people that continue to contribute to the strength of our business. So thanks to our employees for all the hard work they put in to make sure our customers get results. Our customers continue to get great results and that's why we have a successful business. Thank you to our customers who continue to place confidence in Descartes as their network of choice. Thank you to our partners for helping us to continue to expand our ecosystem and thank you to our shareholders for continuing to have confidence in Descartes. I'd also like to take a moment here to say a couple of words about a colleague here at Descartes that recently passed away. Last Friday, Mike Rush, our VP, Partner Solutions and Services passed away. Mike was a dedicated Descartes employee for over 23 years continuing to work while battling cancer on more than one occasion. He came to Descartes through the acquisition of Roadshow in 1996. As part of the development organization, Mike was one of the early pioneers integrating mobile technology with routing solutions and what we now know today as carte mobile link and the WGLN. In recent years, Mike has helped to develop our partner program United by Design, which has been important to the overall growth here at Descartes. Mike was a valuable member of our broader employee team who woke up every day focused on delivering success for our customers. We'll miss Mike dearly and our thoughts are with his family during these difficult times. With that, I'll turn the call over to Alan. Okay, sure. Thanks, Ed. As indicated, I'm going to walk you through our financial highlights for the Q3 ended October 30 1. As mentioned earlier, we are pleased to report quarterly record revenues sorry, record quarterly revenues of $70,000,000 this quarter, up 13% from revenues of $62,000,000 in the Q3 last year. The impact from foreign exchange on revenue was minor with a negative impact of approximately $800,000 this quarter when compared to the same period last year and a negative impact of just over 300,000 sequentially when compared to revenue in the Q2 of this year. For the 9 months year to date, revenue came in at 204,100,000 dollars which is up about approximately 17% from revenue of $173,800,000 in the 1st 9 months of last year. Services revenue represented 87% of our total revenue for the quarter, with license revenue coming in at 2% and professional services and other revenue, which includes hardware sales, representing approximately 11% of total revenue this quarter. All of these fairly consistent with the year to date period as well as the same quarter last year. Gross margin continued to be very strong at 73% of revenue for the quarter and for the year to date 9 month period, which is consistent with both the same periods last year. While we continue to invest more resources in sales, marketing, product development as well as in systems and operations, As a result of continued services revenue growth and leverage from our acquisition strategy, we continue to see strong adjusted EBITDA growth of 16% to $24,000,000 or 34.3 percent of revenue compared to 20,600,000 dollars or 33.2 percent of revenue in the same period last year. For the year to date 9 month period, adjusted EBITDA was 68 $900,000 up 16% from $59,400,000 in adjusted EBITDA for the same period last year. As a result of these strong operating results, as Ed mentioned earlier, cash flow generated from operations came in at $19,200,000 or approximately 80% of adjusted EBITDA in the Q3 this year, compared to operating cash flow of $18,900,000 or 92% of adjusted EBITDA in Q3 of last year. Year to date, cash flow from operations was also steady, increasing to 56 $300,000 or 82 percent of adjusted EBITDA, up from $52,500,000 in the same 9 month period last year. Going forward, subject to unusual events, we would expect to continue to see strong operating cash flow conversion of approximately 80% to 90% of our adjusted EBITDA balance. From a GAAP earnings perspective, net income came in at $7,900,000 or $0.11 per diluted common share in the 3rd quarter, an increase of 27% from net income of $6,200,000 or $0.08 per diluted common share in the Q3 last year. Year to date, for the 9 month period this year, we produced net income of $23,400,000 or $0.30 per diluted share, up 16% from $20,200,000 or $0.26 per diluted common share for the same period last year. Overall, as Ed mentioned, we are very pleased with these operating results for the quarter. If we look at the balance sheet, our cash balances totaled approximately $33,000,000 at the end of the Q3. In addition, at the end of October, we had drawn just under 51,000,000 on our revolving credit facility, resulting in a net debt position of $18,000,000 at the end of the 3rd quarter. During the quarter, we used $9,400,000 to complete the purchase of the pinpoint business in mid August. We also paid $1,500,000 on earn outs related to prior acquisitions, while we also repaid a net amount of $8,000,000 on our revolving credit facility. So at the end of the quarter, we had approximately $33,000,000 of cash available to us as well as an additional $100,000,000 available under our operating credit facility. So we should note that we also have the ability to increase the credit facility by an additional $75,000,000 with the agreement of our lending syndicate. And also as a reminder, we have filed a base shelf prospectus, which would allow us to offer and issue up to $750,000,000 in additional capital. So in short, we continue to be very well capitalized in order to execute on our business plan. As we look to the final quarter of this year, we should note the following. We expect to incur approximately $1,000,000 to $1,500,000 in additional capital expenditures in the 4th quarter. We expect amortization expense will be approximately $9,700,000 in the 4th quarter, with this figure being subject to adjustment for FX changes and future acquisitions. Our tax rate came in at around 23% of pretax income in the 3rd quarter and we expect that our tax rate will fall in the range of 23% to 26% of pretax income for the Q4. Finally, we expect stock based compensation will be approximately $1,000,000 for the 4th quarter, subject to any forfeitures, stock options or share units. So with that, I will turn it back over to Ed to wrap up with our baseline calibration. Great. Thanks, Alan. Great. So let's move on to calibration for Q4. Similar to previous quarters, we don't provide guidance, but we use our baseline calibration as a key metric relating to the ongoing health and strength of our business. Our calibration for Q4 assumes the following exchange rate. A CAD0.76, €1.14 to U. S. Dollar and a CAD1.28 to U. S. Dollar. Our calibration for Q4 is $67,000,000 invisible recurring contracted revenues or our baseline revenues. We typically see a seasonality impact as we transition from Q3 into Q4. Our baseline operating expenses are 47 point $3,000,000 This gives us baseline calibration of $19,700,000 for adjusted EBITDA for Q4. Some other key points related to how we are positioned for the remainder of fiscal 2019. First, we're very well capitalized. We have a healthy business that is well calibrated. And as Alan mentioned, we also have a healthy balance sheet. We are profitable and cash generating. We have low capital needs within our organic business. And as you've seen from our recent historical financial results, we have solid growth in our organic business. Our primary uses of capital are for continued use in acquisitions. We've completed 41 acquisitions since 2006. And we have access to additional capital quickly should we need it. Alan mentioned that we have about $51,000,000 drawn on our line of credit of $150,000,000 and we have the ability to expand that line of credit to around $225,000,000 and we have filed a preliminary shelf prospectus for up to $750,000,000 if capital was needed to be raised by other mechanisms. We have a strong acquisition pipeline. You'll have seen there continues to be a lot industry activity right now with consolidation continuing in our market. With this capital capacity and our execution capabilities, there are still a number of acquisition opportunities to expand the geographic reach, functional capabilities, trade data and content or community of participants on our network. Continue to see a lot of interesting opportunities out there to continue or even accelerate our pace of profitable growth. We're seeing both larger and smaller opportunities. And while we review everything as it comes our way, we are not buyers for buyers' sake. The fact that we have an acquisition line of credit and a shelf filing in place doesn't change how we view acquisitions. We intend to continue to be prudent on valuation, but we're confident in our ability to deploy capital effectively. We believe that we will benefit from any acquisition market move to valuations based on tangible business fundamentals. As a reminder for our plans for the remainder of FY 2019, we continue to target 10% to 15% annual adjusted EBITDA and adjusted EBITDA per share growth. As in the past, we intend to invest any over performance back into Our organic growth is planned to come through a combination of organic and inorganic activities. Acquisitions, as always, are not incremental to this plan. We intend to continue to focus on recurring revenue and deemphasize one time license sales. Our planned operating margin remains 32% to 37%. Given the current performance of the business and mindful of the FX environment, that remains our target range. But please keep in mind, this could vary if we buy other businesses that need fixing up, which would impact that metric in the short run. And a quick update on our annual user I mentioned in the last call that we're moving to the event in April this year to accommodate a large group of people coming off the success of last year's record attendance. The conference this year will be held in the Naples Grande Beach Resort, Florida from Tuesday, March 26 to Thursday, March 28, 2019. It's a great opportunity to meet the people that build and deploy our solutions as well as the customers that use them. If you want to learn about Descartes, it's a great investment of your time and I would encourage you to book early. In fact, our early bird discount ends this Friday. So if you're coming, please get on. And finally, as always, we'll continue to make ourselves available to shareholders to answer any questions. We've got a great business. We want to be available to help people learn about our business. We'll continue to spend time and resources to get the word out and we hope you'll do the same. And with that, let's open the call up to questions. Operator? Thank you. We'll now begin the question and answer And our first question is from Phil Long from Barclays. Please go ahead. Your line is open. Hi, thanks. Good afternoon. First Just on MacroPoint, I was wondering if you could provide an update on that. I know you've mentioned that freight brokers and 3PLs have been among the early adopters. Just wanted to see just given the significant adopters have, whether that's how that's sort of going for you guys? We as I mentioned on the last call and it continues to this day, we have been very happy with the growth of MacroPoint since the acquisition. We were hoping to continue the growth rates that we saw prior to our acquisition. And while knowing they couldn't last forever as the company grows, it's harder to keep up the same rate of growth. We've been very pleasantly surprised that it has so far and really exceeded our expectations. And that's just on the transportation tracking side, the capacity matching stuff that I mentioned earlier in the call is all bonus for us. We're just getting that going and very optimistic about our chances of success in that market. You mentioned in the past sort of a Phase 2 of that backhaul solution. Can you provide an update on is there like a Phase 3 coming? Is there like sort of what's any further updates to sort of the refinements to the software itself that you're expecting over the next little bit? We continue to make improvements to the software. We started with a pilot that I mentioned on the last call and maybe the call before that. We're now out of that pilot in the first phase and all of the participants that participated in that first phase have now signed up as paying customers. So, we're very excited about that. They've also agreed to start sharing data amongst themselves. In the initial pilot, they were only looking at their own capacity data and matching that. And we were very happy to hear that they saw enough value in the solution to begin to share data amongst the group. I mentioned on the call a minute ago, I used the word opt in, that's how we do it with them. And the vast majority of the pilot participants that are now live customers of the solution have decided to opt in and not just view their own capacity, but match capacity across brokers in the solution, which we think is a great telltale sign of how this might work in the future. And we're saving those customers a lot of money and real excited about Great. And so from the pilot to the current version of the software that you have the solution that you have, what are some of the suggestions that the early adopters have made in order to kind of sign on and opt in and begin sharing their data on this product? Without getting into too much detail, so there are lots of little enhancements in it. There's enhancements on the driver side to give them the ability to tell us more information about the loads they'd like to receive. There continue to be improvements to the algorithms to help us find matches across brokers and identify the best drivers to pick up loads and try and basically connect the best drivers in a position to make a load with the brokers that need to make them. We're in these pilots and we have another group of brokers going through pilots with it right now. But we continue to get more and more ideas as we roll them out. We right now, we're trying to evaluate all those ideas and figure out which ones can we get into the product and how fast can we get them in there. But we're really excited with the enthusiasm that the customer base has shown for this. And there are now new found willingness or where they were first tentative about sharing data with each other that they're now opening up and going, this saves me a lot of money. I am probably willing to share my data if all the other brokers are willing to share theirs. And so that's really exciting for us. We're starting to see this as a real potential high growth business, just like the transportation tracking was for MacroPoint over the last 6 or 7 years. Got it. No, that's very helpful. My last question is on the M and A environment. Just given how valuations come off their highs, just wondering what your view is of the current valuation environment within the opportunities that you guys look at. Are they are you finding the environment becoming more favorable in terms of going after some of the opportunities, especially the larger ones that could potentially transpire? Thanks. Yes. Thanks, Phil. You probably watch this going for a long time as we have. The public markets usually go first, right? The stock market takes a hit. The people that own businesses that are private and the private equity firms involved in that don't necessarily feel that hit immediately. They're obviously aware that it's happened. How long does that take to start impacting deals? I don't know, but it certainly over the long run will impact deals because the companies that are buying up these businesses are either private equity firms that are one day looking for an exit and that exits off into a public company. So, if public valuations go down, they know that those valuations will go down for them in the future as well or they're directly from public companies, which if they see their valuations going down in the market that obviously affects what they're willing to pay companies too, right? If I'm worth less, why would I pay somebody else at, let's call it, old valuation. And so, I don't know what's going to happen in the market in the next in the coming weeks months, but what we've seen over time is that the public markets go up, the private valuations go up over time. And if the public markets go down, the private valuations go down over time. There's usually a little bit of a lag, but they do follow each other. Got it. Thanks very much. Thank you. And your next question comes from Matt Pfauch from William Blair. Please go ahead. Your line is open. Hi, guys. This is David Robinson on for Matt. I just had a question around EDA Open. So this week they finalized their acquisition of Intra. And I was wondering since they're one of the world's largest carrier networks for ocean shipping, what impact that would have on the business going forward? I don't expect it to be much of a change. Intra was a big partner of ours before that acquisition. They were owned by a private equity firm before that acquisition. They sold another private equity firm. You mentioned it as a company, but they're owned by a private equity firm as well. I don't as a big partner of ours, I don't anticipate a whole lot of change for us in that. We communicate with Intrar all the time and I expect we will independent of which private equity firm owns them. But also note that EDU opened his own private equity firm, so that asset will eventually come up for sale as well. So, I don't think a whole lot has changed from our perspective. Okay. Thanks. That's it for me. Great. Thanks, Dave. And the next question comes from Paul Treiber from RBC. Your line is open. Thanks very much. Just regards to the EBITDA growth relative to the 10% to 15% outlook as or the target, EBITDA growth is above your target this quarter. What do you see primarily as driving that? And then you mentioned you reiterated the 10% to 15% outlook. Should we expect just a slightly slower pace of growth in light of either higher investments or lower pace of acquisitions going forward? So to your first question, you saw maybe some of the numbers that we just released today and maybe over the last couple of quarters, our organic growth has been picking up over the last number of quarters. As our organic growth continues to grow, that usually shows up not only in the revenue line, but also in the EBITDA line. And so there may be other reasons. I'll let Alan speak to more of them, but that's certainly one of the big ones. In terms of acquisitions and do I see that slowing? I mean, as I said earlier in the call, we see a robust acquisition market, lots of companies for sale. And I don't see that slowing down anytime soon. We have as many out there to look at as we have in the past and we're as bullish about this basis as we've ever been. You can see our results are we're doing great and why would expect that we continue to go out and look for great companies to add to our business. And as our company gets bigger and our wherewithal to handle deals to find deals, source them, negotiate them, integrate them and effectively make them part of the Descartes team expands, I think you'll see us continue to do more and more. Alan, I don't know if you have anything to add on the EBITDA piece. Paul, Ed hit it. We're obviously seeing some good growth with our networks. MacroPoint has been a very good addition to the Descartes family. And overall, while we target a 10% to 15% growth, we will and have had periods of time where we'll exceed that with a combination of that organic growth with acquisitions. So no change to the short term or long term plans. Okay. Thanks for that. Just back to you, Alan, on deferred revenue, it did was a quite moderate headwind to cash flow this quarter. Can you just speak to either seasonality or what was driving that? Yes. We'll see some fluctuations in that balance from time to time. What you're seeing here a little bit on seasonality, we get different renewals at different times in the year. Nothing untoward there. We had a little dip when you compare to other quarters, but nothing significant and no emerging trend. We'll continue to see that number over time grow with the growth in the business. The another one for me. On the cross selling revenue synergies, you mentioned that you're seeing increased interest in trade content. Do you have any metrics that you can share in terms of cross selling into your installed base or the adoption of trade content relative to your customer base? I don't know if I think of it as a cross selling activity, although there is lots of cross selling that goes on in that trade content space. The growth that I'm seeing there is it's growing as fast as it's ever grown and you knew when we bought those businesses a bunch of years ago, they were already fast growing businesses. And that growth continues to this day. We're very happy about that. I think a lot of what you see in the major news headlines is driving that, right? Tariffs and duties are a bigger news issue than they've been since I can remember, especially in the U. S. And North America. And that puts increased emphasis on getting access to that information and we're one of the largest players in that market. So, as companies say, hey, I need to pay more attention to this tariff and duty information, they're increasingly coming to people like us to buy it. And as a market leader, they very often come to us. And one last one for me. Just in regards to tariffs, some of the players out in the industry are seeing that are seeing a pull forward in shipping as companies try to beat sort of the next uptick in tariffs expected in January 1. Are you seeing that yet in your network? Good question. So we've looked at this a lot and thought about it quite a bit. We've seen great growth in the global logistics network over the last year and I've read the same articles that you have that some of that could be attributed to or some of the growth in logistics moves could be attributed to this pull forward, get this done before tariffs go up on January 1 issue. I think that's most likely to affect the ocean market where we're not nearly as big as we are in the air market where that might be a little less likely to occur given the speed with which the goods move. And the fact they're moving air in the 1st place means that they're high valued goods, so that might be something you're a little more reluctant to pull forward quickly. Most of the comments I've seen have been focused on Ocean. My best guess at that is that, yes, that probably is going on in the market, but most of the growth you see in our network is probably not attributed to that. Okay. Thank you. I'll pass the line. Thanks, Paul. And our next question comes from Deepak Kareshal from GMP. Your line is open. Hey, guys. Good evening. Thanks for taking my question. Ed, when you made your opening comments, you talked about the growing complexity in the environment and the economy and how you guys help your customers reduce that complexity. I know you guys actively manage your business for good visibility and predictability. Are you seeing any changes in terms of visibility from greater uncertainty in the market? And are you changing the way that you manage your own business as a result? What we're seeing right now is a fairly consistent upward trend of transactions on our network. I think that's partially attributable to the growth of our global logistics network. It is a network and networks effects are a real thing. I'd probably attribute a lot of it to that. The more people that join our network, the more people want to also join it to transact with them. That's probably the biggest driver that we see. Yes, uncertainty can impact things like the tariffs and duties that we were just talking about. I don't know that it impacts network volumes as much, maybe a little bit, but I don't know if it's the main driver of it. The more complex the world gets where you're trying to deliver stuff to the home that used to just have to be delivered to a store. Yes, that drives transaction growth on our network for sure. You see us make a bunch of investments in the e commerce space. We did that because we saw that trend coming over the last couple of years and we think it's going to continue for a long time. And we made those investments knowing that's the case. Some of those investments like Shipbrush and Pinpoint are some of the faster growing ones that we've had and specifically in the case of Shipbrush a very pleasant surprise in the amount of growth that we're seeing in that business. And so, yes, those are the things that are probably most on our mind when we see the growth in our business in the last year. Okay, thanks. And just a follow-up on the e commerce trend. I think I have a good sense of that and how it's growing. But you talked about the opportunity on the B2B side. And I was wondering if you could talk a little bit more about what kind of vertical markets or industries or segments you're seeing activity pick up in on the B2B side? And is this end customer related or is this supply chain related? Any kind of commentary you gave on that? Be able to look on a map and see the truck driving it. I be able to see exactly where it is, I should be able to look on a map and see the truck driving down the road, just like you see an Uber taxi or Lyft taxi driving down the road. As consumers become to come to expect that, remember most of these consumers work in a business that's in a business to business environment and they start to come to work and say, hey, why can't I get that at work too? And I think as those expectations have developed and people start to go, hey, I want that for my business as well, That's kind of played into our hands, right? We're the guys delivering that kind of functionality to businesses as they do business with other businesses. And as the consumers go to work and say, I want that kind of tracking information that I have on a personal basis for my business as well, we're very often the network that gets chosen to do that and that's been helpful to us. And I think one of the drivers behind the significant acceleration that you've seen in the past year or so in our organic growth. Okay. And so when you think of industries that are kind of laggards in this and are picking it up, I mean, pharmaceuticals and food beverages, I think you called that out in a couple of recent press releases. Yes. Without getting specific to specific verticals, because that may not represent it very well, Think of the value of the goods that are moving. The higher value the goods, the more people are willing to say, I am willing to pay money to find out where that thing is every second of the day. And so you mentioned pharmaceuticals is 1. Pharmaceuticals is usually high value in a small package. And so if you're a company that is tracking that, you go, geez, I got some package that's a fairly small package that has a lot of value in it, I am absolutely willing to pay to track that thing. Does someone want to track coal very specifically? They're probably not willing to pay that much to track coal because it's a big weight volume for a low value and so they're less likely to do that. I'll stick with pharmaceuticals because you mentioned it. Does someone want to track a pharmaceutical shipment? Are they willing to pay a couple of bucks to do that? Absolutely, because the thing in that package that might be a relatively small box, it might be 100 or even 1,000 of dollars. And sure, can I pay up a couple of bucks to figure out exactly where that thing is? Absolutely, I'm willing to do that. And so those are the types of industries where we see that trend taking off first. Okay. And then I guess lastly on that, and particularly in food services and pharma. I mean, are you seeing customers wanting you guys to reach into the actual environment in some of their transportation network? Or not just what and where, but what temperature and how much time and other kind of conditions and data or is that for other providers and other Yes, that's usually something that they're not passing over our network. They're usually more interested in where is the shipment, how much what was the temperature of that shipment the whole way. They're looking for that information, but they're usually looking for it directly from the trucking company. They hired as a proof like, hey, prove to me that this lettuce was always below 50 degrees, the entire shipment and the they're willing to pay more for that and they're putting the burden on their transportation providers to tell them that or to certify that usually not information that gets passed over our network. Okay. Okay, that's helpful. I appreciate taking my questions. Thanks for taking. Hey, thanks. Talk to you later. Talk to you. And your next question comes from Stephanie Price with CIBC. Please go ahead. Your line is open. Good afternoon. Hi, Stephanie. How are you? Good. Thanks. So Canada Border Services announced a pilot with the IBM NERSC blockchain last month. Can you talk a bit about any impact from Descartes from the pilot and more broadly how Descartes is thinking about the government's blockchain opportunity? Sure. Yes, we're aware of it. They haven't started anything yet. It was announced. We're not aware of any shipments that are going on either in that or in the IBM Maersk partnership, probably more press than reality at the moment. We have a bunch of customers that have asked about potentially participating and using our network to participate in it. I am somewhat circumspective, Blockchain's ability to go in and handle a regular ocean shipment. I'm a little less so when it comes to governments of the world. I actually think governments of the world are one of the places where you might be interested in using blockchain in the future to manage things like security plans. We think about what blockchain is really good at, it's good at securing a transaction. Unfortunately, it's very expensive just 128 bit encrypts something. So, when I look at things like passing an ocean bill of lading back and forth and I say, look, it's already secured on our network. I mean, there's a lot of security that goes into protecting information on our network. But the security that blockchain provides, I might argue is overkill for a typical ocean bill of lading just to pick 1, because if it's already secured, do I actually want to incur the cost and you've been following this, you hear that people say it would cost about $7 to process a blockchain transaction with Bitcoin. And I can understand absolutely why people might be willing to pay $7 to secure a financial transaction. When I look at a bill of lading, I go, geez, bills of lading get processed on our network for a whole heck of a lot less than $7 If I had to tell our customers it was going to be $7 and you were going to get a bunch of extra security along with that, I think they would go, I'm okay with the existing security. I'm not willing to pay $7 to do that. Now, enter a government and they start to say, hey, this is the way you have to make a filing and that security is important to me and that's the way I want to handle it. And if you want to make a filing with me, that's the way you're going to handle it in the future. Well, that changes the game a little bit, right? That's a government telling you you have to, not a ocean carrier or ocean shipper saying I would like to. And we're watching it. I don't think any transactions have been processed using either the IBM Maersk initiative on blockchain for just Pure Ocean transactions and certainly not for the CBSAs initiative yet. It's more of an idea at the moment. But if the government did start to say that, I think they'd have a lot more ability to control whether people use blockchain to handle that problem versus an ocean carrier on their own asking their customers to do blockchain with them to process a bill of lading or a transportation status message and the customer is going, it's just not worth the money to me to do that. Let's do it the old way that was secure anyway. Okay. And so from your point of view, the Descartes network would just kind of attach into that blockchain solution at the government and that's how you're kind of seeing Descartes working with blockchain, is that fair? We would be going to our customers and saying, send me your customs file in any way you like to and I'll be turning to the Canadian government and saying, how do you want to receive it? And as they said, they wanted to receive a blockchain transaction to do that, I would take the information that the customer sent me, put it into the government's format and send it to them. Same as we do for every transaction, right? If the government tells us we have to file with them in a certain way, we comply. And we let our customers send us the data however they want and we send it to the government the data in whatever form they ask for it. Great. Thank you very much. Thank you, Stephanie. Your next question comes from Larry Abernathy. Please go ahead. Your line is open. Hi. Thanks for taking the question, Ed. Just I want to dig in a bit more on Brexit and I know it's largely speculation at this point, but are there opportunities there for you to build potentially new businesses around what comes out of the negotiations? Absolutely. I don't know that it's just a new unique business, but it's going in the opportunity I think is going to be new customs finance. Remember, if someone is sending something from Germany to the UK today, they do not have to make a customs finance. And that went away with EU a whole bunch of years ago. And with Brexit, what you're talking about is the potential for a new border that did not exist does not exist today. And so, I don't want to over blow it. It's not a completely new business. Our business opportunity there would be to do the same thing we do across every border. But if they're going to put a new border in place and say that you need to make security filings or customs filings across that border, say from France to the UK or from Germany to the UK, Those transactions do not exist today. And if Brexit goes through as they said it will, that will be a new border crossing with new customs filings and new security filings and that will absolutely be something our customers look to us to solve for them and it will result in a new business and probably a whole new revenue stream. Okay, great. And next question I have is really just around your content services businesses. So you've acquired several of these businesses in the last couple of years. Obviously, you're looking at more of them. But I was just wondering just on the businesses that you own in that sell data or sell content, are there opportunities or any sizable opportunities for new product development or innovation around what you're selling now? Absolutely. I mean, we handle a certain number of countries that continues to grow every year. That increase in the number of countries that we database their denied party screening data that we database the tariffs and duties. Those are all opportunities for us to sell more data content to our customers that did not exist yesterday. It's partially responsible for the growth that you see in that business, One of the growth drivers in it and as more countries put rules in place about what you're going to pay when you go across the border or things that you have to check like at the 9 party screen when you go across their border. Each one of those creates more opportunity for us and we have a whole host people that go out and look for those opportunities, database that content and then our salespeople go out and sell it to our customers. Okay, great. And last one for me. Just Alan, I was just wondering, looking at your gross margins in the last year have been really stable, obviously, 72%, 73% kind of level. And I'm just wondering, are there opportunities within your business now or as you make a few more acquisitions in the next couple of years, are there consolidation or data center consolidation opportunities that you may be looking at that could give that gross margin number a little bit of upside? Yes. I would say not only that we do look at that, we do execute on. That's something that's just normal course for us. We are constantly looking and executing on those plans. What you're going to see in the gross margin, Blair, is that we will see a natural growth as we do more transactions with existing customers and increase the scope with existing customers. Offsetting that, there will be FX impacts and there will be acquisition impacts. We may buy a company with lower gross margins and that will affect it. But overall, we've seen some good stability there. We've seen continued strong growth in our network volumes helping that gross margin. Couple of the recent acquisitions came in slightly lower at the gross margin, still strong at the EBITDA line, but slightly lower. So it's going to be a balance of those things that will predict our gross margin going forward. Hopefully, that answers it. That's great. Thanks very much, guys. Thank you, Blair. And we have no further questions. Great. Thank you everyone and appreciate your participation in today's call. We look forward to updating you next quarter on our results for Q4. Have a great night. Thank you, ladies and gentlemen. This concludes today's conference call. Thank you for participation and you may now disconnect.