Earnings Call: Q2 2019

Sep 5, 2018

Welcome to the Quarterly Results Call. My name is Anna and I will be your operator for today's call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session. Please note that this conference is being recorded. I will now turn the call over to Scott Pagan. Scott, you may begin. Thanks and good afternoon everyone. Joining me on the call today are Ed Ryan, CEO and Alan Brett, CFO. I trust that 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 conditions 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 the section entitled Certain Factors That May Affect Future Results in documents filed and furnished with the Securities and Exchange Commission, the OSC and other securities commissions across Canada, including our management's discussion and analysis 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. Thanks for joining us today. We're looking forward to talking you through some of the highlights of what was a very busy summer here at Descartes. We had another great quarter of results fueled by continued growth in shipment volumes on our global logistics network. Our vision to build one place for all participants in the supply chain to collaborate to manage the lifecycle of shipments is unique and it continues to gain traction as we add more and more solutions and participants to our network. Today's global trade environment is demanding and extremely complex and it's not getting any easier. Every day the leading news stories relate to shipping and logistics and the changing landscape with increased complexity as a result of trade deals, tariffs, sanctions, fuel prices, mergers, etcetera. Our solutions and our network are more important than ever to our customers. Our customers continue to look to us to help them manage more and more logistics and supply chain processes. And we're committed to adding more solutions to help our customers do more. We continue to build new solutions on our network and we continue to acquire complementary businesses. Since our last call, we combined with 2 businesses and we're well positioned to add more complementary businesses moving forward. As you saw over the summer, we increased the size of our shelf prospectus to $750,000,000 putting us in a position to move quickly on larger opportunities with more capital capacity. I'll provide an update on those acquisitions on this call and I'll also provide some commentary on how we're positioning ourselves in the market to be the long term choice for our customers. After that, Alan will go through our quarterly and half year financial results in detail and I'll finish up with some comments about our calibration for Q3 and our operating plans moving forward. But first, let's start by going over some of the key financial highlights for the Q2 of fiscal 2019. We had another record quarter of revenue and we're very happy with our key metrics. Our adjusted EBITDA continues to grow in line with our plans of 10% to 15% per year. For the last quarter, we generated $22,800,000 of adjusted EBITDA, an increase of 15% over Q2 last year. Revenue for the quarter was up 17% for Q2 of last year coming in at $67,100,000 Revenues were ahead of where we expected when we consider the FX impact and Alan will speak to that in just a few minutes. Continue to convert our EBITDA into cash generating $18,200,000 of cash in the quarter and consistent with our long term operating plans, we've been investing cash back into our business through focused research and development investments and combining by combining with complementary businesses. So all in all, another great quarter here at Descartes and we're very happy with how we're positioned moving forward. With that, I'd like to spend a few minutes talking about how we see things here at Descartes and our strategy to remain the long term solution of choice for our customers. Few things upfront. Logistics is a multiparty, multiprocess problem. Moving goods efficiently is challenging. On the one hand, you've got end customers that are continually raising the bar with their expectations around availability and delivery. And on the other hand, the cost to deliver has inputs that are continually changing. Trade deals, tariffs, fuel prices, labor costs, inventory holding costs, capacity constraints, geopolitical factors, etcetera, it's all very complex. And adding to this challenge, the information required to make good decisions is often scattered across different systems and across multiple parties. Furthermore, the information needed by one party is often needed by multiple other parties as well. As we've described before, this is a classic network problem. Supply chain participants need access to the right information at the right time in the right systems and with the right context to be able to take action. This is what we do here at Descartes and we have a lot of experience doing it. We help our customers collect information from multiple sources and share that information with all the relevant parties and systems to ultimately help them make better decisions and manage the lifecycle of shipments more efficiently. More parties, content and solutions on the network drives increased adoption making the network more valuable for our customers. And in order to be relevant for the entire supply chain ecosystem and continually grow the community, we need to make sure that we are connected to and have solutions and tools for all of the shipments and participants in the supply chain. There's 4 key types of participants on our network that we either serve and or connect to. So let's take a minute and go through them. First is the carriers. We have carriers from all modes of transportation, ocean, air, rail, truck and these are the asset owners that actually move the goods. Next is the intermediaries. We have thousands of freight brokers, freight forwarders, NVOCCs, 3PLs, 4PLs, customs house brokers, freight brokers and payment agencies. We believe these parties are central to global trade and will be around for a long time despite the efforts of many a startup trying to disintermediate them over the years. Next is shippers. We also have thousands of shippers and what we're talking about here are the manufacturers, distributors, service providers and retailers, both traditional retail and e commerce are omnichannel retailers. And finally, you have governments. We connect to and collect information from customs agencies and other regulatory agencies around the world. All of these participants are important to global trade and all of them need to interact with each other in some way and quite often leverage a lot of the same information. So when you see us make investments both internal and external, it's to build the solution footprint, content offering and community for each of those key constituencies. Each acquisition will typically add to the solution footprint, content offering and or customer community for 1 or more of these groups. We believe that the logistics network of choice in the long run will be stable, reliable, secure, multimodal and neutral and we believe it will connect all of the participants in the supply chain. Our investments into our own infrastructure and into acquisitions keep this front and center. We have very deliberate approach to growth and investments. We value stability. We have a long history of growing at a sustainable pace and we believe our customers value the stability and reliability. We believe that this is a long term game and we intend for the Global Logistics Network to be the solution of choice for the long term for our customers. So with that, let's take a look at some of the more recent investments into our business, starting with Pinpoint, which we acquired just a few weeks ago. This acquisition is focused primarily on our community of customers that operate their own fleet of vehicles and or manage a dedicated fleet of vehicles. Typically these would fall into the category of shippers or truck carriers that I described just a few minutes ago. So what does PinPoint do? They help their customers collect real time location information on trucks and mobile workers with the help of Geotab Telematics Solutions and SkyBits Asset Tracking Solutions. This information can then be used by technology solutions like Big Cart's Rowdy Mobile and Telematics Suite to drive fleet and mobile resource productivity, manage driver performance and comply with government regulations. The market for these solutions continues to grow with market demand stemming from 2 main sources. First, the end customers increasingly want to access real time information on the location of their vehicles and 2, new government regulations around driver hours of service are coming into effect. For instance, the electronic logging device or ELD mandate in the United States has driven increased adoption of telematics solutions in both the U. S. And Canada over the last few years. And looking ahead, with the U. S. ELD mandate coming into full effect in December 2019 and Canada's ELD mandate expected to follow soon thereafter, we expect further tailwinds for this market in the coming years. By combining our 2 teams, we add scale and domain expertise to our solutions and strengthen our relationships with key participants such as Geotab and Sky Bet. So I'd like to welcome the PinPoint employees, customers and partners to the Descartes community. We're really glad to have you. While we're at it, I'd also like to welcome the Velocity Mail employees, customers and partners into the Descartes family. In June, we announced that we had acquired Velocity Mail. The focus here was to build our solutions offering for another key constituent in our multimodal network, the air carriers and their partners. Using Velocity Mail's network, global air carriers leverage mobile devices to accurately track shipments and deliveries in real time. Velocity Mail automates the entire shipment process from route generation to accounting reconciliation, simplifying the operational process for the air carriers, ground handlers and postal authorities. With more than 60% of cross border e commerce transactions shipped using postal providers, the growth of e commerce has fueled an increase in the market for velocity mail solutions. Global air carriers need to have access to timely and reliable information about the movement of mail and partial shipments to operate efficiently and meet their postal authority service level agreements. Velocity Mail's network operates with similar fundamentals to our network. It helps parties connect and share information while value added business applications that are part of the network leverage that information to increase efficiencies and improve decision making. It is in effect a mini global logistics network focused on a specific air community. Combining Velocity Mail solutions with the Descartes Global Air Messaging Gateway, air carriers will now have one platform to manage the lifecycle of all shipments, both e commerce focused mail and parcel shipments and the larger freight shipments. Again, welcome to the Velocity Mail team. We're excited to have you here. Finally, I'd like to provide a quick update on our investments with MacroPoint and the growth opportunities that continue to emerge in that business. On the last call, we spent some time talking about the backhaul opportunity. We feel it's a big one and so I'll do a quick recap of it here. It's estimated that more than 15% of the miles driven in the United States are empty miles. This is a large part due to trucks returning from their outbound delivery back to base with empty space. There are massive inefficiencies to be gained if you can line up empty trucks with upcoming loads. It's not an easy problem to solve. To do so, you need to have the visibility into where the assets are and that visibility needs to be aligned or matched up with upcoming freight moves. A critical mass of assets that can be aligned with upcoming moves are most likely not available to you unless you're prepared to share information with other parties. It's another classic network scenario with more information now available about the location of assets and upcoming freight demand, you could provide better results. 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, it's not an open workload or capacity portal or marketplace Unlike many other solutions Descartes provides, our MacroPoint capacity matching solution is designed to support broker and LSP business models not compete with them. On the last call, we mentioned that we had customers piloting the solution. I'm happy to report that we now have a number of customers live on the solution. They're signed up to contracts and they're paying to use the solution, which is a great start. Pipeline continues to grow as demand in this area is very strong. More generally as it relates to MacroPoint, we continue to see strong results and growth prospects with the core business as well. We're really happy with its performance to date. Before handing over to Alan to talk a little bit more about the financials, I'd like to thank some of the 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 great results. Our customers do continue to get great results and that's why we have a successful business. Thanks to our customers who continue to place confidence in Descartes as their network of choice. Thanks to our partners helping us continue to expand our ecosystem and thank you to our shareholders for continuing to have confidence in Descartes. And with that, I'll turn it over to Al. Okay. Thanks, Ed. As indicated, I'm going to walk you through our financial highlights for the Q2 ended July 31. As mentioned earlier, we are pleased to report record quarterly revenues of $67,100,000 this quarter, up 17% from revenues of 57,300,000 dollars in Q2 of last year. The impact from foreign exchange was very minor when looking at the revenue results so far this year compared to the same periods last year. However, when looking at the Q2 sequentially compared to the Q1 of this year, mainly as a result of a stronger U. S. Dollar against the euro, the pound and the Canadian dollar, revenue was negatively impacted from FX by approximately $1,000,000 when compared to the Q1 of this year. Excluding this impact of FX, revenue would have increased by just over 1.5% on a sequential basis in the 2nd quarter. For the 6 month year to date period, revenue came in at $134,100,000 which is up about 20% from revenue of $111,800,000 in the 1st 6 months of last year. In keeping with recent trends, our revenue mix continues to strong with services revenue representing 89% of our total revenue or $59,700,000 in the quarter, an increase of 21% over the Q2 last year. License revenues came in at 1.3 $1,000,000 or 2 percent of total revenue in the 2nd quarter and $3,200,000 or 3% for the 6 month year to date period. And although license revenues will fluctuate from quarter to quarter, we continue to expect that license revenue will remain a small portion of our revenue going forward. Professional service and other revenues came in at $6,100,000 or 9% of revenue in the Q2 compared to 5,800,000 dollars or 10% of revenue in the same period last year. Gross margin continued to be very strong at 73% of revenue for the quarter and for the 6 month year to date period, which is consistent with those same periods last year. While we continue to invest more resources and product development as well as additional sales and marketing activities, as a result of continued services revenue growth and leverage from our acquisition strategy, we continued to see strong EBITDA growth of 15% to $22,800,000 or 34.0 percent of revenue compared to $19,800,000 or 34.6 percent of revenue in the same period last year. For the year to date 6 month period, adjusted EBITDA was $44,900,000 up 16% from $38,800,000 in adjusted EBITDA for the same period last year. While there was a slight negative impact from foreign exchange on our adjusted EBITDA so far this year, we continue to be fairly naturally hedged to the movement of the U. S. Dollar. As a result of these strong operating results, cash flow generated from operations at 18 $200,000 or approximately 80 percent of adjusted EBITDA in the 2nd quarter compared to operating cash flow of $17,100,000 or 86% of adjusted EBITDA in Q2 of last year. Year to date cash flow from operations was also steady, increasing to $37,100,000 or approximately 83% of adjusted EBITDA. Going forward, subject to unusual events or quarterly fluctuations, we expect to continue to see strong operating cash flow conversion of approximately 80% to 85% of our quarterly adjusted EBITDA balance. From a GAAP earnings perspective, net income came in at $8,500,000 or 0 point $1 per diluted common share in the 2nd quarter, an increase of 18% from net income of $7,200,000 or $0.09 per diluted common share in the Q2 last year. Year to date in the first half of this year, we produced a net income of $15,500,000 or $0.20 per diluted share, up from $14,000,000 or $0.18 per diluted common share in the 1st 6 months of last year. So overall, once again, we are very pleased with these operating results in the quarter. If we look to the balance sheet, our cash balances totaled $34,100,000 at the end of the second quarter. In addition, at the end of the July, we had drawn approximately $59,000,000 on our revolving credit facility, resulting in a net debt position of $25,000,000 at the end of the second quarter. Subsequent to the Pinpoint acquisition that we completed mid August, we had approximately $30,000,000 in cash available as well as an additional $90,000,000 available to us under our revolving credit facility. We should also note that we have the ability to increase that credit facility by an additional $75,000,000 with the agreement of our lending syndicate. And also as a reminder, we have recently renewed our base shelf prospectus, which would allow us to offer an 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 second half of this year, we should note the following. We expect to incur approximately $2,000,000 to $3,000,000 in additional capital expenditures for the balance of the year. We expect amortization expense to come in at approximately $19,300,000 for the balance of FY 2019 with this figure being subject to adjustment for FX and future acquisitions. Primarily as a result of a favorable outcome of certain tax reviews in the Q2, our income tax rate came in at lower than otherwise would have expected at 13% of pretax net income this quarter. Looking forward to the Q3, we expect that certain additional tax benefits will be realized resulting in a tax rate of between 16% and 19% for the coming quarter. Subsequent to that, we expect our tax rate will move back into our longer term expected range of 23% to 26% of pretax income, subject always to unusual items from quarter to quarter. And finally, we expect that stock based compensation will be approximately $2,000,000 for the balance of fiscal 2019 subject to any forfeitures of stock options or share units. And with that, I'll turn it back to Ed to give you our baseline calibration. Great. Thanks, Alan. Before talking about calibration, I just want to highlight to everyone that we now have set up the conference website and registration site for Evolution 2019, our annual user and partner conference. As a reminder, we're moving the event in Naples this year to accommodate a larger group of people coming off the success of last year's record attendance. 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 really good investment of your time and I would encourage you to book early. The conference will be held at the Naples Grand Beach Resort in Florida from Tuesday, March 26 to Thursday, March 28, 2019. So let's talk calibration for Q3. 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 Q3 assumes the following exchange rates, CAD 0.77, €1.16 to the U. S. Dollar and a 1.29 GBP to U. S. Dollar. Our calibration also includes the addition of the pinpoint business from the date of acquisition. Our calibration for Q3 is $65,500,000 visible recurring contracted revenues or otherwise our baseline revenues. Our baseline operating expenses are $46,700,000 This gives us a baseline calibration of $18,800,000 or adjusted EBITDA excuse me, of adjusted EBITDA for Q3. Some other key points related to how we're positioned for the remainder of fiscal 2019. We're very well capitalized. We have a healthy balance sheet that is well calibrated. And as Alan mentioned, we also have a healthy balance sheet. We're profitable and cash generating. We have low capital needs within 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 should we need it. Alan mentioned that we have about $59,000,000 drawn on our line of credit of $150,000,000 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 also have a strong acquisition pipeline. You'll see that there continues to be a lot of 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, future capabilities, trade data and content or community of participants on our network. We continue to see a lot of interesting opportunities out there to continue or even The The fact that we have an acquisition line of credit in the 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. As a reminder for our plans for the remainder of fiscal 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 in the business. Our growth is planned to come through a combination of organic and inorganic activities and 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 margins remained in the 32% to 37% range given the current performance of the business and mindful of the FX environment that remains our target. 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 finally, and as always, we continue to make ourselves available to shareholders to answer any questions. We think we've got a great business. We want to be available to help people learn about that business. We'll continue to spend time and resources to get the word out and we hope you'll do the same. So with that, let's open it up to questions. Operator? Thank you. We have a question from Philip Long from Barclays. Please go ahead. Hi, good afternoon. Just wanted to ask you guys a fit on the macro environment. You currently seem to be enjoying a pretty healthy one for both e commerce and trade. I was wondering what are some of the major things you're currently monitoring that could really shift the current tailwinds, say, over the next 12 months or so? I think a lot of it's based on the success our customers are having, right? When our customers' businesses are doing well, transportation providers and their customers and then the big retailers and manufacturers around the world are doing well. That ends up being a benefit to our network because they to move more stuff around the world because they're selling more stuff around the world. And we end up processing a lot of those transactions. It's a nice tailwind to our business. If that slows just like every other business, it will have an impact. Healthy customers tend to buy more stuff too. So we're getting some impact from that as well. It's been going on for a long time right now, last 5 or 6 years, but it continues to show drive strong results not only for our customers, but for us we're happy about it. It seems to be like better it seems to be better this year than last. And I'm just wondering if you see some of these sort of trends sustaining beyond 12 months or do these things based on what you're watching, the visibility is not always Sorry, I don't have crystal ball any more than you do. I hear our customers talk about it. They think this is going to continue for some time, but let's say Stacks, there'll be a day when it stops. I don't have any better insight into when that day is than you do. Got it. And then maybe a dumb question. I'm just for an acquisition like PinPoint, I was just wondering if there's any potential restrictions on how you might leverage this technology across your footprint? Any sort of geographical limitations on how you can leverage this across your entire footprint? Well, right now, you heard me talk about a minute ago, it's focused on the Geotab and Sky Businesses. They have some exposure internationally, but certainly their strengths here in North America. So we're following and working with them. So we're the markets where they're strong. We have a great business. I do think it's applicable to other parts of the world as they expand. It's also potentially opportunity for us to work with other partners beyond Skypitz and Geotab. But for the moment, we're focused on those two businesses and they seem to both be doing very well. And that's been a big growth driver for Pin Point over the last few years. We expect it to be that way for some time to come. So it sounds like it's more a matter of relationships as opposed to any sort of legal compliance reasons why you might not be able to have a copyright or something of that nature that would prevent you from leveraging that technology more broadly. Is that correct? That's correct. We're going around with various telematics providers and helping their customers get results by implementing their solutions and operating those solutions for those customers in the long run. Got it. And then a final one for me, macro point, I think there's been talks in the past about titling its revenues in a few years. I was wondering if you might give a bit more of an update on just on the progress on that. Thanks. Sure. Yes, the Macquarie business is great. You heard me talk about it for a few minutes towards the end of my prepared comments. We're happy with how it's going. We're very excited about the opportunity that capacity matching adds to the equation. We bought it for the tracking business, the ability to track trucks in North America on behalf of the big retailers, manufacturers and freight brokers that want to track them. We treated the capacity matching opportunity backhaul as I've called it in the past as upside opportunity and we're starting to see that that might be a business. So we're pretty excited about it. Great. Thanks very much. Thanks, Phil. And we have a question from Paul Steff from Scotia Capital. Please go ahead. Great. Thanks. First one, Ted, maybe you could talk a little bit about just, I guess, the comfort and you referenced the M and A environment out there already, but what the comfort would be with sort of taking leverage maybe to the upper limit and what you'd see out there. We obviously saw super active environment year to date. So any thoughts there are useful? Sure. Yes. I mean, we have I mentioned on the call earlier a few minutes ago, the capacity that we do have, I think we're $59,000,000 right now with capacity up to $150,000,000 with an ability to expand that to $225,000,000 with an accordion feature. I think if we saw the right opportunity, we have it for a reason. We have it so that we could use it if we need it. And I don't think you'd see us hesitant at all to use it if the right opportunity came along. And given the rates that we're getting on debt right now, I think you'd see us go there first just because relative to doing an equity financing, it's pretty affordable. And just to add to that, Paul, just to put that in terms of a multiple, I mean we've talked numerous times before, but up to 3 times of adjusted EBITDA would seem reasonable given the business we have, a business that generates cash on a quarterly basis. So we might be able to flex up to that level and possibly slightly beyond for periods of time. But you can see us operating with some level of debt comfortably. Great. Okay. And then the quick follow-up I had again for you, Ed. I guess we've talked over the years about the telematics business maybe being less attractive. What drove you to sort of go for pinpoint now? We've seen a number of big deals in that space and you chose not to be there. Why make a bigger move into telematics onto the core that you already have in the business? That's good. I'm glad you asked that because let me draw a distinction there. The part of telematics that I've always had a problem with is the actual manufacturing of the hardware because so few hardware manufacturers seem to be able to make money. And it's not that we don't like the telematics business. I don't like manufacturing a box for $500 or $600 and having a customer tell me they want to pay $500 or $600 for it and we can't make any money doing it. In fact, who is money doing it? Pinpoint is a different business, right? They're managing, reselling, managing and operating telematics devices on behalf of customers and not dealing with the manufacturing process. So what you see us doing there is going after what we consider to be the attractive part of it. We've always liked the idea of being able to tell people where their trucks are. Our routing and scheduling solutions are much more valuable to our customers that we know where their trucks are all the time. We got into the telematics business and started 10 years ago manufacturing our own hardware because we wanted to help our customers deal with that problem. While as we got into it, we realized we would have to operate that business at a loss to help the customer solve that problem and that wasn't very attractive to us. So like we did with mobile handsets long before that, we started looking at other devices that we sell. We came across Geotab over the last several years that we're pretty excited about and thought that they did a very good job with a simple device of helping our customers figure out where their trucks are as we started to sell more and more of their stuff. We thought it was pretty good and we wanted to get more expertise in it and pinpoint was an opportunity to do that. And that's why you see us making this move. What I don't think you're going to see us do is get back into the manufacturing of hardware. We think that's not something we should focus on and we think there's a lot more opportunity in the software side of helping our customers track where their fleets are. Fair enough. Just one clarification as well that you made me think of. Is there already a pre existing integration? I know Geotab was and is a partner. Is there a pre existing integration between the Pinpoint solution and MacroPoint to pull from the Geotab data? Thanks. Sure. Yes, there is because pinpoint is really implementing a solution that Geotab built for them. They're configuring for their customers and we immediately started with PinPoint and using that service for our customers there. Our routing customers are 2 days after the deal in effect, their routing and telematics customers. So it was a pretty seamless transition from that perspective. Perfect. Thanks guys. Thank you, Paul. And we have a question from Matt Pfau from William Blair. Please go ahead. Guys. Thanks for taking my questions. I wanted to hit on MacroPoint a little bit more. First, maybe Ed, can you give us an update on the partnerships there and any more progress with an SAP partnership specifically? SAP is doing great. We just agreed with them on having them go out and sell our solutions with their primary sales force, something we were talking about for several months after the MacroPoint deal is done. And I think in the coming months, you're going to see their sales force out in the street, being able to sell our solution, being able to get paid commission on selling our solution. And it's pretty exciting. We'll see how that goes. But I am optimistic because they tell me they have a lot of customers they're asking for it and they're pretty big customers. So I think it's a great opportunity for us, a great opportunity for MacroPoint to have an additional sales channel like an SAP. We're really excited about it. And then maybe just on MacroPoint, I know that the business was low margin at the time of acquisition compared to your core margins and you expected it to ramp over time. Where are you at with getting some leverage on that business? Has it been ramping with your expectations? Yes. I think we're very happy with the way it's progressing not only on the revenue side, but on the profitability side. We made some initial cuts the day we bought the business and then decided that we were going to let's see how the growth goes there to drive continued profitability. Maybe Alan can go into another level of detail with you here for a second too. Yes. We knew this business had to grow to grow into the profitability expectations we have and we are a year into it and so far everything we expected and then some, but we need to continue that growth and expect that to happen. So all systems go from a financial model on that business. Great. That's it for me guys. Thanks a lot. Thanks, Matt. We have a question from Paul Treiber from RBC Capital Markets. Please go ahead. Paul, thanks so much and good afternoon. Just in regards to MacroPoint, there's been some debate on privacy regarding cellular tracking technology. Just wondering if you could speak just in terms of how MacroPoint uses the technology and how you see that sort of privacy regulations playing out in regards to MacroPoint? Sure. Yes. So there's 3 ways that MacroPoint collects data. And one of them is the way that you mentioned it. It's the smallest of the ways that I'll get to that in a second. So the largest way is that they go out and collect data directly from large transportation providers. Those large transportation providers have their own ELD logging devices in the trucks, telematics devices in the trucks. And they tell MacroPoint or Descartes now, where those trucks are upon request on behalf of big retailers and manufacturers that are asking. The second way and the second most prevalent way is a mobile handheld app that MacroPoint has that they give to individual truck drivers, small trucking companies, 1 truck, 2 truck companies that don't have any kind of ELD solution, but have an Amazon or a Walmart or whatever asking them to tell them they're aware about that they're delivering freight for them. And they can sit in the MacroPoint application and that application extracts the GPS location from their smartphone and provides it back into the MacroPoint service, which then goes on to the big retailer or manufacturer to tell them where the truck is. The third way is again focused on those small truck drivers that don't have a large fleet and also don't have a smartphone. Those drivers, MacroPoint has a service that goes and that gets the driver's permission to use cell phone triangulation to determine his whereabouts. And that's the area where we're talking about here. Several months ago, a couple different what I'll call aggregators or what the industry calls aggregators. And I'd say they're aggregators because they're aggregating data from cell phone providers, cell phone networks specifically. And they are telling people the whereabouts of trucks. MacroPoint is a customer of those services to this day. Some of those providers got in trouble a couple of months ago because they weren't being very cautious about how they got permission from each individual cell phone user to give other people the whereabouts of their cell phone. And this became national news 2 or 3 months ago for a couple of days. MacroPoint does use those aggregators and since then has been in discussions with the major phone companies who came to us after these news articles came out and said they wanted to talk to us about how we provided the service. MacroPoint always been very careful about getting the truck driver's permission. They had a whole set of procedures that they would do, go through, take the truck driver through to get his permission to access his cell phone. And they that after a bunch of discussions with the cellular networks over the past couple of months, a lot of them got a lot of comfort around the way that we do that. They're all in various states right now, but I think we've had a number of discussions with them. I think they're very comfortable with the way that we provide that service. And I think we're either going to continue to get that data in the coming years through directly through the cell providers, cellular networks. Some of them have said that's the way they're going to do it going forward and they're going to cut those aggregators out. A couple of them have told us that they would continue to allow us to use those aggregators. We've had none of them tell us that they won't continue to allow us to provide that service because I think they got a lot of comfort around how we were going out and getting the truck drivers permission to do that to provide his location. And so we still provide service, still a part of our service. It is a shrinking part of our service by the way because as more and more truck drivers get cell phones, smartphones, they switch over to the MacroPoint application. But for those that don't, we'll continue to provide this service for many years to come and we think that the cell phone providers are going to be quite happy with that. Thanks for that clarification. That was very helpful. Just in regards to just moving on to pinpoint, you mentioned that they do resell some telematics devices. Could you clarify if that has a material if that accounts for a material portion of their revenue or if it's rather slim? And then also the margins on that, if it's just pass through revenue or through the positive margin on that reselling revenue? Yes. They're reselling largely Geotab Telematics devices, not involved in the manufacture of it at all. I don't know what their margins on it. Yes. First off, the hardware piece of the business is very small, roughly 10%. Margins on that are weaker than what our normal margins are. But overall, that business has an EBITDA multiple or EBITDA profile that's similar, not materially different from ours, Paul. Okay. Thank you. That's helpful. I'll pass 1. Thanks, Paul. Our next question is from Steven Li from Raymond James. On the MacroPoint backhaul opportunity, can you talk a bit about some of the customers that are live? Have you been able to get any of the bigger players involved? We haven't we went after midsize players on the MacroPoint network. So we went after existing customers on MacroPoint, not the biggest guys yet. I think we talked about it a lot before we went into the pilot several months ago and decided to not go and try and get the biggest guys in the world to do this yet to target the midsize guys, get the solution working. I think there's still lots of things we want to iron out with the solution and make it work better before we turn to our biggest customers and ask them to use it. What I can tell you is we completed the first phase of the pilot. We signed almost all of the customers up that were in that first phase of the pilot to be customers of ours and start paying for it in the second phase. And I think you'll see as we get these the kinks ironed out in it that we'll start to go after larger and larger customers on our network. Given this is a network, would you need the bigger players for this opportunity to really take off? Sorry, would I need the what? Would you need the bigger players for this opportunity to really take off? I guess it depends on what you mean by really take off. I think it could be a successful business if we did get the larger players. Obviously, if we could get some of the largest, I mean, we have most of the largest freight brokers in North America are on the MacroPoint network. They almost all do business with MacroPoint. I think it'd be more successful if they did it. Certainly, it could be a successful business with just midsize and small guys. There's a lot of opportunity even within that market. Remember, there's a ton of freight brokers in 3PLs in North America. They're not all gigantic. But yes, if we can get the biggest guys in the world on it, all the better. Right. Okay, great. And then Alan, just a quick one for you. You gave us the FX impact quarter over quarter. How much was the FX benefit year over year? Thanks. Yes. So it's not a huge impact on our year over year numbers. I think just under 2 $100,000 or around there as far as an FX impact on revenue and negligible on the EBITDA. The FX impact, the negative impact that I talked about just under $1,000,000 was related to the sequential Q2 to Q1 where we did face a bit of a headwind on the U. S. Dollar strength. So hopefully that clarifies it. Not a big number year over year and about just under $1,000,000 headwind sequentially. And we have a question from Deepak Kaushal from GMP Securities. Please go ahead. Hey, guys. Good evening. Thanks for taking my questions. Ed, correct me if I'm wrong, but it seems like it hasn't been since the Datamine acquisition that you've done, a material acquisition focused on trade data or content. Most of the acquisitions since then have been focused on e commerce. Is this a function of valuation or opportunities or focus in the market? Any other color you can offer on that? We continue to look for areas to expand in that market. There's probably less opportunities in market, not nearly as big a market as some of the other ones and certainly the e commerce ones that we that you've seen us do a bunch of acquisitions in lately. But no, we love the business, continue to look for good acquisitions there. Just haven't been able to come to terms with anyone in the last, what, year or so on that. So I certainly still a big area of focus for us, the business that we have out there are performing really well. And if we see other ones that come along that we think we can get a good deal for our shareholders on, you can count on us trying to execute on it. Okay. And when you think back about Datamine and MK Data and at the time the opportunity to expand into new market areas, how would you kind of rate your performance in those areas? Have you been able to successfully expand those markets or really just harvest and grow new businesses? Those businesses, I mean, they all had growth profiles when we bought them that continue to this day. We've been very happy how those businesses have grown. They're very profitable businesses for us. They're growing nicely. They have a relatively fixed cost to operate the businesses. So our margins continue to go up in those businesses, which makes them very attractive for us. Customers also love them. So I mean the customers in all three of those businesses really seem to think the world of service that we provide. So that's a nice business to run. Okay. And if I remember correctly on the customs and regulatory compliance front, most of that business was focused on import filings with an opportunity to expand to things like export filings and beyond shippers into the carrier and third party logistics world broadly. Any kind of update you can give on those opportunities there? Yes, just the most recent stuff. Single window went live in Canada in the last couple of months. ACAS is now live in the United States. That's the freight forwarder similar to the way the carrier has been required to file for a long time. Sweden, Belgium, Netherlands have all gone forward with either buying a warehouse or fiscal filing solutions or requirements that we've integrated to. So I mean, we really we like that business. We think as you probably heard me say a couple of years ago, it's a long runway on those businesses and we're in it for the long run. We're trying to be the biggest and the best in that business and use our breadth to be an attractive solution for our customers in those markets. And I think that's working. And we always knew the governments were going to take their time. They continue to do that, but they keep going. Every quarter, a couple of more go live with solutions and that makes it for a good long term healthy business for us. Okay. So when I step back and I think of these opportunities, global trade, e commerce, the MacroPoint backhaul opportunity, the expanding partnership with SAP. If you were to and then maybe I'm missing a few, I'm sure. What would you say is the biggest opportunity that has the most potential to change the 10% to 15% EBITDA growth? I was worried you were going to ask which was the best. I know that you don't manage towards that, but if we were to look for something that could be bigger than we think? Well, listen, the short answer is I don't know exactly. I like every one of the opportunities you mentioned. Depending on the year that you asked me, I might feel better about one than the other. I tell you right now, we're really excited about what we see out of MacroPoint. And all the excitement that we had when we acquired it, I think we continue to have and continue to get more and more confidence as we see that it's delivering on some of those things. So you're asking me right now, so I guess that's my answer for the moment. But really, I like all of those businesses. Everyone you mentioned is growing, profitable, happy customers, things that make it attractive to us to be an operator of it and make our network more attractive because they're here. So in reality, we're excited about all. Okay, great. I appreciate the thoughtful answer and look forward to asking more questions next quarter. Thanks again. Thanks Steve. Talk to you soon. Yes. And we have no further questions at this time. I'd like to turn the call over to Ed Ryan for closing remarks. Great. Thanks everyone. Appreciate your time this afternoon. We look forward to reporting back to you on our Q3 results in a couple of months. Have a great evening. Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.