Earnings Call: Q2 2018

Sep 6, 2017

Welcome to the Dakar Quarterly Results Call. My name is Adrienne, and I'll 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 this conference is being recorded. I'll now turn the call over to Scott Pagan. Scott Pagan, 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 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 in documents filed and furnished with the SEC, the OSC and other securities commissions across Canada, including our MD and A filed earlier 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. Thanks, Scott. Good afternoon, everyone, and welcome to the call. Thanks for joining. Q2 was another great quarter here at Descartes. Our global logistics network continues to grow and gain traction in the marketplace as a leading platform to research, plan, execute and monitor multimodal shipments around the world. As a result, we're adding more customers to our network and we're seeing our existing customers do more and more with us. It makes a lot of runway for our customers to do even more with us as well, both within our existing GLN framework with new solutions we've recently added and with potential new solutions that we can build or acquire. All in all, things are going really well as we execute to our long term operating strategy. We believe we're well positioned to continue to help isolate our customers from the complexity of the ever changing global trade landscape, while also helping them thrive in the face of increasingly demanding consumer and business buying patterns. I'll talk a little bit more about that later on today's call, but first I'll go through some brief highlights of our outstanding financial results followed by some comments on the overall business and our recent acquisitions. Alan will then take us through the financial results in a little more detail and then I'll finish up with some more comments about our calibration for Q3 and our operating plans moving forward. So let's start by going over some of the key financial highlights for the Q2 of fiscal 2018. We had another record quarter of revenue and operating income, 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 $19,800,000 of adjusted EBITDA, an increase over up 15% over Q2 last year. Revenue for the quarter was up 13% from Q2 of last year, coming in at $57,300,000 Our revenue mix is again very healthy. For years, we've talked about our continued focus on recurring revenue and deemphasizing license revenues, and this is evident in our results with service revenues accounting for 96% of our total revenues. We see that shift around from time to time if we buy businesses that have higher license components, but we generally continue to plan and calibrate our business for less license revenues. We're also very happy with our margins. Adjusted EBITDA as a percentage of revenue was 35% this quarter, up from 34% in the same period last year. We generated $17,100,000 of cash and consistent with our long term operating plans, we've been investing cash back into our business by combining with complementary businesses, which we'll talk about more in a minute. So as I said before, all in all, a great quarter. We're really happy with how we're performing. With that, I'd like to turn our attention to trends we're seeing in the market and how we're helping our customers stay ahead of the curve with those trends, including how our acquisition strategy fits in. First trend I'd like to talk about is the continuous change in consumer and increasingly business buying patterns or what some people often call the Amazon effect. E commerce and omni channel retailing continue to influence customer expectations about how goods can and should be bought and delivered. We've talked about this at length over the last few years. While at the beginning, it was primarily an end consumer level, businesses are increasingly demanding the same thing from their transportation providers. Businesses and consumers want to be able to source goods across a number of channels, have a choice around delivery and they want to be the business to business market now has the same expectation of full visibility and the business to business market now has the same expectation of full visibility into transportation moves. Visibility into real time shipping information has always been at the heart of our global logistics network, and we've continued to invest to add more capabilities in this area. Historically, we've had great coverage globally for air and ocean shipments as well as partial shipping and pockets of truck related shipments, particularly in the LTL space or for deliveries on trucks where customer uses their own fleet. However, one area we didn't have the density our customers needed was in full truckload tracking here in North America. So in August, we combined with MacroPoint, the preeminent network of connected vehicles and location based content in North America. MacroPoint runs a connected network of over 2,000,000 trucking assets and drivers. MacroPoint connects to trucks through integrations to onboard electronic logging devices or ELDs, transportation management systems and or any cell phone, whether that be through GPS enabled smartphone applications or location based mobile phone triangulation. MacroPoint uses this data to help transportation brokers, service providers and shippers track the location of deliveries made in trucks. MacroPoint can also use this content to provide transportation brokers and shippers with predictive freight capacity to help them identify early opportunities for additional freight moves. We've had great feedback so far from both MacroPoint and Descartes customers as well as from our partner ecosystem that is excited to see the global logistics network adding scale and scope. And equally, everyone here at Descartes is really excited about this addition to the global Logistics Network. MacroPoint is a history of extremely high revenue growth, high recurring revenues and profitable growth. Ultimately, we view these as hallmarks of a very good business with a bright future, and we value these metrics very highly. However, with MacroPoint, there was one additional factor that made this a perfect and logical fit for Descartes. MacroPoint runs a network of connected transportation carriers, just like Descartes does with our global logistics network. MacroPoint also generates data content, in their case, the location of vehicles that is very valuable to parties like brokers who are looking for information on where they may be for future freight capacity. Essentially, MacroPoint is a transportation network business with a data content business much like Descartes. It's rare that we see such a natural financial, practical and strategic fit between businesses. So we're thrilled to see the combination take place. I know some of you are keen to learn more about the deal and how this business will contribute to Descartes' results over time. So I'll start with some history. As mentioned, MacroPoint has a history of high recurring revenue growth, recurring revenues and profitable growth. More recently, while it continued its on its high revenue growth trajectory, its lead investor increased the cost base considerably to deal with the expected future growth as a standalone entity. So immediately before acquisition, it was still at a very high growth rate that was then $12,500,000 annual revenue rate with practically all recurring revenues, but it wasn't at a profitable run rate. Immediately upon closing, we restructured the business to fit within our larger infrastructure, and we're targeting getting it to our margin levels over time. But we will be balancing that margin focus with the large potential for revenue growth in the short to medium term. From an integration perspective, we've already hit the ground running. And as I mentioned a minute ago, we've had good feedback from customers and partners and our respective sales teams are already collaborating on joint opportunities. With that, I'd like to welcome the MacroPoint team and customers to the Global Logistics Network. We're really excited to have you with us. Continuing to thread on the Amazon effect and changing buying patterns, I'd like to talk a little about our recent incremental investment in pool distribution capabilities with the acquisition of PCS Track in June and how it helps retailers deal with omnichannel challenges. Although store sales still represent the majority of revenues for specialty retailers, the continued rise in e commerce and omni channel retailing puts more pressure on retailers to find new ways to compete and meet the ever increasing expectations of the consumer. Part of that challenge is to make sure that you have the right goods in the right location at the right time and for the lowest cost. Having forward deployed inventory and affordable last mile store fulfillment infrastructure is an effective way to meet these expectations. And it also sets the stage for last mile customer fulfillment for home delivery. This is where PCS track, like Big Cart's Bearware platform comes into play with pool distribution. For those of you that don't know how pool distribution works, it leverages the community of retailers and pool carriers to substantially lower distribution costs, increase delivery frequency and improve overall replenishment performance. And to do it effectively, pool distribution requires a common technology system for participants that help standardize the process and provides carton level visibility across the entire store replenishment lifecycle. By combining 2 market leaders in carton level tracking and pool distribution with our global logistics network, we plan on bringing increased efficiencies to both retailers and their logistics service providers. Our pool distribution domain experts at Bearware and PCS Track have hit the ground running and are already working together to plan the integration. So welcome to the PCS Track team and their customers. It's great to have you with us. These investments are reflecting e commerce trends coming back on our May investment in Shiprush. As you'll recall, Shiprush specializes in helping small and medium businesses who are shipping parcels. We continue to see individualized and parcel shipments becoming a larger and larger part of the logistics landscape, in large part driven by e commerce trends. You can see with these and many other previous investments, our readiness for helping with e commerce and related last mile delivery challenges. The final trend I'd like to talk a bit about today is the change in regulatory environment. It's been a few calls since we provided an update on the regulatory environment, though it's an area of our business that sees substantial organic investment as it's constantly evolving. As we've discussed on past calls, moving goods from point A to point B can be very complex process, one that often involves multiple modes of transportation and parties. This process gets even more complex when you're crossing borders and in many moves, multiple borders. There are rules in each country relating to statistical data collection, customs declaration so the countries can collect tariffs and duties and security filings, so that people can protect their borders. There are different rules for imports and exports for each party involved in the movement of goods, carriers, intermediaries and shippers and by the mode of transportation. Moving goods internationally is complex. Our global logistics network helps isolate our customers from this complexity. We gather information from multiple parties to system generate the applicable filings and workflow. We help our customers do this every day and our customers rely on us every day. And that's not just because our system works, it's because rules and regulations are always changing and it's impossible for our customers to stay on top of everything. A year ago or so, we talked on this call about Brexit. And we said, while we don't know exactly what would change, one thing we knew is that things would happen or the change would happen. Interestingly, we find ourselves a year on and while we still don't know what Britain's relationship with EU will look like and no one does really. Changes are already happening. Companies are already rethinking their supply chains and we're helping them plan and set up systems for the future. Way of example, we're working with some pan European 3PLs that are rethinking what the first port of call should be for their shipments. If they won't be able to clear European customs in the U. K, then they'll have to rethink how a number of other things work. This can get very complex very quickly. What our customers need to solve this are tools that can help them. 1, they need tools that research help them research and make informed decisions about who to do business with. We need to help them classify goods appropriately and submit compliant documentation across multiple geographies. We need to help them move goods efficiently and work with a broader ecosystem of parties. And finally, do it all cost effectively and in a secure manner. And that's exactly what we do on the Global Logistics Network. Having one platform to make decisions and execute shipments is critical and will become increasingly important as companies continue to adapt new regulatory customer buying environments in the future. Before handing the call over to Alan to talk a little bit more about the financials, I'd like to thank some of the people that made this another great quarter at Descartes. So thanks to our employees for all their 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. Thanks to our customers who continue to place confidence in Descartes at their network of choice. Thanks to our partners for helping us continue to expand our ecosystem. And finally, thanks to our shareholders for continuing to have confidence in Descartes. With that, I'll turn the call over to Al. Okay. Thanks, Ed. As indicated, I'm going to walk you through our financial highlights for the Q2 for the 3 months ended July 1 and our year to date results for the 6 months of our fiscal 2018. As mentioned earlier, we are pleased to report record quarterly 6 months year to date was $111,800,000 which is up 12% from revenue of $99,400,000 in the 1st 6 of last year. As Ed mentioned earlier, in keeping with our recent trends, our revenue mix continues to be strong with services revenue again representing 96% of our total revenue in the quarter and 97% for the year to date results, which is consistent with our first half of last year. Although license revenue will fluctuate from quarter to quarter, in part depending on the revenue profile of acquisitions, we continue to expect that license revenue will remain a small portion of our revenue going forward. Gross margin continued to be very strong at 3% of revenue for the quarter and for the year to date 6 month period. This is consistent with the Q2 last year and a slight increase from gross margins of 72% for the 6 months ended 6 months year to date last year. Our gross margin continues to benefit from strong operating leverage from our service revenue growth. While we continue to invest in more resources and product development as well as additional sales and marketing activities as a result of continued recurring revenue growth and leverage from our acquisition strategy, we continue to see strong adjusted EBITDA growth of 15 percent to $19,800,000 or 35 percent of revenue percent of revenue compared to $17,200,000 or 34 percent of revenue in the same period last year. For the year to date 6 month period, adjusted EBITDA was 38,800,000 dollars up 15% from $33,800,000 in the same period last year. While there is a slight negative impact from foreign exchange on our adjusted EBITDA this year, we continue to be fairly naturally hedged to currency movements against the U. S. Dollar. As a result of these strong operating results, cash flow generated from operations came in at $17,100,000 or approximately 86 percent of adjusted EBITDA in the Q2 of this year and this compares to operating cash flow of 16 point $6,000,000 or 97 percent of adjusted EBITDA in the Q2 last year. Year to date cash flow was also steady at $33,600,000 compared to $32,500,000 in the same 6 month period last year. Going forward, subject to unusual events and current and quarterly fluctuations, we expect to continue to see strong operating cash flow conversion of approximately 85% to 90% of our annual adjusted EBITDA balance. From a GAAP earnings perspective, net income came in at $7,200,000 or 0 point 0 $9 per diluted common share in the 2nd quarter, an increase of 24% from net income of 5.8 $1,000,000 or $0.08 per diluted common share in the Q2 last year. Year to date, in the first half of this year, we produced net income of 14 $100,000 or $0.18 per diluted common share, up from $11,800,000 or $0.15 per diluted common share in the 1st 6 months of last year. Overall, we are very pleased with these operating results in the Q2. If we look at the balance sheet, our cash balances totaled 87 point $5,000,000 at the end of the Q2. At the end of July, we drew $40,000,000 on our revolving credit facility in anticipation of the MacroPoint acquisition. Subsequent to the MacroPoint acquisition that we completed in mid August, we had approximately $40,000,000 of cash available as well as an additional $70,000,000 available to us under our revolving credit facility. We should note that we have the ability to increase the revolving credit facility beyond the current $150,000,000 limit by an additional $75,000,000 with the agreement of the lending syndicate. Also as reminder, we have a base shelf prospectus which would allow us to offer and issue up to $500,000,000 of additional capital. With the capital we have available, we continue to be very well positioned to execute on our current business plan. So as we look forward to the second half of this year, we should note the following. We expect to incur approximately $3,000,000 to $4,000,000 in additional capital expenditures for the balance of the year. We expect that amortization expense will be approximately $15,000,000 for the balance of fiscal 2018 with the figure being subject to adjustment for foreign exchange rates and future acquisitions. Our income tax rate came in at 22% of pretax income in the 2nd quarter and we should expect that our tax rate will continue to be in the range of 22% to 25% of pretax income over the balance of the year. Finally, we expect stock based compensation will come in at approximately $1,600,000 for the balance of this year, subject to any forfeitures of stock options or share units. So I'll now turn it back over to Ed, who will wrap up with our line calibration as a key metric relating to the ongoing health and strength of our business. Our calibration for Q3 assumes the following exchange rates: CAD0.79, €1.18 to the U. S. Dollar and a 1.3 gigabytes P to U. S. Dollar. And with the addition of MacroPoint, we've taken calibration as of August 15 to reflect some of our initial expectations from that business. With MacroPoint's contribution to calibration, we've had to be careful and have taken a very conservative approach. MacroPoint has been part of our business for only a very short time, has very high growth rates, but also has recently been restructured to be under a new operating model. Given all of that, as I've said, we've been very conservative about initial contribution of MacroPoint when we actually calibrate how our business will run. We're hopeful that with more operating experience with MacroPoint in future quarters, we'll have a greater degree of confidence in how the MacroPoint business is calibrated as part of the Greater Descartes whole. Our calibration for Q3 is $56,800,000 invisible recurring contracted revenues or baseline revenues. We've had $40,600,000 in baseline operating expenses. This gives us a baseline calibration of $16,200,000 for adjusted EBITDA for Q3. Some other key points related to how we're positioned for the remainder of fiscal 2018. One, we're very well capitalized. We have a healthy business that's well calibrated. And as Alan mentioned, we also have a very healthy balance sheet. We are profitable and generating cash. We have low capital needs within our organic business. Our primary uses of capital are for continued use in acquisitions. We've completed 38 acquisition since 2,006, and 3 already this fiscal year. And we have access to additional capital should we need it. Alan mentioned that we have 80 dollars drawn on our line of credit of $150,000,000 and the previously filled shelf perspective for up to $500,000,000 if capital was needed to be raised by other mechanisms. 2, we have a strong acquisition pipeline. You'll have seen there continues to be a lot of industry activity right now with the consolidation continuing in our market. 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. We 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 comes our way, we're 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. As a reminder of our plans for the remainder of FY 2018, 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 are not incremental to this plan. Intend to continue to focus on recurring revenue and deemphasize onetime license sales. If you recall, on the last call, we increased our planned operating margin range to 30 2% to 37%. Given the current performance of the business and mindful of the FX environment, that remains our target range even as we integrate MacroPoint into our business. But please keep in mind, this could vary if we buy other businesses that need to be fixed up, which would impact that metric in the short run. As a quick update on our annual user conference, we set the date for our 2018 Evolution User Conference in West Palm Beach, Florida. It's a bit earlier than last year, so take note on your calendar, the event's 3 days from March 6 through 8, 2018. This event provides a great opportunity to see our businesses at work from products to customers to partners to Descartes team members. I know several on this call have been to the event in the past, and I hope they found it worthwhile. Registration information is being sent out this week, so keep an eye out for that, and you can always find registration details on our website. And finally, as always, we'll continue to make ourselves available to shareholders to answer any questions. We believe 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. So with that, let's open it up to your questions. Operator? Thank you. We will now begin the question and answer session. And our first question comes from Philip Long from Barclays. Hi, Phil. How are you doing? Hi, good. Thanks, guys. I think I had to try a few times to queue, so I think others might have the same problem as well. But I wanted to touch on MacroPoint. Just given the size of the acquisition, just wanted to better understand the integration process. You did sort of say that targeting getting to margin profile over time. I know it's a very high growth business. So you guys are still trying to feel it out. But just wanted to know a few things. First, given the size of the acquisition, does it also mean that you guys might need to press pause a little bit on M and A for a short period until the integration is done? Or is the integration relatively straightforward based on your current visibility such that it should follow a pretty similar integration timeline versus historical deals that you guys have done? Well, look, we think Backward Point is a great company. There's a lot of demand in our customer base for it. And we're definitely taking a lot of time to integrate it in with our sales force and get both sales forces acclimated to selling and talking to customers about the solution fit together. That having been said, it's a very straightforward business, right? These guys are tracking trucks on cell phones and to explain to customers, There's a great value proposition for the customers. And with all that, I think we can continue the growth rates that this business has seen and maybe even expand them over time. But I don't anticipate that it's going to slow down our needs or desires to acquire new businesses and integrate them effectively into our company. So no, I guess the answer to your question is we've I don't see it slowing us down. In fact, if anything, I think it helps us get more traction at bigger and bigger customers over time because frankly we have something with MacroPoint that everyone's really interested in. Right. That's very helpful. And on the synergy side, maybe I'll start with the cost side first. Obviously, from an outsider standpoint, it's relatively straightforward. You've got a lot of users on a network and you certainly already have the GLNs. Is it too simplistic to think that you're just basically adding revenue on top of an existing network and the cost to run this business over time is relatively small? And how quickly can we kind of get to that state for you guys? Well, as I mentioned, the asset, when we bought them, they had invested an awful lot of money, primarily in sales and marketing, trying to get the growth to come as fast as possible. And we kind of looked at that and went, well, we also want to make money doing that. That having been said, a lot of the people that they were trying to get to as a standalone business, we already do business with. So that's a great opportunity for us to be able to do that a lot more cost effectively than they were able to do that as a standalone business. And what you're seeing now over the next 12 months or so is us going and putting those plans into motion. And we're pretty confident in our ability to do that effectively. So basically, it's a sales force training sort of process type thing? Yes. I mean, look, you also have to go out and educate the customers, right? You have to tell them, hey, this service exists. And let tell you some of the advantages of doing that now with Descartes since you're already a member of the global logistics network. So there's some work to be done. You don't just flip a switch and do it, but you certainly we have to get out in front of our customers and tell them what they can do now that Descartes and MacroPointer together. And I think it's something they're going to be really excited about as they learn more about it. I also think it helps us speed up what MacroPoint was doing because they have a lot of customers they wanted to get to that we already do business with. Right. That's perfect. Thanks very much. Great. Thank you. And the next question comes from Brian Essex from Morgan Stanley. Please go ahead. Hi, Brian. How are you doing? Hey, good. How are you? Yes, great, great. Thanks. Great. Thanks for taking the question. I guess, kind of follow-up on the previous set of questions. Baseline EBITDA coming down a little bit in the quarter, I'm assuming that's due to the profitability of MacroPoint. Do you have a timeline established for, I guess, payback and how you thought about acquiring the business? And what how long it might take you to get business up corporate average margins? We're kind of targeting the next 12 months to get it in line with our margin profile. We're starting from roughly from 0. So we have a little bit of work to do, but we're confident given its growth rates and our ability to run the business cost effectively that we'll be able to do that over that period of time. We're probably more focused on getting out in front of our customers with this new solution and telling them all the great things that they can do with it. And maybe some of the products that we already have, like doctor scheduling that might integrate into very effectively, bring a big benefit to our customers. That's got the majority of our attention. We're trying to balance its profitability as a standalone business with our desire to continue to grow it at the pace with which we think it can grow. And we're trying to be smart about that. I had some cautious statements at the beginning because we just got this business sitting next to ours right now and now we've got to integrate them together and we want to make sure that we make the money that the business should make, but also don't stifle any of the growth that it deserves to have. So we're cautiously treading through those waters right now to make sure that we do the right thing. Got it. And what's the trajectory of those cost savings over the next year or so? I mean, is it do they have their own separate headquarters where you run into the standalone business? Are there easy synergies upfront that maybe have a quarter of low hanging fruit and then the rest kind of takes longer to materialize? How should we think about that process? The restructuring that we've done is we just did and we did almost immediately when we acquired the business. Now it's getting the 2 businesses together just like we put every business that we bought together, right? It's going to be part of Descartes. It's going to be part of the global logistics network. All of our sales people are going to be selling this. And it takes some time for us to make that happen. But once it does, I think we'll be a better company for it. It's not going to be any different than any other acquisition we have. It's not running as a standalone business. It'll be part of Descartes. And we think that's what our customers want, right? We think our customers look and say, hey, I want to be able to go to one place, the Global Logistics Network and get all of this information. And our job over the next, say, 12 months is to make that a reality, to make sure that, that opportunity is put in front of the customers and they can take advantage of it just like anything else that we buy and integrate into the global logistics network. The big difference here is it's a really fast growing company and we want to make sure we don't stifle that growth in the process of integrating it. And maybe if I can sneak one last one in. Customer overlap, how meaningful was it? Or is this like my previous question, I think, hinted to is this is a pure incremental addition to revenue going forward? Question. They do business with a bunch of logistics service providers and a bunch of big retailers and manufacturers. We do business with a lot of those guys already. There's a lot of overlap. There's some new customers that we brought on. But maybe the bigger issue is we have 17,000 or so customers on our global logistics network. We want to bring this solution to all of those customers. And we think almost all of them have a potential need for this service. And now it's a matter of how fast can we go out and eloquently deliver that message and get them signed up and activated on MacroPoint and make this all part of the global logistics network. Great. Thank you very much. I appreciate it. Hey, thank you, Brian. And our next question comes from Paul Steep from Scotia Capital. Hey, Paul. How are you doing? Hey, I'm good. Thanks. Ed, can you maybe just talk, I guess, almost 9 months in on Datamine, how you think that business is performing against your expectations, whether it's on the operating model? And then more importantly, how it's playing out in terms of cross selling the compliance and content management product across the base? Yes. So we're very happy with the Datamine acquisition here 9 months in. It is performing to the plan we had, which was a pretty aggressive plan. So we're happy about that. Moreover, maybe more importantly, I think our customers see a lot of value in having data content available to them while they're making shipping decisions. And Data Mine is one of the great sources of data content that we have on the network that helps our customers do that. So I think that's what's got us most excited. Yes, it continues to hit the financial metrics that we wanted in from that perspective. It's been a great acquisition and I suspect that will continue. But we're probably even more focused on the value that it brings to customers and finding more customers that we can kind of highlight, hey, if you do these two things together, you get a bigger benefit, you should do these. And we're spending a lot of our time focused on that at the moment. Great. And then I guess my quick follow-up would be on the M and A side, we've always talked about the 3 areas of the business. Can you just refresh? I'm assuming there's no change in the priorities in terms of the target areas, but maybe what your thoughts are on the current market and the environment? Thanks, guys. Sure. So I think the 3 areas you're talking about are your customers and regulatory business, the data content business and the routing mobile telematics business is no significant change on all three of those. There continues to be a great opportunity in our Rowdy Mobile Telematics business. We've had a bunch of big wins in the past year and I don't see anything slowing us down there. The data content business, we've been spending a lot of time talking about here on the call and with Data Mining, Customs Info and MK Data and things like that, I think our customers are increasingly seeing what we saw when we started to integrate those things into our network and that's got us pretty excited. The customs and regulatory business has always been a step function. So we keep watching governments waiting for governments to roll out some of the standards that they said they would roll out and they're largely on track. We're always kind of planning for governments to say they're going to do one thing and then do it, but do it a little slower than they said. So that's just the nature of that business. But I think it's going to be a good business and not just in the coming year or 2, but for the next 15 or 20 years, we think we're going to to continue to see growth as governments around the world say, hey, to prevent terrorist attacks, we need to figure out what's coming in and out of our country. And we need to ask the trade participants, the big transportation providers, the big logistics service providers, the big retailers and manufacturers to tell us what's going on in their supply chain, so that we can better target the bad guys. And I don't think that's slowing down. I think it's speeding up. And I think with that, you're going to see more and more governments over the years adopt standards like the EU and the U. S. And Canada have been adopting over the last 10 years. Great. Thanks guys. Hey, thank you, Paul. And the next question comes from Anush Devriya from Raymond James. Please go ahead. Hey, Anush. How are you? Hey, guys. Thanks for taking my call. This is just Anshu stepping in for Steven. Could you update us on what you're seeing with your larger retail clients given the industry pressure they're facing? Sure. As we've talked about this for the last couple of years, as the Amazon effect that I mentioned earlier on the call takes hold, right, where people expect to have time definite delivery, they expect to have fast delivery, and they expect to have a lot of information about what's being delivered and when it's going to get there. That has moved from the consumer world to business to business and it's been a big opportunity for us as big retailers, when faced with those pressures often turn to Descartes to solve those problems. And you can see it with a bunch of the household names that we've gotten in the last several years on our global logistics network. They did that because they said, hey, I want to be able to compete with that and with that, let's say, that Amazon effect and be able to deliver that type of service to my customers. And most of the time when they decide that, they turn to Descartes to help them solve the problem. So we haven't seen it slowing down. We've actually seen it picking up over the last couple of years, and I expect it's going to be a good business for us for some time to come. And our next question comes David Hynes from Canaccord. Hey, thanks guys. So Ed, maybe just a high level one on the acquisition strategy. I mean, MacroPoint was obviously larger, a bit more expensive than normal, I guess, which just makes sense given the growth. I mean, if you look at the landscape and what you're seeing now, I mean, does it feel like you're considering more larger deals? How would you qualify kind of your appetite on that front? I imagine the deals have to get bigger just to move the needle of the firm scales, but just curious what you're seeing out there today? We see a lot of stuff for sale for sure. Our bread and butter has always been tuck in acquisitions that historically were $10,000,000 $15,000,000 $20,000,000 $30,000,000 And I hope to continue those forever because I think there's great opportunities for us to buy businesses like that and integrate them into our business and increase the scale of customers they can get to rapidly because of the size of our network. In the last 3 or 4 years, you've seen us start to look and then buy and integrate companies that are maybe more $60,000,000 $70,000,000 $80,000,000 acquisitions. MacroPoint was $107,000,000 acquisition. As we've grown, we've gotten the ability to get our hands on the money to do those acquisitions. We have a group of people around here that are comfortable doing acquisitions. If you look at it, a large portion of our management team came from an acquisition, myself included. And the more people you get around that have experience doing that, the better you can find, negotiate, close those types of deals and even more importantly, integrate them into your business effectively. And as we've grown, our wherewithal to do that kind of work has expanded over time. We've looked at bigger deals than that. We haven't pulled the trigger on any of them. Some of the ones that were larger, we kind of thought were too expensive, but there's been a lot out there in the last couple of years, and I don't see it slowing down at the moment. So we're trying to just look at what's in front of us and keep doing what we were always doing. And if we see an opportunity for something bigger, that's a good price and something we think is a good deal for our shareholders, we'll jump on it. And if we don't, we'll watch them go to someone else. The way we build our business, there's never an acquisition where we go, we have to have that. We're going to be in trouble if we don't have it. We don't have those decisions that go on in our acquisition processes. I think that's because of the cautious nature that we run our business with and I'd like to see us keep doing that. Yes. That makes sense. And then as we think about the calibration for Q3, I think you said it was of August 15. Just curious, I mean, does the weather have any meaningful impact on your business? Do we need to worry about that? I don't know what kind of exposure you guys have to Gulf Coast ports or the Southeast with all the hurricanes going on. Anything there that we should be thinking about? It could have a minor impact. And but bear in mind, right? I mean, the shipping companies that are shipping stuff the ocean have been watching the storm for 2 weeks before you and I thought about it. I think about how they're going to get product to market in a different way than they might have before. So it's usually not a gigantic impact, stuff like this. You remember the volcanoes that went off a bunch of years ago that shut down flights to Europe for several days. That has a minor impact. But if you look at it over a little broader period of time, all those shipments get made again. It doesn't it's not like it shuts the economies down in the world for very long. The shipments might have to go a different direction to get to its ultimate destination. But at the end of the day, most of the stuff that was supposed to get there eventually gets there and gets sold. The opposite of this is, in a couple of weeks, people are going to be selling a lot more plywood and drywall and insulation and everything else to fix up for it. So that kind of while there's a little bit of harm that gets done when these storms split through Harvey and now Irma that we see bearing down on us in the U. S. It also creates an opposite effect on the other side of this, where people need a lot of stuff quickly. And our network is an integral player in helping those products get to market fast. So potentially a minor downside, potentially a minor upside. All in all, it's not something we spend a lot of time thinking about its impact on our network. I think over a longer period of time, it's somewhat insignificant. Yes. Yes. I figured that was the case just given how diversified you are, but figured I'd ask. Okay, great. I'll pass the line. Thanks, guys. Great. Thanks, TJ. And the next question comes from Paul Treiber from RBC Capital. Please go ahead. Hi, guys and good afternoon. Just in regards to MacroPoint, I mean, as mentioned, valuation is a little bit more expensive. Just I'm sure you did a lot of due diligence to get comfortable with that in the company's growth rate. Can you share perhaps what gives you the confidence in the sustainability of the growth rate going forward? And then perhaps a little bit more is can you help us better understand the competitive environment in MacroPoint's competitive advantages? Sure. So we've known these guys for a little over 2 years. We met them when they were probably $4,000,000 in revenue. And we got to watch them do what they said they were going to do repeatedly for 24 months. I could think of a few other acquisitions where we had it. Kids IES comes to mind, where we got the watch company for a long period of time. MK Data was the same way. And we meet a lot of companies. We were very inquisitive. We meet a lot of companies that are for sale and most of them come in and tell us they're going to the moon and they're going there quickly. And then we start watching them for a little while and it turns out that's not true. Things slow down. They don't do what they said they were going to do for whatever reason. In the case of MacroPoint, in the case of MK Data, in the case of IES and a handful of others that we've bought, we've watched them for a long period of time. And while the purchase price seems high, we look and go, if they do what they say they're going to do, we think that purchase price ultimately will be a great deal for our shareholders. And the longer we have to watch them over a period of time, the more we gain confidence that what those guys say is going to happen actually happens. And those are the deals we jump on, right, where we go, hey, this is these guys are saying they're doing very well and come back 6 months later or a year later and they did exactly what they said they were going to do. Most companies that we look at failed that test and MacroPoint was one of the ones that passed the flying colors and was one of the reasons that we were willing to pay. What I think today seems like might seem to an outside observer like an expensive price, but I think a couple years from now, it might look like a bargain. I guess your other question was just about how it works? What is it from a competitive point of view? Yes. Well, listen, these guys are the dominant player in this market, right? They invented the market. They have patents on it. They were the 1st mover by several years and they came to a dominant position. Their competitors are way smaller than them and not nearly as successful and certainly not with the ability to grow at the rates that they're growing. These guys came in and captured the 3PL market, which is the core of that truckload business, 3PLs and domestic truck brokers. And they did that because they were the best at it. And they were the best at it because they were the guys that thought of it. They built the business long before anybody else did. And that's why it was a very attractive business to us. And if you think about the Blue Sky revenue synergies, I mean, what do you think would be the if everything went well and you can unlock it, what do you think that would be? Not from a revenue number, but from a just from a comment point of view. Well, we think the truckload market is a very big market. We think there's opportunity also in LTL and some of the other modes of transportation like dray hauls with ocean carriers for things like what MacroPoint does. I alluded to this in this early days of this. We're just kind of figuring out how we might take advantage of this over time. But I alluded to it in the beginning of the call. Right now, they're just telling you where trucks are, right? They're saying, hey, you moved you made a move, let me tell you from the moment that move gets picked up, I'll show you on a map exactly where it is and I'll make a prediction about when it's going to get there. That's a great business, and that's the business that we bought. But if you think about the downstream ramifications of that, if I know that a driver is driving from Pittsburgh to to Cincinnati I have some very valuable information for a guy that wants to make a move from Cincinnati to, let's say, to Chicago on Thursday afternoon. I know a list of drivers that are going to drop a load off in Cincinnati on Thursday morning and would be available to go untapped and potentially gigantic opportunity for us to help our customers know that information so they can make better and more cost effective decisions about who to ship with. And if I can tell you that driver is available on Thursday and he wants to go to Chicago, that will be very valuable information to you if you had a customer on your side, if you're a freight broker that wants to make a Cincinnati Chicago move on Thursday. And we're talking a lot internally and MacroPoint was even before we acquired them, thinking about how are we going to take advantage of that and do it in a way where we are not competitive with our customers, where we're helping our customers figure this out. We're not trying to become a freight broker at the end of this. But we do think we might have very valuable information for them that would help them run their businesses more effectively and we're looking for opportunities to do that for them. I don't know what the market size is for that, but it's gigantic. And the next question comes from Stephanie Price from CIBC. Please go ahead. Ed, you talked a bit about cross selling in your prepared remarks. Can you give us an update on the average number of products that current customers use and how that's evolving over time? Well, we have like 200 different products depending on how you look at it because they're probably less than that if you at it as solution sets. Our biggest customers in the 3PL market, we're well into the 30s now in terms of number of solutions they use from us. Average 3PL might be in the 10 to 15 different product solution sets that they use from us. And the job of our sales force is to go in and tell them how they could use product 2016, 2017 2018. And that's the cross selling that we're doing there. When you get to manufacturers and retailers, it's probably more like 3 to 5 and we're trying to get that to 5 to 10 in the coming years. As we keep buying more stuff that we think would be attractive to them and we're trying to we're not just willy nilly buying product companies that are in the supply chain and logistics technology space. We're buying stuff that is right next door to what we do typically, right. Or take like a MacroPoint, do dock door scheduling, we look at MacroPoint and go, hey, they run a network of transportation providers and they show you where trucks are all day long. That sounds an awful lot like a great fit for our global logistics network, but it's also a great fit with our transportation management solution and our doctor scheduling solution. Imagine if you're a big retailer and you have 40 doctors at one of your distribution centers and everyone's scheduling times in our doctor scheduling system all day long. You have an appointment booked with a particular trucking carrier to deliver at 5 o'clock. Wouldn't you like to know at 3 o'clock that he's not going to make that 5 o'clock time because today you do not know, He books the 5 o'clock time and you'll sit there at 5:15 and go, you might tell a trucker I can't give you that door because I'm waiting for this truck that's showing up. Wouldn't you like to know at 3 o'clock that, that guy is not going to make the 5 o'clock slot? That drives efficiency into our customer base and our job is to go out and tell them about those opportunities and try to, as you said, cross sell them on the fit, the solution fit of having all of these things together. The bigger we get and the more customers we get and the more product solution sets that we get, the better and more effective we are for our customers in doing that. Great. And then in terms of the current sales force, can you give us a reminder of the number of people you have and also the partner networks? We're up over, I don't know if you know the exact numbers, but Yes. Sales force is 80 to 100 people and not all of those commission carrying people, but that's our sales force today. And then the second part of your question was partner network? Yes, around OEMs and partners. Yes, active, active partner network. Some of the big players that we talk about on a repeated basis, the SAPs, the Oracles of the world and a number of other smaller partners. For those who attend our user group, you'll see 25 partners there. It's much broader than that. It's deeper, but a very active partner network starting with those big guys on through multiple players. Yes. And bear in mind, top 20 partners drive a massive amount of the partner revenue that we get. Right. Okay. Thanks. And then just finally in terms of valuations, it's been touched on that MacroPoint was a little more expensive than your typical deal. Can you talk a bit about the average valuation that you're seeing in the space? Well, it depends on the large size deals we're seeing, stuff that we think is too expensive. We've demonstrated that we're willing to pay handsome prices for companies, what we think are fair prices, but handsome by our normal standards when we see a company that has all recurring revenue and is growing quickly and making money. And we look at that and say, hey, we think we can make it make even more money over time and that makes us willing to spend more money to buy the company. What I don't like is when I'm asked to spend a very high multiple for something that I go, that's just a good company or maybe just an average company. And someone will say to us, well, because of its scale, you should pay up for that and we just look at that and go, we don't agree. And we tell our shareholders we're going to be prudent investors for them. And we really go out of our way to remain disciplined when we're looking to buy stuff so that we can keep those promises. Great. Thank you very much. Thank you. And the next question comes from Matt Pfau from William Blair. Please go ahead. Hey, Matt. How are you doing? Hey, guys. Hey, I'm good. Thanks for getting me on. So I just wanted to start out with the MacroPoint acquisition and I guess try to better understand how this product fits in or interacts with telematics offering that some of these full truckload providers could have already implemented? Because I'm guessing that a good portion of those guys are going to be regulated by the new ELD standards. So they probably have something in place. So just trying to figure out how MacroPoint interacts with that. That's one of the main data source for MacroPoint, right. I mean, their biggest data source is midsized and smaller trucking companies, all the way down to individual owner operators that are using either the MacroPoint application or just a flip phone. And we're getting either cell phone triangulation data from phone companies or we're getting geolocations directly from the MacroPoint app that those drivers have on their cell phones. When you get the larger trucking companies and especially as you get into LTL and things like that, they have ELD solutions. And when you go to some of those bigger companies and say, hey, I want to know where your trucks are, they say, I already know where all my trucks are. And we say, great, give us the ELD information. And that's one of the main data sources that MacroPoint gets. And I suspect as those rules become more and more prominent, that we'll get more and more data from those data sources. If you think about it from the customer's perspective, they don't really care where we got it from. They want to know where the trucks are the whole time and they want to get that from one data source so that they can connect to 1 company and collect all that information and know where every one of their shipments are. And that's been MacroPoint's goal from day 1. They've done a tremendous job not only of getting to the owner operators in the midsize and smaller trucking companies, but going to the big guys as they got big retailers and manufacturers and big third party logistics providers on their network going to the larger trucking companies with their customers and saying, hey, I need that ELD information. And I think it's one of the main reasons that MacroPoint got to the size and scale that they did so quickly is because they were aggressive about going and doing it. Got it. And then on MacroPoint, I think it's if I'm correct, it's your largest acquisition that you've done to date. And I think one thing that has sort of made Descartes successful over the years has been able to stay out of sort of bidding wars for potential acquisition candidates. So I guess as you look at MacroPoint and other potential acquisitions around the same size in the pipeline, Is it getting more competitive for these types of businesses? And if so, how is that sort of impacting the valuation or return requirements that you have? We spent a lot of time with MacroPoint, convincing them that we were the right guy to do this with. They had sold to as I mentioned, they had sold to a private equity firm roughly a year before we bought them, in a process that we were in, but they didn't want to sell the whole company. And so they ended up selling to this private equity firm. And I think over time, they realized that we might be the better home for their baby and went to their private equity firm and said, hey, I think I'd like to do this. And then we the 3 of us sat down and figured out a way to do it. When we bought the company, it was a sole source deal between us and the MacroPoint guys and the private equity firm that ended up selling the company. And we tend to do very well in those process. We spend a lot of time working with small and midsize companies, showing them the fit between what we do for a living and what they do for a living and convincing them that if you're going to sell your company, you should sell it to us. And we pay fair prices for stuff. We're not looking to overpay for someone, but I don't think anyone is. They shouldn't be at least. And at the end of the day, when we're able to convince someone that we're the right place, we're the right home to end up at, we like our chances in getting a deal done like that. And we'll continue to go out in the market and do that, finding small and medium sized businesses that we think will be a great fit on our network and convincing the owners of those businesses that this is the right home for their baby. And when it's not, we don't spend a lot of time trying to convince them to do it, right, because it's not we think, well, that maybe that business should be somewhere else. And I'm not going to want to pay the most money for this. And so it's a double edged sword. But when we see something that we think is a great fit for our business like a MacroPoint, we thought we were the best buyer for MacroPoint, hands down. We spend an awful lot of time making sure that they come to believe the same thing. Got it. And then just one last one for me. You previously mentioned that you've been working internally on a new trade content solution based off data from the GLN? Maybe just any update on the progress there on that product? We haven't released it yet, but yes, we have a product coming out in the air mode that we'll announce fairly soon when it's ready for market, but we certainly started looking after we bought data mine, we started looking and saying there were a couple of economists that work on their staff and started looking at the data that we have on our network that we could homogenize and take any strip any customer specific detail out of. But when combined with the Datamine content database, we thought will provide additional extra value to our customers. So I don't want to say too much about it because the product is not out yet, but we certainly are excited about some of the prospects for that in the future. Great. Thanks for taking my questions. Thank you. Talk to you soon. Next question comes from Deepak Kaushal from GMP Securities. Please go ahead. Hi, guys. Thanks for taking my questions. I know it's late into the evening. So I'll just ask 2. 1 is a follow-up on Datamine. Just wanted to understand how sorry, one is a follow-up on MacroPoint. I wanted to understand how that fits into the Oracle SAP partnership strategy. If you can give us an update on that and then I'll go back. Yes, sure. I'd be happy to. Yes, so when we bought MacroPoint, both SAP and Oracle were calling us that day and very excited about it. I think it was obvious to them exactly how it might help. Remember, they both run 2 of the preeminent transportation management systems in the world. And if you think about what those transportation management systems are doing, they're executing largely domestic truck moves. And that's deciding which carrier you're going to use, executing the move with that carrier, which we hope in most, if not all cases, they're going to use the global logistics network to execute that move. But then they would like to track it and their customers would like to track it, know where that truck is to make sure that that shipment that I ordered from point A to point B is actually going to get there when I think it's going to get there. And us buying MacroPoint brings a whole lot more data content to the global logistics network that will be valuable to the Oracle and SAP customers and we're really excited about it and so are they. Okay, great. And then just in general, you've been doing a lot of good acquisitions with a lot of cross selling opportunities. I mean, is there a point where the customers kind of get fatigued here in terms of cross selling? Or how do you guys prioritize your sales force in terms of managing what you're cross selling when and not overstepping your customers? I don't think so. I mean, I don't believe that's going to happen. I think if you're the customer, just the opposite, you want one company to come to you and say, hey, I can do all this stuff. And to keep coming with to you with new stuff that can do and say, hey, now I can also do this and that and the other thing. I think about when suppliers that we're always excited about it, right? It's one company that we can focus on. As we get bigger, we have the ability to go with 1 supplier to do something bigger for us. That's exciting to us. And I think our customers feel the same way as we come with more solutions. It's not just, hey, buy another solution from me. It's, hey, look at the advantage to you in using these two things together. And that's our best cross sell, right, is to walk into them, like the example I gave with Doctor. Schedule and the Transportation Management earlier. For them, that's great news, right? They go, geez, I used to have to either not get this information or get it from multiple parties. Now I can get it from one source. And by the way, that one source is coming out with multiple products that work together and make me more efficient as a company. What I see is when I'm out talking to our customers is they're excited about that. And I expect that will continue. Got it. Okay, great. Well, congrats on the acquisitions and thanks for taking my questions. Hey, great. Thank you, Deepak. Okay. We have no further questions at this time. I'll turn the call back over for final remarks. Great. Thanks, everyone. We appreciate your support, and we look forward to reporting back to you next quarter. Have a great night. Thank you, ladies and gentlemen. This concludes your conference call.