Earnings Call: Q1 2018

May 31, 2017

Welcome to the 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. And 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 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 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 And with that, let me turn the call over to Ed. Great, Scott. Good afternoon, everyone, and welcome to the call. Thank you for joining. We followed up our strong fiscal 2017 with a great start in the Q1 of fiscal 2018. We continue to execute to our long term operating strategy and continue to see opportunities to do more for our customers on the global logistics network as consumer buying patterns and global trade regulations evolve. We continue to add more solutions and content to our network, driving adoption within our customer base and expansion with new participants. From a financial perspective, we remain laser focused on profitable growth and our continued emphasis on recurring revenue is reflected in our results. We'll kick off the call by going through some brief highlights of those results, followed by some comments on our vision and the evolving business landscape and how we're investing to help isolate our customers from moving forward. So with that, let's start by going over some of the key financial highlights for the Q1 of fiscal 2018. We had another record quarter and we're very happy with our key metrics. Our adjusted EBITDA continues to grow in line with our plans. For the quarter, we generated $19,000,000 of adjusted EBITDA, an increase of 14 percent over Q1 of last year. Revenue for the quarter was up 11% for this quarter over this quarter last year coming in at $54,500,000 And again, this quarter, we're really happy with our revenue mix. Our focus on recurring revenues continues to show in our results with our services revenues accounting for 95 or excuse me, 97 percent of our revenues for the quarter. You may see that shift around from time to time, but if we buy businesses that have higher license components, generally we'll 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 quarter last year. We generated $16,500,000 in cash consistent with our long term operating plans. We've been investing cash back into our business by combining with complementary businesses and I'll come back to discuss that more in a minute. As a cash generating profitable business, we're constantly examining what investments we should make in our business for the short and long term, whether it be investing in our organic business or investing in acquisitions. As we make these investment decisions, we're always very mindful of our vision, which I want to touch on briefly. Our vision is to be the global leader in logistics and supply chain technology. Specifically, as resources move from point A to point B, we're gathering information about the planning, execution and settlement relating to that move, regardless of where point A or point B is, what that resource is that's moving or what mode of transportation it's moving in. And we're helping multiple parties involved with that resource movement to leverage that information to make better decisions. It's a big vision and it's one that we look at over a long period of time to accomplish. We take a steady and deliberate approach to advancing on this vision and we plan on being the winner at the end of the day. Again, we plan on being the global leader in logistics and supply chain technology. For those of you that attended User Group, you would have had a chance to hear from customers about how they're using our solutions today and you also would have had a chance to hear from the thought leaders at Descartes that are are shaping our business for the future. Our community of customers is a large one with more than 16,000 customers depending on us every day to keep their logistics and supply chain operations running efficiently and securely. In order for that to happen, those customers need to interact with other parties in the supply chain to execute shipments. For any shipment moving around the world, it starts with a purchase order of some kind. And from there, multiple parties are generally involved, dealing with multiple documents and data points. There's a lot of information that needs to be digested both leading up to a shipment and in real time to make sure you're able to deliver on customer expectations. In a world where consumer buying expectations are putting more and more pressure on businesses to deliver and global trade regulations are changing faster than ever, the result is an incredibly complex environment. We're here to isolate our customers from that complexity and we're here to help them not only navigate this changing landscape, but we want to see them thrive with a competitive advantage where others see challenges. Our answer to this, as you heard us say before, is our Global Logistics Network or the GLN, as we'll often refer to it. With the GLN, we bring together a wide range of capabilities, content and connections into one place so customers can manage all of the business processes required to plan and execute shipments. In particular, the GLN is one place for customers to number 1, research and plan who to do business with and how 2, to connect to a global trading community to collaborate and share information 3, to execute and monitor shipments and react in real time to changes and finally, to analyze data with business intelligence tools tools to improve over time. So when we speak about our vision, that's what we're talking about. The one place for trading partners to connect and collaborate to manage all their logistics and supply chain business processes. And how this impacts our investment strategy is pretty simple. We're always looking for opportunities to build out capabilities and content for our customers, and we're also looking to add more participants to our network. As the community grows, the expansion and adoption grows as well. Ultimately, we plan on being the global leader in logistics and supply chain technology. And with that, let's talk a little bit about our recent investments that are helping us get there. I'd like to start with a quick update on DataMine because many of you will have to see that team in person at User Group and feel the excitement about that business. Just to recap, Data Mine is in the trade data content business and following on our MK, Data and Customs Info acquisitions, we've been looking out for opportunities to add more content to the GLM. Data Mine provides logistics trade content data content and its content related to actual shipments that have been executed. Datamine collects, cleanses and commercializes this logistics trade data content from over 50 nations across 5 continents. Essentially, they gather shipment data from official filings with customs authorities and trade ministries around the world. They then process that data and make it available for our customers that it's the most robust product on the market. Subscribers use their solutions and business intelligence tools to augment, speed up and simplify trade data research and to shape global marketing, prospecting and sourcing strategies. When you put that into the context about what we've just been talking about with the Global Logistics Network as one place to manage the lifecycle of shipments, this functionality is critical when you're researching and planning your supply chain and monitor how you're doing against your competitors amongst other things. At User Group, it was clear that our customers are excited about this development. Data Mine sessions were very well attended and many of our customers were surprised that this type of data was even available. What was really interesting was when we started to talk about that content, making that content available at the time of making decisions about shipment execution. For instance, we're working right now on integrating the data mine capabilities with some of our freight forwarding back office execution tools, and we think the outcome will be really interesting. On the last call, we also mentioned that it's not just the current data mining platform and content that we see opportunities in. We believe that our new team of logistics trade domain experts and data scientists can help us think about the data already flowing through the GLN in different ways. We've already started working on a project with the Data Mine team to investigate the possibilities of making some Descartes network content tools available. We don't want to give too much away about that, but we look forward to updating you further on that subject on future calls. This isn't an overnight process, but we're making some really good progress here. And with that, I'll move on to another area of investment for us recently. In mid May, we made an investment to build out our omnichannel and SMB e commerce solutions with the acquisition of Shiprush. We've talked a lot on recent calls about consumer buying patterns changing and the fact that we want to be there to help our customers deal with that challenge. We've also made it clear that we want to help customers with all types of shipments, large or small. With the evolution of e commerce, the parcel shipping continues to grow in size and importance. Without a comprehensive omnichannel strategy that includes advanced parcel shipping capabilities, e commerce retailers and SMBs alike can be left with escalating costs and poor delivery execution that can impact customer satisfaction. This is something we recognized a while back and we've been investing in solutions that help small and medium businesses deal with the complexity of e commerce fulfillment and partial shipping year ago, we combined with a company called Pixsy, which by the way was another solution that generated a lot of interest in our user group in March. Pixsy has a warehouse management system that is focused on the needs of e commerce providers, essentially helping them manage their inventory and process orders coming in from various web shops. Prior to the PIXTI combination we combined with Oz, their focus is on helping customers integrate with shipping systems and automate logistics processes. By adding Shiprush, we now have an even broader footprint for our omnichannel retail and small and medium business customers to address their parcel shipping needs. So what does ShipRUs do exactly? The platform helps customers integrate with front end commerce systems and parcel shipping providers for seamless package labeling, rating, tracking and postage processing. It's a robust platform that is used by thousands of shippers. It's very easy for customers to get up and running. Taking that a step further, if you think about the ShipRash platform combined with our other e commerce solutions, very complementary. Specifically, as we combine it with our global logistics network and the community of participants, our e commerce WMS tools from Pixy and our e commerce and ERP integration capabilities from our combination with Oz development that allows us to present a highly differentiated offering for this segment of the market. 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 for Descartes. First, I'd like to start by thanking everyone from our marketing team and the wider user group execution team who helped pull up another fantastic user group. The event just seems to be getting bigger and better each year and each year I marvel at how far our company has come in the last decade. When we first started User Group, it was a very modest affair to say the least. But now when I go there and I see large groups of leading edge global customers interacting with some of the world's smartest and most talented logistics and supply chain experts. It's very exciting. Speaking of thought leaders, I'd also like to thank our customers and partners that attended and in particular those that were part of the steering group committee. It's an event for our customers and the agenda is set by them. We couldn't make it happen without the 15 dedicated people that join our steering committee each year. So thanks again. And if you're an analyst or an investor that attended, I really hope you enjoyed it as much as I did and trust that attending you got a feeling for what Descartes is all about and that you can see how our customers feel about what we're doing and our strategic plans for the future. More generally, thank you to everyone who helped kick this off this year off positively with another great quarter. Thanks to our employees for all the hard work they put in to make sure our customers get great results. Thanks to our customers who continue to place confidence in Descartes as their network of choice. Thanks to our partners for helping us continue to expand our ecosystem. And finally, thank you to our shareholders for continuing to have confidence in Descartes. And with that, I'll turn the call over to Alan. Okay. Thanks, Ed. So as indicated, I'm going to walk you through our financial results for the Q1 ended April 30. We are pleased to report record quarterly revenues of $54,500,000 this quarter, up 11% from revenues of $48,900,000 in the Q1 last year. As Ed mentioned, in keeping with recent trends, our revenue mix continues to be very strong with services revenues again representing 97% of total revenue in the quarter, consistent in percentage with the Q1 last year. Although license revenue will fluctuate from quarter to quarter, in part depending on the revenue profile from acquisitions, we continue to expect that license revenue will be remain a relatively small portion of our revenue going forward. Gross margins continue to be very strong at 74% of revenue for the quarter, which is a strong increase from gross margins of 72% in the Q1 last year. Our gross margin continues to benefit from strong operating leverage from our service revenue growth as well as benefiting from the strong gross margin in some of our recently acquired businesses. Despite continued investments in product development as well as additional sales and marketing activities, including hosting our user group, as Ed just mentioned. With continued recurring revenue growth and leverage from our acquisition strategy, we continue to see strong adjusted EBITDA growth of 14% to $19,000,000 or 35 percent of revenue this quarter compared to 16.6 $1,000,000 or 34 percent of revenue in the same period last year. As a result of these strong operating results, cash flow generated from operations came in at $16,500,000 or approximately 87 percent of adjusted EBITDA in the 1st quarter compared to operating cash flow of $15,900,000 or 96 percent of adjusted EBITDA in Q1 last year. After 2 consecutive quarters with a cash conversion rate in excess of 100% of adjusted EBITDA, we were not surprised to see an operating cash flow conversion come in at the lower end of our long term average this quarter. Going forward, subject to unusual events and then quarterly fluctuations, we continue to expect to see strong operating cash flow conversion of approximately 90% of our annual adjusted EBITDA From a GAAP earnings perspective, net income came in at $6,900,000 or 0 point of 15% from net income of $6.0 or $0.08 per common per diluted common share in the Q1 last year. Overall, we are pleased with these solid operating results in the Q1. If we take a quick look at the balance sheet, our cash balances totaled 54 point $4,000,000 at the end of the Q1, which along with our $150,000,000 undrawn revolving credit facility provides us with sufficient capital to deploy as we continue to look further expand. In addition, as a reminder, we also have our base shelf prospectus, which would allow us to offer and issue up to 500 $1,000,000 in additional capital. In short, we continue to be very well capitalized to allow us to execute on our business plan. As we look to the Q2 and the balance of the year, we should note the following. We expect to incur approximately $4,500,000 to $6,000,000 additional dollars additional capital expenditures for the balance of the year, and this is very much in keeping with a similar total in the past few years. This balance is expected to include further investments in our network security We expect amortization expense will come in at approximately $20,000,000 for the balance of FY 2018, with this figure being subject to adjustment for FX changes and future acquisitions. Our tax rate came in at 24% in the first quarter, and we would expect that our tax rate will continue to be in the range of 22% to 26% of pretax income over the balance of the year. Finally, we expect stock based compensation will be approximately $2,200,000 for the balance of 2018 fiscal 2018, subject to any forfeitures of stock options or share units. At this point, I'll turn it back over to Ed who will wrap up with our baseline calibration. Great. Thanks, Alan. So let's start with our calibration for Q2. 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 Q2 assumes the following exchange rates: CAD 0.74, €1.12 to U. S. Dollar and a 1.29 GBP to U. S. Dollar. And with the addition of Shiprush, we have taken calibration as of May 19 to include our expectations from that business. Our calibration for Q2 was $52,500,000 in visible recurring contracted revenues or otherwise our baseline revenues. We had $37,000,000 in baseline operating expenses. This gives us a baseline calibration of $15,500,000 for adjusted EBITDA for Q2. Some other key points related to how we're positioned for the remainder of fiscal 2018. 1, we're very well capitalized, as Alan just mentioned. We have a healthy business that's well calibrated, and we also have a very 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 36 acquisitions since 2006. And we have access to additional capital should we need it. Alan mentioned our undrawn line of credit of $150,000,000 and the previously filed shelf perspective for up to $500,000,000 if capital was needed to be raised by other mechanisms. We also have a strong acquisition pipeline. You'll see that there's 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, functional capabilities, trade data and content, and community on our network. We continue to see a lot of interesting opportunities out there to continue or even accelerate at our pace of profitable growth. We're seeing both larger and smaller opportunities. And while we review everything as it comes our way, we're not buyers for buyers' sake. In fact, we have an acquisition line of credit and 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 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 as always are not incremental to this plan. We 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 32% to 37%. Given the current the current performance of the business and mindful of the FX environment, that remains our target range. Please keep in mind, this could vary if we buy businesses that need fixing up, which would impact in the short run. And finally, as always, we'll continue to make ourselves available to shareholders to answer any questions. I think we've got a great business. We want to be available to help people learn about that business, and we'll continue to spend time and resources to get the word out, and we hope you'll do the same. So with And our first question comes from Brian Essex from Morgan Stanley. Please go ahead. Hi, thank you. Good afternoon, So first of all, congratulations on reaching the $200,000,000 mark for the year in revenue. And I guess on that front, like if I could kind of take a step back and if you could compare just 5 or 6 years ago, you were half the size. Is there a difference in the way that you run the business now versus how you did then? And maybe how are things or the focus of the business changed over the years as you become a larger company? Sure. Yes. I know I've noticed a big difference. I guess the biggest one to me is in the way that we interact with customers. We're able to do a lot more for our customers now. Not only do we have a much broader set of solutions, but we have 600, 700 more people. When we used to have to say no to things 5, 6 years ago or maybe had customers that didn't believe we were capable of doing these things. Less and less, there's really aren't issues anymore, right? We have customers going, hey, this is a big company, I can go do big projects with them and it might take 5, 6 years to fully realize the value. And that's been a big change. It certainly helps us grow. You can see, I'd say that getting to 100 took us a long time and getting to 200 took us 4 or 5 years. So I certainly see the difference. Okay. And then I just wanted to touch on this. You see we don't get a lot of data or a lot of detail around kind of business segments, how you may think about them internally. But is there a way that you think about or a particular segment of business that gains more focus of yours and others? For example, is the network the focus or data driven content or omni channel growth? I mean, is there any one kind of area, like if you could prioritize how you think about growing the business going forward? I know you look at opportunities for all of them with regards to organic or inorganic, but what tends to be your focus at this point? Well, I mean, it all starts with it from our perspective, it all starts with our network. I think that's the reason a lot of our customers are here. And our job is to keep coming up with new and better things to do on that network, so that they keep wanting to do more stuff with us. In the last 5 or 6 years, you've seen customs filing, security filing become a big focus for us or a big point of emphasis for us. In the last few years with the acquisition of a number of data trade content businesses, which our customers kind of pointed us towards. Our network is a very purvey that information to them. So I think our customers kind of pointed in that direction and I think they were in hindsight now they were spot on. And then you mentioned omni channel, it's probably bigger than omni channel, but there's been a big growth in our transportation management and routing and scheduling businesses as more and more customers have looked at our unique approach to planning, a dynamic approach to planning. And that's kind of become the industry leading solution in the market. And it started with customers that want a dynamic plan so that they could do omnichannel retailing or basically deliver direct to consumer and give a number of times to those effect, costing them less money. That was then compounded with the growth and the genesis of people having real time information about where drivers are all day with GPS tracking devices, telematics units, in cabs and mobile handheld devices that let us know where trucks are all day long and what the drivers are doing all day long. That feeds right into dynamic planning and we're the leaders in dynamic planning. We've got a 5 to 10 year head start on our competitors and we're starting to see it over the last several years in our results. Got it. Maybe if I could squeeze one last in. So I noticed in particular in this quarter, incremental margins were pretty good on gross margins, but a lot better on the operating side. So on that front, if we think about the growth of your network and how you acquire new customers or growth in customers, how much of that growth is partner driven versus organic investment in sales and marketing? How do we think about the opportunity for that to kind of drive better leverage on the operating expense side going forward? Well, we certainly do well in both, right? We've made a lot of investments and you've heard the names, the SAPs and Oracles and NetSuites and a bunch of others like them. You've seen us make a lot of investment over the years in those areas. Those investments are really just starting to pay off. I mean, if you look at some of those relationships 4 or 5 years ago, we were just spending money and nothing was coming And so as those relationships are starting to expand now and they're actually starting to I'm starting to look at the numbers and going, hey, those are real numbers now coming out of SAP and Oracle and the like. That's helpful to our operating margins for sure. We continue we're probably known as a little cheap on we're not so quick to massively expand our sales and marketing expenses. We think we're prudent about that from our perspective. But as our business grows, and I mentioned a minute ago, a couple of the areas that I think are growing quite nicely, we continue to, I think, put the money that we think is appropriate towards that and make sure we have the salespeople in place to address the opportunity that exists in the market. You're not going to see us overspend on things like that. That's why we're able to operate in a business with 35% EBITDA margins where most of our competitors are breakeven or some even losing money. But I think we've always made an effort to make sure we have the people there to properly address our customers. I think continue to see us do the same in the future. Okay. Thanks, guys. I'll hop back in the queue. Thanks. And the next question comes from Matt Pfau from William Blair. Please go ahead. Hey, Matt. How are you doing? Hey, I'm good. Thanks guys. First question on Datamine. It's good to hear that there was a lot of interest in that at your user group. But maybe just dig into a little bit more detail in terms of what sort of traction you've seen both within your customer base and then potentially targeting new areas of customers with that product? Sure, sure. We were after data mining for a while. And when we finally got that deal done, we're pretty excited. But something our customers always pointed us to, right, is that, hey, it sure would be nice to know the trade statistics while I'm executing these shipments, right, to know what carriers people use, to know what my competitors are doing, how do they ship their goods, where are they sourcing their goods. Those are all decisions that you'd like to know the answer to before you press that shipping button. And as we thought about it over the years, we thought, geez, it would be pretty convenient if the global logistics network contained that information and helped our customers make better decisions while they're executing their shipment. Datamine is a great company. It was a great company before we bought it, but I think becoming part of the global logistics network, we have a real opportunity to make it even better company. Certainly know a lot more freight forwarders and ocean carriers and air carriers and trucking companies and big retailers and manufacturers than they do. We've got 17,000 of them on our network. And we're now in the early stages of exposing this data content to them. And I think over the years, you're going to see us come up with even more unique ways to do that while they're processing shipments on our network. Got it. And then in terms of partnerships related to data mining, I mean, it seems like that type of data could be quite useful in potentially some of SAP's oracles or other parties solutions for planning? What's the opportunity there in terms of partnerships with Datamine? I should bring you on the call with me. We're certainly talking to them about it now. I think they're just in the process of getting their heads around that. We spent a lot of time with SAP down at their Sapphire user conference a couple of weeks ago and making their aware of what we have. And just like the other things we did with the First Data content businesses in customs info and MK Data and then with our global logistics network, it took some time for us to explain it to them and tell them why their customers would get increased value out of having that data at their fingertips and then to be able to sell to them or have them sell it on our behalf in the long run. So it's early stages, Jeff, but I see the same opportunity you do for sure. Got it. And last one for me, Ed. Just kind of wondering, as you're going through the looking at the acquisition pipeline, you mentioned there's both larger and smaller opportunities. Just maybe some sense in terms of when you talk about a larger opportunity, some of the largest ones are larger than we've ever done. They're probably not larger than some of the largest ones are larger than we've ever done. They're probably not larger than we've ever looked at, but larger than we've ever done. I think we're just shy of 100 $1,000,000 as our largest to date. We certainly have a number of them out there that are potentially bigger than that. Not to say that we're going to pull the trigger on it, we're only going to do that if we think it's a good fit for our network and we think it's a good deal for our shareholders. But certainly, we look at everyone that comes across the table and we're certainly, just given our position in the market, invited to a lot of those processes. If we think those stars all align, then we look at it as our job to go get the money to be able to do that for the benefit of our shareholders. If we think they're selling for way too much money and we'll be a good long term investment for our company and therefore our shareholders, then we're inclined to go, look, we've got a great network already. I don't have to take an extreme risk and overpay for something that's ultimately going to be deemed to not be worth it. So we look, let you know when we find one we like, but we haven't done that yet. But our acquisitions used to be $10,000,000 $20,000,000 $30,000,000 We have a lot now that are $50,000,000 $60,000,000 $70,000,000 $80,000,000 I don't think given our where we are right now, we'd be concerned about doing something bigger than that, not only in the financing side, but also in the integration side, which is where a lot of the work is. But we're only going to do it if we see a deal out there that we think is going to be a good long term investment for our shareholders and something that our customers really want us to do. Got it. Thanks for taking my questions guys. Hey, thank you, Matt. Have a good day. And our next question comes from Paul Steep from Scotia Capital. Please go Ed, can you maybe talk a little bit about and we've touched on SAP a bit, but just where you're at in terms of bringing on a handful of joint clients onto the network because that was sort of the first opportunity you've been working on. That'd be the first thing that I'd love to get an update on. Yes. And actually the first thing that we've done with them where we've gotten a lot of traction and the most traction we have so far is on that data content side. That's starting to become pretty big business for us. I mean, just about every sale they make of their global trade management system and by the way, similarly for Oracle, who also has a global trade management system, they sell or they our data content provides the fuel to make those systems work. And we're updating those database daily so that their users can get accurate tariff and duty information and I party screening information so that they can make the proper decisions when they're executing on shipment. The second thing and the part you brought up is maybe 6 to 9 months old right now, which is having convinced SAP to use our global logistics network behind their transportation management systems. We have gotten a lot of traction with them. We're involved in a number of sales cycles. We've closed a few smaller deals. There's certainly a lot more on the horizon, and we think in the past calls, we continue to work on Oracle to get them to the safe place. I believe in my discussions with them and a bunch of our partner guys in discussions with them, we're making a lot of progress with them. We're not quite where we are with SAP yet, but we hope at some point that we'll get there. Great. And then I guess just the other strategy that looks like post the ShipRutch purchase that's sort of filling out is the whole SMB offering that you're now going to market with. Maybe talk a little bit about PIXIE, we saw some great things from them at the show. What that SMB opportunity looks like for you? And again, I think maybe even how you define SMB because I feel like you're a little further up the food chain than most of us might think when you say SMB. Yes. Well, if you were here 7, 8 years ago, right, I mean, we didn't have any SMB. We had the only small businesses we did business with were freight forwarders and truckers that were on the small side. We would historically do business with any trucker, any airline ocean carrier, LTL carrier, parcel carrier or freight forwarder, customs broker, regardless of their size. But when it came to manufacturers and retailers, we only did business with the very biggest. And you probably heard me mention over the last couple of years on the calls, we've started to go into these smaller and medium sized retailers and manufacturers with a set of solutions. At the beginning, it was just solutions that we already had, then we started making some acquisitions that targeted those markets and maybe even specifically targeted the newest players in that market, the e commerce players. You saw that with Oz, you saw that with Pixy, you're now seeing that with Shiprush and maybe a few of the other businesses that we bought. Our customer base went from a couple of 1,000 customers to 16,000, 17,000 customers today as a result. A year or 2 ago, you heard me talking about, hey, we're trying to get better at dealing with that. You can imagine that the differences in selling to a small guy versus a big guy can be vast, right? The sales process is much shorter. You can't make 6 sales calls at their corporate headquarters if they're only going to be paying you $1,000 a month. You just don't have the resources to do that and still make money on the deal. So you have to find ways to sell more effectively and more quickly. The contracting process is way different, right? It's in a big contract, you might have a somewhat protracted contract negotiation because you're talking about 1,000,000 of dollars over the next several years. In these smaller businesses, you don't have time to do that. You have to have a contract that's kind of take it or leave it pre negotiated. We think this is a fair deal, sign it or don't sign it. I don't have time to negotiate it with them. So and then obviously servicing them, you have to be prepared to be able to serve them quickly and efficiently with mostly online tools. You can't for $1,000 a month, you can't have someone calling your customer service desk 50 times a day, you'll just never make money doing that. So I think we've gotten a lot better at it over the last couple of years. I think we continue to recognize that there's stuff that we need to get better and better at it the deeper we get into it. And I'm pretty happy with the progress we've made so far, but I also think there's more to come there and I will continue to get better at it and continue to get a lot more businesses like that. I hope that 16,000 number that I mentioned a few minutes ago continues to grow rapidly. And our next question Just looking at the quarter over quarter revenue growth, it was a little bit lighter than we were expecting despite a full quarter of Datamine. Perhaps we overestimated the contribution from Datamine in the quarter. Just hoping could you provide a breakout of Datamine's revenue in the quarter? And if you can't, maybe another way of getting to it is, what's the size of your total trade content business now as a percent of revenue? So Paul, I'll start. It's Alan. We don't provide a breakout of the various acquisitions, but content overall is trending towards 15% of our overall business. It's a rough number. And that's where we stand with Datamind in the business. You have to think you have to remember when you look at our revenues for the Q1, there is not a lot of seasonality in Descartes' business. But the Q1 in the 40% of our business that we get that we make money from transactions, the network and some of our customs filings, etcetera, it is seasonally a little bit of a weaker quarter and that does factor in. It's something we deal with every Q1. February is never February, March never strong months. So that's part of it. But hopefully, I've answered your question through that. 15% for content, roughly, and a bit of seasonality factored into the numbers for the quarter. Okay. That's helpful. Just want to shift to M and A and the M and A environment. Just looking at the last couple of acquisitions like Datamind and Shiprush, it does seem like valuations maybe ticking up slightly higher than what maybe you paid in the past. Is that a reflection of either the environment or are you seeing potentially greater organic growth potential or synergies out of these trying to buy stuff in the 7 to 10 times EBITDA range, Datamine, Customs Info, MK Data, we're all outside of that And the reason was we thought we were buying and believe to this day that we bought companies that were fantastic businesses, that were growing, that were profitable and were all recurring revenue. And that's somewhat unique. Most businesses, we look at a lot of businesses here every year. Most businesses don't have all three of those characteristics. Most businesses are lucky to have one of them. And when we find one with all three that we think is a great fit for our network, we feel like we probably need to pay them for that because if not, somebody else is going to buy it. And there's a reason those things are selling for more money, and it's because they're more valuable. And so when we've come to believe these things are good investments, we're happy to pull the trigger as long as we believe that they are. ShipRUs is probably more in the kind of maybe the high end of our normal range, let's say. I don't feel like that was it wasn't in the same kind of category as the other 3 that I just mentioned. Also a very good business, growing strong recurring revenue, maybe not as profitable as the other 2 as a percentage of revenue or the other 3 as percentage of revenue, but a good business and we thought we paid an appropriate price for it. You're right, a lot of the especially on the larger side, these are deals that are $300,000,000 $400,000,000 we see people paying what we would consider to be too much money for those companies. And we're very selective about that, especially on something that's bigger, right? It's one thing to pay too much for something that's $30,000,000 it's quite another to pay something too much for something that's $400,000,000 So we get more cautious as we go up. And when we see people paying what we believe to be too much money, we're happy to walk away. We spent a lot of time getting our business into a shape where we think we don't have to buy anything if we don't want to. And we're not afraid to walking away from the table from someone if we think they're looking for a sucker. We don't want to be that guy. And we've done it lots of times. At the same time, if we we're willing to pay fair prices for things and if we think something is a good deal and we think it's going to be a long a good long term investment for our shareholders, then we're absolutely willing to pay what we think it's worth. Okay. Thanks for helping us understand that. Just one last one. Just what was the FX headwind on revenue in the quarter? Yes. So Q1 over Q1, it was just in around $1,000,000 And then from a 4th quarter to Q1, it was negligible, small, less than $200,000 Okay. Thank you. That's fine. All right, great. Thanks. And our next question comes from Stephen Mee from Raymond James. Please go ahead. Hey, Stephen. How are you doing? Yes. Thanks. Maybe, Alan, do you have an organic growth estimate for us in the quarter? Yes, Steven, we don't break that out. It's a very, very difficult calculation for us. We fully integrate our acquisitions from day 1. That is part of our DNA. That's what we do here. And so it's not something we typically do. But the growth rate, Q4 to Q1, there's always a little, as I mentioned earlier, a bit seasonality, so it may not be as strong. But Q1 over Q1, it was within the ranges that we would expect to see sort of that mid single digit type of growth. Okay. And remind me again, so was there any census contract revenues in this quarter? Or it's completely gone now? There was none this quarter. It is out of the business. And our next question comes from Deepak Kaushal from GMP Securities. Hi, guys. Good evening. Hey, I'm good. How are you guys doing? Yes, great. Great. Thanks for taking my questions this evening. First one is a follow-up quickly on Datamine and then one maybe bigger picture question. Just on the Datamine business, maybe I was wondering if I could ask if you could talk qualitatively about the margins for that business. Out of the gate, are you seeing it to be margin accretive relative to the overall business? Or is that going to take some time? And when might we expect that? Yes. So for Datamine, I think roughly speaking, gross margins are a bit stronger than our average. So it's helped our gross margins. From an OpEx perspective, particularly in sales and marketing, they might be a bit higher than our average. So when it comes to EBITDA, they are definitely not hurting our average, but they're coming in very close to where the company is overall, if that helps give some color. And in terms of leverage as you cross sell this into the broader customer base, is that a 1 year plan or a 3 year plan? Or how should we think about the margin accretion on that? I think with all these data content businesses, you go around and collect the database and that has over time a certain fixed cost of doing that. The more you sell it, in other words, the more those businesses grow, the higher the margins go. And I think you'll see the same with data mining as we've seen with customs info and MK Data. Okay, great. Actually, I lied. I have 3 questions about Data Mine and then one big picture. Last one last one thanks guys. Last one on Data Mine. So far you've talked about Data Mine and the data and the app or the value of that data to people in the supply chain industry. I'm wondering if you think of value of that data outside of the supply chain industry. I know many people in my industry might be interested in some of that data. How do you think about that? We have thought about it. I don't know that one of the you mentioned your industry, one of the key targets potentially for some of that data is banks. We do not target other industries outside of supply chain and logistics right now. We've thought about it. I guess the first place you're seeing us go is out to big retailers and manufacturers and trying to find needs in their business for that data. I think we're getting a lot of traction there. We have not really started to target banks and other types of industries that we think might need this data. There are other players in the market that focus on those types of players as well. They have a slightly different data set than ours, but similar, let's say. I don't think it'd be out of the question for us to get into that over the next 10, 15 years or so, but I don't think it's something you're going to see us do in the next 6, 8 months. Okay, great. And now that I've got your attention, on the vision that you talked about earlier, logistics and supply chain technology, at least for me, relatively new to covering the story, logistics is pretty well understood. But supply chain is less and the broader supply chain technology industry, What interests you on that side of the business and what are you not interested in that side of business? What can you talk about at least with respect to that in terms of Well, the parts that we're in the supply chain right now are helping people plan and manage shipments. So from as I mentioned in the intro, from the purchase order in towards logistics, right? So someone just ordered something from me. Now what do I do? And there's a lot of work that has to get done there. You look at us with our transportation management, supply chain visibility, doctor scheduling, yard management tools. Those are all supply chain tools helping big retailers and manufacturers figure out what to do once they get that order. The purchase order is the start of it for us. There are companies that operate in supply chain management well outside of that. We're not in areas yet, but you see our I just mentioned the tools, visibility, transportation management, dock and yard scheduling and tools like that, that help people more effectively manage their supply chain. There's also a whole component of this that's warehouse management. We probably have our toe in the water in warehouse management compared to some of the larger players in that space, Manhattan, JDA, etcetera. We specialize in certain areas in warehouse management and kind of completely ignore the others right now because we just don't have solutions for them. But if you're a freight forwarder, we have a great warehouse management solution for you. If you're a gigantic retailer or manufacturer, we're probably not your first choice when it comes to warehouse management. If you're a small e commerce player, we have a great warehouse become more become more capable of dealing with that, and that's either by building them out organically or through an acquisition, I think you're going to see us stay out of it and focus on our core competence. Okay, great. That's very helpful. I appreciate taking all my long list of questions and hope you have a good evening. No problem. Thanks, Deepak. We have no further questions at this time. I'll turn the call back over for final remarks. Great. Thank you. Thanks, everyone, for joining the call today. We look forward to reporting back to you next quarter on our Q2 results. Have a great night. Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. 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