Welcome to the quarterly results call. My name is Adrian and I will be your operator for today’s call. At this time, all participants are in a listen only mode. Later, we will conduct a question-and-answer session [Operator Instructions] Please note this conference is being recorded. I will now turn the call over to Scott Pagan. Scott Pagan, you may begin.

Thanks and good morning, everyone. Joining me on the call today are Ed Ryan, CEO and Allan 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 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 are 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 required by law. And with that, let me turn the call over to Ed.

Great, thanks Scott. Good afternoon, everyone and welcome to the call. Thank you for joining. It's been a pretty busy year with lots of changes in the global, political and economic landscape but as you’ve seen from our financial results, not much has changed in our performance. We once again delivered solid financial results that’s because we build a stable business designed to help our customers deal with change. Our business continues to grow organically as our customers leverage more solutions on the Global Logistics Network and we continue to add complementary businesses to our network through our disciplined acquisition strategy, such as our most recent two tuck-in acquisitions in October and November. We recognize that our customers are facing change every day. When you are dealing with constant changes, it’s good to have a stable partner you can rely on and for our customers that’s Descartes. We are always looking ahead to the challenges our customers will face as the market changes and we are building solutions to help them meet the challenges of today, tomorrow and all in an efficient and compliant manner. If you look at our progression of the business, we have come a long way over the last decade, but there is still a lot more to do for our customers right now and a lot more to help them prepare for the world of tomorrow in a complex and ever changing environment. The good news there is that means there is a lot of opportunity for our business to grow. And while the geopolitical climate looking ahead is little uncertain, we are certain that we’ve got opportunities to grow our business because our customers need us most when there is change. Speak more about that in a few minutes but as usual, I’ll start…

Thanks Ed, I appreciate it. As indicated, I am going to walk you through our financial highlights for the third quarter ended October 31, 2016. So, as Ed mentioned, we are pleased to report record quarterly revenue of $51.5 million this quarter, up 9% from revenue of $47.4 million in the third quarter last year and also up 2% sequentially from the second quarter of this year. We should note that these revenue figures were achieved despite continued negative headwinds from foreign exchange of over $600,000 when compared to the Q3 last year and almost $400,000 when compared to the second quarter this year. Consistent with our business plan and current trends, service revenue remained strong coming in at $49.4 million in the quarter or 96% of our total revenue, up 9% from $45.5 million in Q3 of last year. Gross margin continued to be very strong coming in at 73% of revenue for the third quarter, consistent with the second quarter of this year and up slightly from gross margin of 72% in the third quarter last year, as we continue to experience operating leverage from our network growth. As a result of the continued revenue growth, gross margin improvement and of course strong cost control, we experienced adjusted EBITDA growth of 13% to $17.8 million or 35% of revenue in the third quarter compared to $15.8 million or 33% of revenue in the same period last year. Adjusted EBITDA was also up 3% sequentially from adjusted EBITDA of $17.2 million or 34% of revenue in the second quarter this year, again showing the continued strength in our business. As a result of these solid operating results and extremely strong collection of accounts receivable, cash flow from operations came in at record $20.5 million. At 115% of adjusted EBITDA,…

Great. Thanks, Allan. So, let’s start with calibration for Q4. Similar to our 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. With movements in the FX rates, we have used the most recent FX rates as of yesterday. So, our calibration for Q4 assumes the following exchange rates: C$0.77; €1.12 to US$1; and GBP1.32 to US$1. So to turn to Q4, as of November 30, 2016, for Q4, we had $49 million in visible recurring contracted revenues or our baseline revenues. As Allan mentioned, we expect the changes in FX rates from Q3 to Q4 to impact our revenues by about $800,000 this quarter and that is already included in that number. On the flip side, we have the impact of the recent tuck-in acquisitions. We had $34.7 million in baseline operating expenses and this gives us a baseline calibration of $14.3 million for adjusted EBITDA for Q4. Some other key points related to how we are positioned for Q4 and beyond. As always, we are very well capitalized. We have a healthy business that’s well calibrated. And as Allan mentioned, we also have a healthy balance sheet. We are profitable and generating cash. We have little capital needs within our organic business. Our primary uses for capital are for continued use in acquisitions. We have completed 34 acquisitions since 2006. And we have access to additional capital should we need it. Allan mentioned the undrawn portion of our credit line of more than $147 million. We’ve also filed a shelf prospectus for up to $500 million of capital, was needed to be raised by other mechanisms. We have a strong acquisition pipeline. You will have seen there is a lot of…

Thank you. We’ll now begin the question-and-answer session [Operator Instructions]. And our first question comes from Matt Pfau from William Blair. Please go ahead.

First, I wanted to start out, Ed, I know you had talked a bit earlier about the potential impact from Trump’s presidency on the business. But maybe we can just dig into that a little bit more. So, for example, if U.S. trade becomes more restrictive, potentially trade volume could fall off, but maybe the trade would become more complicated. So, maybe if we could just touch on the puts and takes there to your business from those types of situations?

Sure. No one really knows what’s going to happen, both with Brexit and with at least Trump campaign conversations. It's not a little protectionism, which for us could potentially be a benefit. With Brexit, people putting up a border around the UK, it's another border that has to be crossed, it’s another set of customs and security filings that have to be made. And if that all comes to pass, might be a couple of years from now, but if that all comes to pass, it’d probably be incremental benefit to our business as people have to cross that border and make filings to do it. Some of the things that Trump said, I don’t know that he went that far, he certainly is not necessarily creating any other borders and things that he said, but he has certainly talked about the transpacific partnership and cancelling that. And those types of things cause change, as I mentioned earlier in the call, in the tariffs and duties rates around the world. And every day that those things are changing makes our database of all the rates that are kind of up-to-date every day, more valuable. Customers need to see it, the more the rates change, the more they need to look at it; and the more they look at it, usually the better Descartes does. As for your other comment about potential for this to result in less trade, I am not so convinced that's going to happen, but if it did, it would probably impact us like it impacts everyone else. People are moving less goods around the world, that's probably bad news for most companies. It's not clear to me that’s what's going to happen though.

And then, the other thing I wanted to touch on was, just on the acquisition front, you made two tuck-ins, but it's been a fairly quiet year for your guys. Maybe just some commentary around that; is there anything behind it being a relatively quiet year that's driving that or how should we think about the acquisitions going forward?

I hope you think about it the same way we do, which is we’re just really out there looking at businesses and saying which one’s that we think is to combine and who can we reach an agreement with. And we talk to a lot more than we end up getting deals done. That’s because we’re picky, and spend a lot of time getting ourselves into a position where we can be and in hopes that that will lead us to make better decisions. And I think that’s what you're seeing right now. Lots of things were for sale and lots of things continue to be for sale but we don't like some of the prices. And so, we buy the ones that we think we can get a fair deal on. And if people are looking for more than we think stuff is worth, we pass. Whether that means they sell to somebody else or they just don’t sell it, doesn't matter to us much. We kind of go -- we want to make sure we're doing good deals for our shareholders. And if we see something that we want, but it's not a god deal, we're happy to pass on it. And that's the way we've operated historically and that's the way we're going to continue to operate.

And our next question comes from Brian Essex from Morgan Stanley. Please go ahead.

I was wondering if we could dig in a little bit on 4Solutions. I mean and healthcare document exchange seems a little out of the box for your guys. I was just wondering maybe if you could offer a little bit of rationale and exactly how that fits into the puzzle. And then I got a follow-up.

It's a network business and it's -- their supply chain transaction is in the healthcare space, we think of that as part of our core mission. We weren’t as focused on the healthcare capabilities of it, both with Appterra and with 4Solutions. We looked at those businesses as networks and networks that specifically focused on data quality which we think is really important. Appterra in particular had some tools that we thought were going to be helpful to our customers in the long run to help us monitor and improve data quality. They're relatively small but they also provide us with a core base of employees over in the Philippines which enables us to provide some of the service provided at better margins, both for our benefit and for our customers’ benefits and we do it more cost effectively for them. So, they were good deals and certainly in the supply chain space and thought they’d be great additions to our network.

Got it. And then, just one on expenses; it looks like G&A is pretty flat year-on-year, maybe you have a couple $100,000. Is that pretty much due to the rationalization of back office cost of acquisitions that you have made year-to-date? And how do we think about that given we saw a little bit of a pop last year and arguably due to some acquisition, but maybe if you can just help understand some of the movement there? And where you plan to get leverage in the model going forward?

Sure. It's Allan, Brian, I’ll handle it. Yes, we certainly do integrate the businesses; we do look for cost efficiencies where possible. I think you’ve seen that through these numbers in G&A. FX is also -- while it affects our revenue, it pulls down our expenses as well as the U.S. dollar is strong. And as we buy businesses, our G&A will increase over time and over time then we will fight to find efficiencies and that’s what you will see in our business quarter-by-quarter.

And the next question comes from Steven Li from Raymond James. Please go ahead.

Ed, when you look at the different segments, where is the most of the growth coming from? Any one segment stood out? And also maybe you can talk about your outlook in those faster growing segments over the next 12 months? Thanks.

Yes, true, you’ve heard us talk about a lot over the last year, one of the content space that we’ve gotten into in the last couple of years that continues to grow very nicely for us. We bought some companies there few years ago that were growing well, then our sales force got a hold of them as well, and probably it's helped move even faster than they were prior to our owning them. And then, the one that I mentioned on this call and probably mentioned in the last five or six calls in a row that the mobile resource management business, our optimization engine is proven to kind of be the market leader in the omni-channel space which has been hot now for five or six years and suspect will be for a long time to come. And those two businesses are fastest growing businesses and driving a lot of the growth that you see in our network.

Thanks. And Ed on the slower M&A this year, does that move your EBITDA growth expectations about 10 to 15 range? Does it move it closer to the lower end or you expect organic growth to make up for this slower M&A? Thank you.

Yes, I mean, I don’t know that we think of it's slower M&A but we are doing the M&A deals that we see in front of us that we think are good deals. No, we are not planning on changing our guidance on how we are going to operate the business. We still see us operating 10% to 15%. We always trying to beat 15% and we do that fairly consistently. So, I don’t think you are going to hear a different story from us on that hopefully for a long time to come.

And the next question comes from Paul Treiber from RBC. Please go ahead.

I just wanted to focus on the gap between baseline and actuals, it seems like it's widened out over last couple of quarters. I think little while ago, you mentioned that it will be narrowing. How should we think about baseline versus actuals going forward?

Yes. It's actually been fairly stable from what I see. It's affected by a number of things, acquisition we make; foreign exchange rates will impact it; and obviously the amount of license deal that we complete. When we say it was narrowing, it was simply that license deals were coming off that when a couple businesses we bought that have added some license revenues back to our business, licenses keep coming in around 2 million; it's been fairly stable. I think it was a 6% or 7% -- revenues were up 6% or 7% from baseline and EBITDA was up 27%, 28% and that’s been fairly consistent the last couple of quarters that we have seen. I don’t think there is any significant trend there, Paul; it’s simply continuing to operate the business where foreign exchange rates go, where acquisitions take place that will affect calibration actuals.

Okay. In regards to acquisitions, what your thoughts on the size of acquisitions, particularly just in regards to like larger versus smaller ones but specifically like the valuations that you are seeing between those sizes but then also sourcing and then integrating, just the differences between the large and the small?

We look all types, so we certainly looked at a number of big ones and have it pull the trigger on anything very large yet. But, our bread and butter have been these smaller tuck-in acquisitions; we have done very well at them over time. And we continue to be confident that we can execute on them as well as we have in the past. The larger deals have a lot of competition. They have bankers involved, they’ve private equity firms involved that are flushed with cash the moment that tends to be bidding some of them up, beyond what we think a reasonable expectation. In other words, we think the people that invest in those are going to struggle to get their money back. On the smaller end, I’d say, the deals tend to be more-fair. It’s people we have usually known for a long time, we have usually worked with them either as a partner or just the potential acquisition candidate for a number of years. And eventually they decide they want to sell their business and if they are going to sell, they are going to sell to Descartes. And they aren’t really affected by things like the amount of capital coming to the private equity market, things of that nature that have maybe had us shy away from some of the larger deals.

And what your thoughts on increasing the frequency of smaller deals per year; is there a natural inhibitor or constraint in terms of the number of deals that you could do in a given year?

I am sure there is. We haven’t come here hitting it yet; it’s not the thing we spend a lot of time talk about. We certainly think we have the wherewithal especially as we’ve gotten bigger over the last five or six years. To do lots of them, what we end up doing is the ones we think that are good deals. If there were more of them that would be fine with us; in fact, we would probably pretty happy about that. We certainly think we have the ability to execute on more of them, if we find good ones. But we are not worried about doing more, if they were to make themselves available to us.

And the next question comes from Paul Steep from Scotia Capital. Your line is open.

Can you talk a little bit about Oz, and just what your view is a year on after acquiring the company?

Yes, sure. We are very excited about the Oz acquisition. As you said, it's been almost a year now that we’ve had it. I think business has done quite well. The people fit in I think quite well. A lot of the people that came from the Oz acquisition are now off in other areas of our business helping expand our ability to deal with the small and medium-size customer base that they were so good at dealing with prior to acquiring the business. Numbers have looked good, as we expected, which is great. We like when businesses perform as we expected prior to acquisition. And so, I think overall, we are pretty happy about it. We have had a number of customer successes and we have had a number of cross-sell opportunities that we’ve won. So I think overall we are pretty happy with it.

And then, the quick follow-up, how should we think about you building up any vertical market solutions or sort of attacking the market the more vertical way? Thanks guys.

As we get bigger, we’re starting to do that. I mean what you see us doing right now is we break out logistics and transportation and we sell to those guys specifically, the airlines, oceans carriers, trucking companies and 3PLs and we target them specifically and down to a smaller customer size and have done that historically, in what we call the MRDM market or selling to major manufacturers, retailers, distributors and mobile service providers. We keep doing more and more in that market. We used to only focus on the big guys in that market, big manufacturers big retailers. And you see -- and in part helped by some of the acquisitions we’ve done in the last few years, we’re now going into focus on the medium and smaller size customers in that segment as well. You definitely get good at a certain vertical segments in there. If you look at our routing software, we dominate beverage; we dominate oil and gas delivery and 20 to 30 others. And so, our sales force and our delivery teams start to develop an expertise in that. And so, when you get one big retailer or electronics retailer, you’re probably a pretty good choice for the others as well. And over time that usually ends up helping us. As we get bigger, we’ve kind of spilled out our logistics and transportations segment and are now looking to make sure we spill out our mobile, retail, manufacturing and solutions that we sell to our customers.

And the next question comes from David Hynes from Canaccord. Please go ahead.

So, I want to get at Matt’s question around trade policies and the new administration. So, I think we understand the impact that complexity it has on your ability to grow. How should we think about the potential impact on your cost structure? In other words, if trade agreements renegotiate or tariffs changed; how much of that requires incremental investment on your end to ready the network and data or is that pretty much all automated? Just trying to think about the impact on margins?

Well, that’s the beauty of -- it’s been a while since I’ve discussed this on a call. But if you think about the beauty of the MK Data and the Custom Import Solutions that we bought over the last couple of years, the big differentiator for them over their competitors was the automated fashion in which they collected data. And you see that show up in their profit margins. You also see that show up in the timeliness and accuracy of their data. It’s how they became the market leaders was the box that they built that go out and queer government websites, six, seven, eight times, a day and look for changes. And so, when a government changes, their rates between one country and another country, we have box that are built to go out and find that information and get into our data base very quickly, within hours; they found it, extracted it and put it into our data base. The only thing that causes us any kind of work in that process is if a government changes the way their websites works. But that doesn’t go hand in hand with some of the stuff you are talking about. The trade negotiations have nothing to do really with Belgium deciding, hey, I am going to change the way my website works. When they do change the way their website works, we have couple of days to work at a minimum to go in and figure out how to retune the box to make them automatically extract all of the data. But that usually has very little of anything to do with the renegotiation of trade rates. So, I don’t think you’re going to see our costs change at all really just because more rates change in a day doesn’t mean that our costs are impacted in any way.

And then, I want to ask about drop ship. So, as online retailers leverage drop ship for assortment expansion and other things, is that a good or a bad thing for your business? I know a lot of your retail delivery relationships are with kind of the largest retailers. But I guess suppliers kind of increasingly get into the active shipping directly to the consumer, how does that impact you guys?

Well, the packages that are let’s say bigger than 125 pounds, it directly impacts us in a very positive way. You've seen that in the last five years that that’s the omni-channel opportunity that we’re talking about. As big retailers go, hey, I need to get good at delivery in these washing machines and TVs to consumers’ houses and then schedule it and installation guy right behind him. That's our bread and butter. And if you went into a big retailer 10, 15 years and talked about, they’d say, we don’t really have to do too much of that, or if we do, it's done manually. Now, all of a sudden, you bring that process online and it has to be done electronically, it has to be done in an automated fashion. And if you want to operate your business efficiently, you better know the best delivery time while that consumer is online, you let them pick anytime you want, you're going to instead of using 2,000 trucks and make those delivery tomorrow, you might need 2,700 trucks, and that's a lot of extra money. And that's played right into our hands. On packages more than 125 pounds, that's parcel and LTL delivery. Our TMS channel -- it creates a need for our TMS and by the way, have a lot competitors in that space. So, it creates a need for them as well. But more demand in the market for everybody usually trickles down and helps us just like it helps everybody else. So, I think both ways, we do fairly well. If it's the larger ticket items, larger side packages, we have a very direct benefit that you already see some of that playing out and I think it's going to go on for quite some time as every retailer starts to realize, I need to do this. On the smaller package, it doesn’t create some demand for us, but it helps our competitors as well.

And our next question comes from Michael Urlocker from GMP Securities. Please go ahead.

If we look at cash from operations, it's really strong, strong performance, and it's been accelerating in terms of growth. But, I don't really understand why that is. So, if we look at just to pick a number, revenue growth so far this year I think is 10% and cash from ops growth is 36%. Or another way to look at is your conversion of EBITDA to cash from ops is again also higher than the norm. So, what do you think is causing that? Is it a structural change in the industry; is it that the de-emphasis of license or is there something else going on?

Mike, there is a few things there; it's Allan. First off, we do think there is a conversion of EBITDA that's the most relevant. And what we’ve seen so far year-to-date, we're just over 100% conversion operating cash flow to the EBITDA, strong collections are part of it. It's also -- another factor is that business we've been buying recently have -- we've seen a trend towards more annul billing and more billing upfront. So that can certainly help. We're buying businesses that arguably have negative working capital, as you grow them. And we currently strive to achieve. So that' a little structural change. We're hesitant to say that there is a -- our 10-year average is close to 90%. Our three-year average is probably 92% to 93%. And we think those are still relevant ranges, but there is a bias to a little bit higher in the last 24 to 36 months. So that's the best we can give you as far as the guidance. It should come in somewhere in 90% to 95% go forward.

I'll just comment for two seconds. We've talked about here for 20 years, especially as we've worked our way out of problems for 15 years ago. Happy customers pay and they pay best. And as our network does a better job, our customers pay best and it's -- I don’t know that’s the entire answer to the question yet, but it's -- at a high level that’s a big driver behind it.

Well, thank you because often the simplest answer is the best one. Right? So, it makes sense. Hell, I couldn’t understand that accounting stuff, happy customers -- no, I understood it all. Thank you. I appreciate it. Keep up the good work. It's great to see. Thank you.

And we have no further questions. I’ll turn the call back over for the final remarks.

Great, guys. Thanks for all your support this past quarter. And if we don’t see you have a great holiday season, if we do see, we will be on the street for next couple of weeks working with you. So, have a great holiday. Thanks.

Thank you, ladies and gentlemen. This concludes today’s conference. Thank you for participating. You may now disconnect.