Welcome to the Quarterly Results Call. My name is Adriane, and I will be your operator for today’s call. At this time, all participants are in a listen-only mode. Later, we’ll conduct a question-and-answer session. [Operator Instructions] 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 Allan 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 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.

Thanks, Scott. Good afternoon, everyone, and welcome to the call. Thank you for joining. We followed up our strong fiscal 2017 with the great start in the first quarter 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 which 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 complexity. Allan will then take us through the financial results in a little more detail and then I’ll finish up with some comments about our calibration for Q2 and our operating plans moving forward. So, with that let’s start by going over some of the key financial highlights for the first quarter 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 million of adjusted EBITDA, an increase of 14% over Q1 of last year. Revenue for the quarter was up 11% for this quarter over this quarter last year coming in at $54.5 million. And again this quarter, we’re really happy with our revenue mix. Our focus on recurring revenues continues to show and our results with our services revenue accounting for 97% of our revenues for the quarter.…

Okay. Thanks, Ed. So, indicated, I’m going to walk you through our financial results for the first quarter ended April 30th. We’re pleased to report record quarterly revenues of $54.5 million this quarter, up 11% from revenues of $48.9 million in the first quarter 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 first quarter last year. Although license revenue will fluctuate from quarter-to-quarter, in part depending on a revenue profile from acquisitions, we continue to expect the license revenue will remain a relatively smaller portion of our revenue going forward. Gross margins continued to be very strong at 74% of revenue for the quarter, which is a strong increase from gross margins of 72% in the first quarter last year. Our gross margin continues to benefit from strong operating leverage from our service revenue growth as well as benefitting 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 $19.0 million or 35% of revenue this quarter, compared to $16.6 million or 34% of revenue in the same period last year. As a result of these strong operating results, cash flow generated from operations came in at $16.5 million or approximately 87% of adjusted EBITDA in the first quarter compared to operating cash flow of $15.9 million or 96% of adjusted EBITDA in Q1 last year. After two consecutive quarters with the cash conversion rate in…

Great. Thanks, Allan. 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: C$0.74; €1.12 to U.S. dollar and GBP1.29 to U.S. dollar. And with addition ShipRush, we have taken calibration as of May 19th to include our expectations from that business. Our calibration for Q2 is $52.5 million in visible recurring contracted revenues or otherwise our baseline revenues. We had $37 million in baseline operating expenses; this gives us a baseline calibration of $15.5 million for adjusted EBITDA for Q2. Some other key points related to how we’re positioned for the remained of fiscal 2018. One, we are very well-capitalized, as Allan just mentioned. We have a healthy business that’s well-calibrated and we also have a very healthy balance sheet. We are profitable in 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 needed. Allan mentioned our undrawn line of credit of $150 million and the previously filed shelf prospectus for up to $500 million if capital was needed to be raised by other mechanism. We also have a strong acquisition pipeline. You will have seen that there is a lot of industry activity right now with consolidation continuing in our markets. 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 of participants on our network. We continue to see a lot of interesting opportunities out…

[Operator Instructions] And our first question comes from Brian Essex from Morgan Stanley. Please go ahead.

So, first of all, congratulations on reaching the $200 million mark for the year in revenue. And I guess, on the front, like, if I could take a step back and if you could compare just five or six 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 businesses changed over the years as you’ve become a larger company?

Sure, yes. 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 five, six years ago or maybe had customers that didn’t believe we were capable of doing these things; there’s less and less -- those really aren’t issues anymore. We’ve customers now, hey, this is a big company, I can go do big projects with them. And it might take five, six 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 a 100 took us a long time and getting to 200 took us four, five years. So, I certainly see the difference.

And then, I just wanted to touch on this -- we don’t get a lot of data or lot of detail around kind of the 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 than others? For example, is the network the focus or data driven content or an omni-channel growth? I mean is there any one kind of area 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 growth, but what tends to be your focus at this point?

Well, I mean it starts from our perspective, but I’ll start 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 the people want to do more stuff with us. In the last five or six years, you’ve seen customs filings, the security filings become a big focus for us or big point of emphasis for us. In the last few years with the acquisition of a number of data and trade content businesses which our customers kind of pointed us towards, our network is a very convenient place to purvey that 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 wanted dynamic planning so that they could do omni-channel retailing or basically deliver direct to consumer and give a number of times to those consumers rather online and have those times be great times for our customers, in 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 and 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 five to 10 years head start on our competitors and we started to see it over the last several years in our results.

Maybe if I could squeeze one last one in. So, I noticed in particular in this quarter, incremental margins were pretty done on gross margins but a far better on the operating side. So, on that front, we think about the growth of your network and how you acquired your customers to grow within the customers, how much of that growth is partner-driven versus organic investment at sales and marketing; how do we think about the opportunities that drive better leverage on the operating expense side going forward?

Well, we certainly do well in both. 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 that we’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 four or five years ago, we were just spending money and nothing was coming back. And so, as those relationships are starting to expand now and they are 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 -- 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 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 sales people in place to address the opportunity that exists in the market. Your are not going to see us overspend on things like that that’s why we are 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. And I think you will continue to see us do the same in the future.

And the next question comes from Matt Pfau from William Blair. Please go ahead.

First question on Datamyne. It’s good to hear that there was a lot of interest in that at your User Group. But, can you maybe 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. We were after Datamyne for a while and when we finally e got that deal done, we were pretty excited and it was something our customers always pointed us to, as hey, we’re sure it would be nice to know the trade statistics while on executing the shipments, 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 ago, we thought it would be pretty convenient if the global logistics network contained that information, helps our customers make better decisions while they are executing their shipments. Datamyne is a great company, it was a great company before we bought. But I think becoming part of the Global Logistics Network, we have a real opportunity to make it even better company. We certainly know -- and 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 are going to see us come up with even more unique ways to do that while they are processing shipments on our network.

Got it. And then, in terms of partnerships related to Datamyne, I mean, it seems like that type of data could be quite useful and potentially some of SAPs, Oracles or other parties’ solutions for planning. What’s the opportunity there in terms of partnerships with Datamyne?

I should bring you on the call with me. We are certainly talking to them about it now. They are just in the process of getting our 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 executives aware what we have. And just like the other things that we did with the first data content businesses in Customs Info, and MK Data and then with our Global Logistics Network, it took us some time 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 on our behalf in the long run. So, it’s early stages yet, 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, what sort of size that we are talking here I guess relative to acquisitions that you’ve done in the past?

Look, some of the largest ones are larger than we have ever done but really not the larger that we’ve ever looked but larger than we have ever done. We’re just shy of $100 million as our largest to date. And we certainly have a number of amount there that are potentially bigger than that. Not to say that we are going to pull the trigger on rolling, and really 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 these processes. If we think those starts online, then we look at it, our job to go get the money to be able to do that for the benefit of our shareholders. If we think they are selling for way too much money and it won’t be a good long-term investment for our company and therefore our shareholders, then we are inclined to go look, we have got a great network already. I don’t have to take extreme risk and overpay for something that’s ultimately going to be deemed enough be worth it. So, we look to know when find when we like. When haven’t done that yet, but our acquisitions used to be $10 million, $20 million, $30 million. We have a lot now that are $50 million, $60 million, $70 million, $80 million. I don’t think given our -- where we are right now, we would be concerned about doing something bigger than that, not only in the financing side but also on the integration side, which is where a lot of the work is. But, we are 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.

And our next question comes from Paul Steep with Scotia Capital. Please go ahead.

Ed, can you maybe talk a little bit about -- we’ve touched on SAP a bit, just where you’re at in terms of bringing on handful of joint clients onto the network? Because that was sort of the first opportunity you’ve been working on. That would be the first thing that I’d love to get an update on.

Yes. Actually, the first thing that we’ve done with them where we’ve getting a lot of traction or the most traction we have so far is on that data content side. But it started to become a pretty big business for us. Just about every sale they make of the 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 are updating those data bases daily so that their users can get accurate tariff and duty informations and party streaming 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 six to nine months old right now which is having convinced SAP to use our Global Logistics Network behind their transportation management systems. We’ve done a lot of traction with them; we are involved in a number of sale cycles; we closed a few smaller deals; there’s certainly a lot more on the horizon and we think in the long run that’s going to be a great opportunity for us. I think I’ve mentioned in past calls, we continue to work on Oracle to get them to the safe place I believe in my discussions with them and bunch of our partner guys in discussions with them, we’re making a lot of progress with them; we’re not quite where we’re with SAP yet but we hope at some time that we’ll get there.

And then, I guess just the other strategy that looks like post the ShipRush 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 pixi. 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 if I feel like you’re little further up the food chain than most of us might think when you say SMB?

Yes. If you were here seven, eight years ago, I mean we didn’t any SMB. We had the only small businesses, we did business with 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 solution. At the beginning, it was just solutions that we already had and then we started making some acquisitions and 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 pixi; 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 thousand customers to 16,000, 17,000 customers today, as a result. A year or two 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 could be vast. The sales process is much shorter. You can’t make 6,000 calls at their corporate headquarters, if they’re only going to be paying $1,000 a month, you just don’t have the resources to do that and still make money on the deal. So, you’ve to find ways to sell more effectively and more quickly. The contracting process is way different. It’s a big contract, you might have somewhat protracted contract negotiation, because…

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

Just looking at in core revenue growth, it was a little bit lighter than we were expecting despite a full quarter of Datamyne. Perhaps we overestimated the contribution from Datamyne in the quarter. Just hoping, could you provide a breakout of Datamyne’s revenue in the quarter. And if you can’t, maybe another way of getting to is what’s the size of the -- your total trade content business now as a percent of revenue?

So, Paul, I’ll start. It’s Allan. We don’t provide a breakout of the various acquisitions. But content overall is trending towards 15% of our overall business as a rough number, and that’s where we stand with Datamyne in the business. You have to remember when you look at our revenues in the first quarter. There is not a lot of seasonality in Descartes business but the first quarter in the 40% of our business that we get that we make money from transactions and network and some of our customs filings et cetera, it is seasonally a little bit of a weaker quarter and that does factor in and it’s something we deal with every first quarter. February is never -- February and March are never strong months. So that’s part of it but hopefully the answer to your question through that 15% of the content roughly and a bit of seasonality factored into the numbers for the quarter.

Okay. Thanks. That’s helpful. Just want to shift to M&A and the M&A environment. Looking at the last couple of acquisitions like Datamyne and ShipRush, it does seem like valuations maybe taking 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 acquisitions?

Well, so, Datamyne was probably outside of the -- on a high-end of the range that we normally give. We’re normally trying to buy stuff in the 7 to 10 times EBITDA range. Datamyne, Customs Info, MK Data were all outside of that range, and the reason was we thought we were buying and believed to the data. We bought companies that were fantastic businesses that were growing that were profitable and we’re recurring revenue. And that’s somewhat unique. Most businesses, and we look at a lot of businesses here every year. Most businesses don’t have all three of those characteristics, both businesses are lucky to have one of them. And when we find one with all the three that we think it’s a great fit for our network, we feel like we probably need to pay them for that because of not somebody else is going to buy, and there is a reason those things are selling for more money because they 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. ShipRush is probably the more into the kind of high-end of our normal range, let’s say. I don’t feel like that was -- it wasn’t the same kind of category as the other three that I just mentioned. Also a very good business, growing strong recurring revenue, maybe not as profitable as the other two as a percentage of revenue or three as a percentage of revenue but a good business and we thought we would paid an appropriate price for. You are right a lot of the -- especially on the larger side, these are deals that are $300 million to $400 million, we see people paying and what we would consider to be too much money for those companies. And we are very selective about that and especially on something that’s bigger. It’s one thing to pay too much for something that’s $30 million it’s quite another to pay too much for something that’s $400 million. So, we get more cautious as we go up and when we see people paying what we believe to be too much money, we are happy to walk away. We spend a lot of time getting our business into a shape where we think we don’t have to buy anything that we don’t want to. And we are not afraid walking away from the table for someone, if we think they are looking for a second, we don’t want to be that guy. And we have done it lots of times. At the same time, we are willing to pay fair prices for deals. And we think something is a good deal and we think it’s going to be a good long term investment for our shareholders and then we’re absolutely willing to pay what we think is worth.

One last one, just what was the FX headwind on revenue in the quarter?

Yes. So, first quarter over first quarter, it was just in around $1 million ; and then from a fourth quarter to first quarter, it was negligible, small, less than $200,000.

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

Maybe, Allan, 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 one; 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 fourth quarter to first quarter is always a little -- as I mentioned earlier, bit of seasonality, so it may not be as strong but first quarter over first quarter, it was within the ranges that we would expect to see mid single digit type of growth.

And remind me again, was there any sense 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. Please go ahead.

First one is a follow-up quickly on Datamyne and then one maybe bigger picture question. Just on the Datamyne 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 Datamyne, I think roughly speaking, gross margins are bit stronger than our average. So, it’s helped our gross margins. From OpEx perspective, it’s sales and marketing that might be a bit higher than our average. So, when it comes to EBITDA, they are definitely not hurting our average but they are coming in very close to where the Company is overall. If that helps get some color.

And in terms of leverage, as you cross-sell, listen into the broader customer base. Is that a one year plan or three-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 data base and that has over time a certain fixed cost to doing that. And then, we sell it. In another words, the more those businesses grow, the higher the margins go. And I think you will see the same with Datamyne as we’ve seen Customs Info and MK Data.

Actually I lied, I have three questions about Datamyne and then one big picture one. Last one, on Datamyne. So, far you talked about Datamyne and the data and the app for this. 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 -- I mean, one of the -- you just mentioned your industry, one of the key targets potentially for some of that data is banks. We do not target other industries outside our supply chain and logistics right now, we thought about it. I guess the first place you’re seeing us go without the 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’ve not really started to target banks and other types of industries that we think might need this data. There’re other players in that market that focus on those types of players as well, they’ve a slightly different dataset then 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 that you’re going to see us do in the next six to eight months.

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 story, logistics is pretty well understood. But supply chain is the 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 strategy.

Well, part that we’re in the supply chain right now, are helping people plan and manage shipments. So, as I mentioned in the intro, from the purchase order in towards logistics, so someone just ordered something from me, now what do I do, and there is a lot of work that has to get done there. You look at us with our transportation management, supply chain visibility, dock rescheduling, 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’re companies that operate in supply chain management well outside of that, and we’re not into those areas yet, but as you see and 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, et cetera. We specialize in certain areas in warehouse management and kind of completely ignore the others right now, because we don’t have solutions for them. But if you’re freight forwarder, we’ve 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 small ecommerce player, we’ve a great warehouse management tool for you. So, we’re in some part of that business and in others we’ve -- until our tools become more capable of dealing with that in that 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 competencies.

We have no further questions at this time. I’ll turn the call back over for final remarks.

Great, thank you. Thanks to everyone for joining the call today. We look forward to reporting back to you next quarter on our Q2 results. Have a great night.