Welcome to the quarterly results call. My name is Adrienne, and I'll be your operator for today's call. [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 remotely 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 our assessment of the current and future impact of the COVID-19 pandemic on our business and financial condition; 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're cautioned that such information may not be appropriate for other purposes. We don't undertake or accept any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements to reflect any change in our expectations or any change in events, conditions, assumptions or circumstances on which any such statement is based, except as is required by law. And with that, let me turn the call over to Ed.

Thanks, Scott, and welcome, everyone, to the call. We had some excellent first quarter results to kick off our 2022 fiscal year, and I'm excited to be able to talk with you about them here today. But first, let's start with the road map for this call. I'll start with some comments about our performance over the past quarter and what we think they may tell us about our business. I'll then hand it over to Allan, who will go over the Q1 financial results in detail. I'll come back then and update on how our business is calibrated and some things that we'll be watching in this fiscal year. And then we'll open it up to the operator to coordinate the Q&A portion of the call. So with that, let's get started. As the headline of the press release said, these were record financial results for us that are well ahead of our plans to start off the year. To get right to the point of why we're ahead on plan, here are a few factors. So first, we had good new additional recurring revenues in our customs compliance pillar from our Brexit solutions. Second, we had better than planned performance from recent acquisitions. And third, we've seen a good bounce back from shipment volumes on our network as the U.S. has started to open up -- back up for business. So let me talk about each of these areas for just a little bit here. Let's start with Brexit. In Q1, we had a great traction in helping our customers get ready for compliance with new U.K. Brexit rules. We've talked about this a bit on past calls. However, with U.K. leaving the EU, it's like you've established a brand-new country for customs purposes for all trade between…

Okay. Thanks, Ed. As indicated, I'm going to walk you through our financial highlights for our first quarter, which ended on April 30. We are pleased to report record quarterly revenues of $98.8 million this quarter, an increase of 18% from revenues of $83.7 million in Q1 last year. While revenue from new acquisitions contributed nicely to this growth, as Ed mentioned, growth in revenue from new and existing customers, including from new Brexit-related custom filings in the U.K., were the main drivers of growth this quarter when compared to last year. We should note that the first quarter last year is a bit of a weaker comparable period as it did have a negative impact from lower transactional volumes at the outset of the global pandemic last year, really in the month of April last year. In addition, we should mention that there is a benefit to revenue from foreign exchange this quarter of approximately $3 million as the U.S. dollar was weaker compared to the euro, the Canadian dollar and British pound compared to the same period last year. As a reminder, the impact of foreign exchange on our adjusted EBITDA was once again quite minor as we remain fairly naturally hedged to FX on a profitability or cash flow basis. Back to revenue. Our revenue mix in the quarter continued to be very strong, with services revenue increasing 19% to $88.3 million or 90% of total revenue compared to $74.1 million or 89% of revenue in the same period last year. Services revenue was also up nicely sequentially, increasing 7% in the fourth quarter of last year. License revenues came in at $1.3 million or just over 1% of revenue in the quarter, down from license revenues of $1.8 million in the first quarter last year, while…

Okay, great. Thanks, Allan. One of the things we strive for at Descartes is consistency. We believe that consistency brings stability and reliability, things that we know are valuable to our customers and our broader stakeholders. To deliver this consistency, we operate from consistent business principles. We plan for our business to grow adjusted EBITDA 10% to 15% annually. We plan to grow through a combination of organic growth and acquisitions. When we overperform, we expect to reinvest that overperformance back into our business. And we focus on recurring revenues and establishing relationships with customers for life. Finally, we thrive on operating predictable business that allows us forward visibility to our revenues and investment paybacks. I just wanted to spend a minute hitting some of these principles, particularly in light of us performing ahead of our plans for Q1. We believe that when we overperform, we should look at investing that overperformance back into our business. We believe that overperformance presents an opportunity to invest to make the future of our business better, more predictable and sustainable. It's how we can generate the forward visibility to revenues and investment paybacks that we crave. And we think that's the circumstance that we find ourselves in now. We have an opportunity to invest in our business to drive even more consistent organic performance in the future. Specifically, we intend to look at opportunities to both enhance our go-to-market infrastructure and also customer service with the specific goals of impacting future organic revenue growth and customer retention. So when we looked at calibrating our business for Q2, we keep that investment opportunity in mind because for us, overperformance is an opportunity to get better, not an opportunity to celebrate. So on to calibration. In our quarterly report that Scott mentioned we filed today,…

[Operator Instructions] Our first question from the call Paul Steep from Scotia.

Great. Can you just give us a little bit of a recap on the areas of investment? I noticed you mentioned go-to-market and customer service. And I'm assuming you're meaning like the incremental investment of the outperformance despite the bumped up range. I didn't hear you call out anything around product. I'm just sort of curious, is there an area there of focus? And then I got 1 fast follow-up clarification.

Yes, sure. I mentioned that on the last call, and that's certainly one of the areas, is there's more -- we have some products that are hot, that we're putting some more investment in as well. But I wanted to call out that the new investment since, we did even better this quarter.

And I guess in terms of go to market, Ed. Should we be thinking like this is laying the groundwork for sort of '23 and maybe into '24 in terms of the magnitude of change that you're making here? And then the clarification as well would just be, can you just re-hit the calibration numbers? You went a little fast there. And then I'll pass the line.

Yes. Give me a second. Yes. The customer -- the customer-facing stuff is -- yes, I expect it to be over the next couple of years. Give me one second. Let me just go back at my notes on the calibration.

Ed, I'll just -- I can...

You got it? Okay. Perfect. Yes. Thank you.

Calibrated revenues was $92.0 million; and calibrated adjusted EBITDA, $33.0 million.

And our next question comes from Paul Treiber from RBC Capital.

I just want to follow up quickly on the last comment you had just on the products you said that are hot where you're putting more investment. Just can you elaborate on which areas you're seeing the greatest momentum right now?

Yes. Some of the ones I mentioned actually, in the e-commerce businesses, there's a bunch of businesses in there that are doing well, both the shipment and management and the warehouse management pieces of that business. Our global trade compliance business is doing very well. You may have heard we mention Brexit, some of the regulatory compliance areas that have been doing very well lately. We made a lot of investment for Brexit last year. You could see some of that paying off right now. Most of that Brexit work is done prior to the go-live for Brexit. So that's awesome. Now we get to kind of reap the rewards of that business. And then maybe moreover with all -- the e-commerce business is the direct beneficiary of all the last-mile deliveries. But in the longer run, our mobile routing, tracking businesses, mobile handheld businesses all do well as last-mile deliveries expand. So we see that opportunity unfolding over the next 5 to 10 years as e-commerce volumes continue to grow.

And just at a high level, I mean, this past year has been extremely disruptive to supply chains and logistics, probably culminated with the ship getting stuck in the Suez Canal. The -- have you just seen a general rise in interest for customers to want to automate more and more of their supply chain? And then are you seeing that in the ability to cross-sell or upsell? Like the ability for your customers to adopt more solutions from you?

Yes, that's exactly what we're seeing. I mean, I think as the whole world realizes that logistics and supply chain is more important than they thought it was, and in fact, most of the world is coming just now to understand what that is, that puts pressure on the companies that they're buying stuff from to give them status messages and tell them where shipments are all along. And the trucks that deliver them to the warehouses even, you kind of need to know where all these things are to orchestrate faster and faster deliveries for the consumer. And that whole process puts a lot of pressure on our customers to have technology in place to deliver to those customer expectations, and we're one of the main places they would go to get that. And I think that's why, or at least part of why you're seeing us do very well right now and perhaps for some time to come into the future.

And our next question comes from Raimo Lenschow from Barclays.

This is Frank on for Raimo. I want to stay on the topic of e-commerce, if I can. So this is a point of emphasis for you guys, especially around the pandemic, and it did really well. I want to ask how you're seeing the growth trending here as we continue to move into a post-pandemic world. Can you also frame the long-term potential here in growth?

We see it going back to growth levels that were -- probably what we were seeing pre-pandemic. And what we saw was a big step function up in -- as the pandemic started, it started to slow but at still pretty good levels. I think we were in the 20s since the big push that we got or the start of the pandemic where it really shot up upwards of 40%. And we're seeing it now come back to a normal level of growth, but still quite good, probably one of our fastest growing businesses. And I don't know how long that goes on to the future, I suspect it will go on for some time. And I just look around esoterically. I think talking to friends or whatever, it seems like people are more and more comfortable doing that and quickly look to order things online versus go to the store. And I think the pandemic probably started that process. But once you're comfortable doing that, it's hard to go back.

Great. That's really helpful. And one follow-up, if I can. It was good to see the EBITDA target range raise. Can you talk a little bit about how much of that was scaling in the business and operational improvement over the past few quarters versus any cost discipline that you learned at the pandemic world?

I mean it's mostly growth in our business contributing to it. In the beginning of the pandemic, it was some cost discipline. As our revenue went down, we cut costs in line with that. I think you've heard us talk about that in past calls last May. When we saw the April result down 5%, we kind of cut our cost 5%. We haven't done anything like that since. In fact, we've probably been growing as our business has been growing since then. But most of that, what you're seeing now that's gotten us up into the 42% range has been our business growing and some of the dynamics that have always existed in our business, right? The last dollar in is almost all profit in most of our businesses because of the network that we operate and the recurring revenue model that we operate.

And our next question comes from Justin Long from Stephens.

Congrats on the quarter. So I wanted to follow up on organic growth. Is there any way you could help us kind of ballpark the level of organic growth that you saw in the quarter? And I know we're comping against the initial stages of the pandemic on a year-over-year basis. So maybe, Ed, could you speak to the sequential trends you're seeing in organic growth as well?

Yes. I'll have Allan jump in so we get the numbers straight.

Yes. So listen, strong quarter organically. I think if you look into the financial statements, just over double-digit organic growth. But you remember, we run a business on a combined basis, so we're constantly integrating the business. As Ed mentioned in his prepared comments, some of those recent acquisitions are performing quite well for us. Is that organic growth or is that acquisition growth? We -- again, the way we operate, we plan this all together. Overall, for the 3 reasons Ed mentioned, the strong acquisitions, the Brexit and then just a general recovery in trade and adoption of our products, all contributing to probably what's the best organic growth number we've seen for a while. Did I answer everything for you?

That's great. And then maybe the trend sequentially from an organic growth perspective as well?

Yes. I mean we're up 70% from a -- sequentially in the business as far as adjusted EBITDA. And heavily, that's -- again, that's going to be a mix of both that organic growth and new existing customers that are doing more volume with us. So 5% revenue growth sequentially, about a 7.5% EBITDA growth sequentially, and those are all a mix of both factors that are driving.

Great. That's helpful. And just quickly to follow up on the comment around investing outperformance back in the business. Is there any way to put numbers around that comment as we think about the incremental investment we could see this year? And maybe you could speak to the organic growth environment that you're planning for over the balance of the year as you make that comment?

I don't know the exact numbers. And we'll just have to see how we go. We're going around our organization right now looking for areas where we think -- with the managers that run various groups in our business trying to define the best areas to invest where we think we can get the biggest bang for our buck. I don't think we've put anything out specifically about how much we're going to spend. But you could take us at the word that we mention there. We're going to invest the overperformance back in the business and with an eye towards getting results in the coming years for that effort. So I think I answered the first part of your question. What was the second part of the question? Could you repeat that?

The organic growth profile that you're assuming over the balance of the year.

Well, yes. I mean, we assume 4% to 6% organic growth. We're doing pretty well right now. Chance we beat it but we -- as we've always stated, we're planning on a 4% to 6% organic growth. And if we beat that, we'll reinvest it back in the business. It's been going pretty well. Obviously, you can see the organic growth number was great this quarter. We hope that trend continues. But we've got to see how the economy performs in the coming months coming out of the pandemic.

And our next question comes from Scott Group from Wolfe Research.

It's Rob Salmon on for Scott. Just to piggyback on a couple of questions regarding the EBITDA margins and the investments. As we look out to later in the year, given the incremental investments you're planning on doing, should we be expecting EBITDA margins to be retreating in the near term from the levels that we're at in the first quarter?

I mean, listen, we just called out the range, 38% to 43%. We think we'll continue to operate in that range. We'd like to keep that number going up. There's a lot of factors that go into it, some of them outside of our control. But no, we would like to keep it in the range that we mentioned. We plan on keeping it in the range we mentioned.

Got it. And then Ed, earlier in the call, you had highlighted the Brexit tailwinds that you've seen this past quarter. You expect them to continue to be tailwinds for the remainder of the year. How should we think about the Brexit revenue kind of scaling up over the course of '21? And will we be at full run rate, do you think, even at the end of the year? Or will this continue to be a tailwind looking out into fiscal '23?

Remember, it's all recurring revenue, right? So the people pay us per shipment and they're paying us monthly minimums, and we expect that they'll do that with us forever or at least as long as they are customers of ours. So as I mentioned in the past, these regulatory initiatives are step functions, right? I can't control demand. The government has to come in, tell our customers they have to comply with some regulation, and then we help our customers do that. We're fortunate in the Brexit scenario that it was already a business that we were very strong in that market. We then came up with what we think is the best solution in the market. And in the face of that, a bunch of our competitors kind of failed to deliver some or parts of that solution. So all that translated to us becoming the leader in that market. And you heard me on the call 20 minutes ago, I was kind of mentioning that there's a bunch of phases to this rule and that some of them are already in place, and some of them are rolling out over the course of the year. It's not going to be mandatory in whole until the end of the year. So customers have some ramp-up period to get in. We expect -- that's why we'll see a tailwind going over the course of the year. We think we'll continue to sign up some of the small and medium-sized players that have yet to do this yet. And that all other players in the market will continue to ramp up their transactions through to the end of the year when they're supposed to be live. After that, theoretically, everyone should be live at that point. And we may see increases, but they'll probably be more modest as international trade in and out of the U.K. grows. But otherwise, we'd expect that we've gotten most of the customers and their volumes that we'll get for Brexit by the end of the year. Because it's a recurring revenue business, I think we can expect to get this for a long time to come. At the same time, if we're going to have another substantial increase in our regulatory business, it's going to come from another jurisdiction.

Got it. And in terms of just the phase adoption through year-end, is it really stair-step at the -- towards the very end of the year? Or maybe you can kind of give us some sort of cadence that we should be thinking, maybe we're at 5, whatever the number is.

I don't know yet. I think we've picked up a good piece of the -- good chunk of the business. It's not easy for us to figure out how much everyone might do by the end of the year. We know they're not doing everything that they can with us right now. But it's hard for us to predict exactly what the increases are going to be over the course of the year and when they're going to occur. So we're -- just as we always do, we're playing it conservatively, and we're prepared for it. And we're prepared for whatever volume they might bring us. And we do expect that it will continue to rise. We don't know to what level yet.

And this concludes our question-and-answer session. I'll turn the call back over to the speakers for final remarks.

Great. Thanks, everyone. We appreciate your time this afternoon. Look forward to talking to you next, I think it's early September for the Q2 results call. Appreciate your time today. Thanks, guys.

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