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Descartes provides ‘cautious’ outlook, reiterates long-term targets

Management from supply chain software-as-a-service provider Descartes said higher interest rates and inflation as well as the war in Ukraine have forced it to “remain cautious” on the near term. However, its retail customers are telling them shipment volumes are likely to increase as the year progresses.

The Canada-based company reported earnings of 34 cents per share for the 2023 fiscal fourth quarter ended Jan. 31, which was 12 cents higher year over year (y/y).

Revenue increased 11% y/y to $125 million, with gross margin expanding 100 basis points to 77%. A strong U.S. dollar negatively impacted revenue by $3 million.

Adjusted earnings before interest, taxes, depreciation and amortization of $55 million was 11% higher y/y, producing an adjusted EBITDA margin of 44.3%. That was in line with management’s guidance range of 40% to 45%.

Table: Descartes’ key performance indicators

Management said the recent acquisition of final-mile automation platform GroundCloud presents a sequential margin headwind during the fiscal first quarter (ending April 30) as integration takes place.

Fiscal first-quarter revenue is expected to be $117 million, with adjusted EBITDA of $43 million. The forecasts are based on Feb. 14 foreign exchange rates.

“A lot of retailers were selling stuff that they had ordered pretty early last Christmas and as the shelves emptied out they’re now looking to replenish those things now that a bunch of factories are open in China,” CEO Ed Ryan told analysts on a call Wednesday evening.

The long-term target calls for Descartes (NASDAQ: DSGX) to generate adjusted EBITDA growth of 10% to 15% annually. It was up 15.9% y/y in fiscal year 2023. The company has exceeded the high end of the range over the past 15 years.

Descartes generated $51 million in operating cash flow during the quarter, ending the period with $276 million in cash and no debt, up from a cash balance of $237 million at the end of the October quarter.

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