Table of Contents |
Management’s Discussion and Analysis of Financial Condition and Results of Operations | 3 |
Overview | 5 |
Consolidated Operations | 9 |
Quarterly Operating Results | 15 |
Liquidity and Capital Resources | 16 |
Commitments, Contingencies and Guarantees | 19 |
Outstanding Share Data | 21 |
Application of Critical Accounting Policies | 21 |
Change In / Initial Adoption of Accounting Policies | 22 |
Controls and Procedures | 23 |
Trends / Business Outlook | 23 |
Certain Factors That May Affect Future Results | 26 |
Condensed Consolidated Balance Sheets | 38 |
Condensed Consolidated Statements of Operations | 39 |
Condensed Consolidated Statements of Comprehensive Income | 40 |
Condensed Consolidated Statements of Shareholders’ Equity | 41 |
Condensed Consolidated Statements of Cash Flows | 42 |
Notes to Condensed Consolidated Financial Statements | 43 |
Corporate Information | 64 |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Overview |
We use technology and networks to simplify complex business processes. We’re primarily focused on logistics and supply chain management business processes. Our solutions are predominantly cloud-based and are focused on improving the productivity, performance and security of logistics-intensive businesses. Customers use our modular, software-as-a-service (“SaaS”) and data solutions to route, schedule, track and measure delivery resources; plan, allocate and execute shipments; rate, audit and pay transportation invoices; access and analyze global trade data; research and perform trade tariff and duty calculations; file customs and security documents for imports and exports; and complete numerous other logistics processes by participating in a large, collaborative multi-modal logistics community. Our pricing model provides our customers with flexibility in purchasing our solutions either on a subscription, transactional or perpetual license basis. Our primary focus is on serving transportation providers (air, ocean and truck modes), logistics service providers (including third-party logistics providers, freight forwarders and customs brokers) and distribution-intensive companies for which logistics is either a key or a defining part of their own product or service offering, or for which our solutions can provide an opportunity to reduce costs, improve service levels, or support growth by optimizing the use of assets and information.
The Market
Logistics is the management of the flow of resources between a point of origin and a point of destination – processes that move items (such as goods, people, information) from point A to point B. Supply chain management is broader than logistics and includes the sourcing, procurement, conversion and storage of resources for consumption by an enterprise. Logistics and supply chain management have been evolving over the past several years as companies are increasingly seeking automation and real-time control of their supply chain activities. We believe companies are looking for integrated solutions for managing inventory in transit, conveyance units, people, data and business documents.
We believe logistics-intensive organizations are seeking to reduce operating costs, differentiate
• | Routing, Mobile and Telematics; |
• | Transportation Management and e-commerce enablement; |
• | Customs & Regulatory Compliance; |
• | Trade Data; |
• | Global Logistics Network Services; and |
• | Broker & Forwarder Enterprise Systems. |
• | Technology Partners – Complementary hardware, software, network, and embedded technology providers that extend the functional breadth of Descartes’ solution capabilities; |
• | Consulting Partners - Large system integrators and enterprise resource planning system vendors through to vertically specialized or niche consulting organizations that provide domain expertise and/or implementation services for Descartes’ solutions; and |
• | Channel Partners (Value-Added Resellers) – Organizations that market, sell, implement and support Descartes' solutions to extend access and expand market share into territories and markets where Descartes might not have a focused direct sales presence. |
Consolidated Operations |
Third Quarter of | First Three Quarters of | ||||
2020 | 2019 | 2020 | 2019 | ||
Total revenues | 83.0 | 70.0 | 241.6 | 204.1 | |
Cost of revenues | 22.1 | 19.2 | 63.1 | 55.7 | |
Gross margin | 60.9 | 50.8 | 178.5 | 148.4 | |
Operating expenses | 31.9 | 29.1 | 94.9 | 85.5 | |
Other charges | 0.8 | 0.5 | 3.5 | 2.3 | |
Amortization of intangible assets | 14.5 | 10.4 | 41.4 | 29.9 | |
Income from operations | 13.7 | 10.8 | 38.7 | 30.7 | |
Investment income | - | - | 0.2 | 0.1 | |
Interest expense | (0.5) | (0.6) | (4.1) | (1.6) | |
Income before income taxes | 13.2 | 10.2 | 34.8 | 29.2 | |
Income tax expense | |||||
Current | 2.3 | 1.6 | 5.7 | 4.7 | |
Deferred | 1.2 | 0.7 | 3.5 | 1.1 | |
Net income | 9.7 | 7.9 | 25.6 | 23.4 |
EARNINGS PER SHARE | |||||
BASIC | 0.11 | 0.10 | 0.32 | 0.30 | |
DILUTED | 0.11 | 0.10 | 0.31 | 0.30 | |
WEIGHTED AVERAGE SHARES OUTSTANDING (thousands) | |||||
BASIC | 84,136 | 76,854 | 80,818 | 76,821 | |
DILUTED | 85,342 | 77,863 | 81,991 | 77,767 |
Third Quarter of | First Three Quarters of | ||||
2020 | 2019 | 2020 | 2019 | ||
License | 1.5 | 1.6 | 5.0 | 4.8 | |
Percentage of total revenues | 2% | 2% | 2% | 2% | |
Services | 72.6 | 61.1 | 211.0 | 178.6 | |
Percentage of total revenues | 87% | 87% | 87% | 88% | |
Professional services and other | 8.9 | 7.3 | 25.6 | 20.7 | |
Percentage of total revenues | 11% | 11% | 11% | 10% | |
Total revenues | 83.0 | 70.0 | 241.6 | 204.1 |
Third Quarter of | First Three Quarters of | ||||
2020 | 2019 | 2020 | 2019 | ||
United States | 51.6 | 42.2 | 150.7 | 121.8 | |
Percentage of total revenues | 62% | 60% | 62% | 60% | |
Europe, Middle-East and Africa (“EMEA”) | 20.8 | 19.9 | 60.4 | 60.5 | |
Percentage of total revenues | 25% | 28% | 25% | 30% | |
Canada | 7.3 | 5.1 | 20.7 | 12.7 | |
Percentage of total revenues | 9% | 8% | 9% | 6% | |
Asia Pacific | 3.3 | 2.8 | 9.8 | 9.1 | |
Percentage of total revenues | 4% | 4% | 4% | 4% | |
Total revenues | 83.0 | 70.0 | 241.6 | 204.1 |
Third Quarter of | First Three Quarters of | ||||
2020 | 2019 | 2020 | 2019 | ||
License | |||||
License revenues | 1.5 | 1.6 | 5.0 | 4.8 | |
Cost of license revenues | 0.2 | 0.2 | 0.6 | 0.5 | |
Gross margin | 1.3 | 1.4 | 4.4 | 4.3 | |
Gross margin percentage | 87% | 88% | 88% | 90% | |
Services | |||||
Services revenues | 72.6 | 61.1 | 211.0 | 178.6 | |
Cost of services revenues | 16.6 | 14.9 | 47.9 | 42.6 | |
Gross margin | 56.0 | 46.2 | 163.1 | 136.0 | |
Gross margin percentage | 77% | 76% | 77% | 76% | |
Professional services and other | |||||
Professional services and other revenues | 8.9 | 7.3 | 25.6 | 20.7 | |
Cost of professional services and other revenues | 5.3 | 4.1 | 14.6 | 12.6 | |
Gross margin | 3.6 | 3.2 | 11.0 | 8.1 | |
Gross margin percentage | 40% | 43% | 43% | 39% | |
�� | |||||
Total | |||||
Revenues | 83.0 | 70.0 | 241.6 | 204.1 | |
Cost of revenues | 22.1 | 19.2 | 63.1 | 55.7 | |
Gross margin | 60.9 | 50.8 | 178.5 | 148.4 | |
Gross margin percentage | 73% | 73% | 74% | 73% |
Third Quarter of | First Three Quarters of | ||||
2020 | 2019 | 2020 | 2019 | ||
Total revenues | 83.0 | 70.0 | 241.6 | 204.1 | |
Sales and marketing expenses | 10.1 | 9.3 | 30.3 | 27.8 | |
Percentage of total revenues | 12% | 13% | 13% | 14% | |
Research and development expenses | 13.4 | 11.9 | 39.5 | 35.7 | |
Percentage of total revenues | 16% | 17% | 16% | 17% | |
General and administrative expenses | 8.4 | 7.9 | 25.1 | 22.0 | |
Percentage of total revenues | 10% | 11% | 10% | 11% | |
Total operating expenses Percentage of total revenues | 31.9 38% | 29.1 42% | 94.9 39% | 85.5 42% |
Quarterly Operating Results |
Fiscal 2018 | Fiscal 2019 | Fiscal 2020 | ||||||
Fourth Quarter | First Quarter | Second Quarter | Third Quarter | Fourth Quarter | First Quarter | Second Quarter | Third Quarter | |
Revenues | 63,631 | 67,018 | 67,115 | 70,008 | 71,030 | 78,004 | 80,540 | 83,026 |
Gross margin | 46,499 | 48,434 | 49,154 | 50,858 | 51,731 | 58,148 | 59,403 | 60,893 |
Operating expenses | 27,483 | 27,997 | 28,358 | 29,144 | 29,258 | 31,338 | 31,621 | 31,932 |
Net income | 6,665 | 6,986 | 8,498 | 7,901 | 7,892 | 7,320 | 8,573 | 9,666 |
Basic earnings per share | 0.09 | 0.09 | 0.11 | 0.10 | 0.10 | 0.09 | 0.11 | 0.11 |
Diluted earnings per share | 0.09 | 0.09 | 0.11 | 0.10 | 0.10 | 0.09 | 0.10 | 0.11 |
Weighted average shares outstanding (thousands): | ||||||||
Basic | 76,773 | 76,793 | 76,816 | 76,854 | 76,865 | 77,149 | 81,049 | 84,136 |
Diluted | 77,616 | 77,650 | 77,781 | 77,863 | 77,842 | 78,273 | 82,245 | 85,342 |
Liquidity and Capital Resources |
Third Quarter of | First Three Quarters of | ||||
2020 | 2019 | 2020 | 2019 | ||
Cash provided by operating activities | 27.5 | 19.2 | 77.9 | 56.3 | |
Additions to property and equipment | (1.5) | (1.1) | (3.9) | (3.1) | |
Acquisitions of subsidiaries, net of cash acquired | (11.7) | (9.4) | (292.1) | (67.9) | |
Proceeds from borrowings on credit facility | 12.0 | 9.9 | 297.0 | 68.5 | |
Credit facility repayments | (25.5) | (18.0) | (313.4) | (53.5) | |
Payment of debt issuance costs | (0.1) | - | (1.9) | - | |
Issuances of common shares, net of issuance costs | 0.5 | - | 238.4 | 0.4 | |
Payment of contingent consideration | - | (1.5) | - | (1.5) | |
Effect of foreign exchange rate on cash | 0.2 | (0.4) | (0.5) | (1.5) | |
Net change in cash | 1.4 | (1.3) | 1.5 | (2.3) | |
Cash, beginning of period | 27.4 | 34.1 | 27.3 | 35.1 | |
Cash, end of period | 28.8 | 32.8 | 28.8 | 32.8 |
Commitments, Contingencies and Guarantees |
Less than 1 year | 1-3 years | 4-5 years | More than 5 years | Total | |
Debt obligations | - | - | 9.3 | - | 9.3 |
Operating lease obligations | 4.4 | 5.7 | 3.3 | 1.3 | 14.7 |
Total | 4.4 | 5.7 | 12.6 | 1.3 | 24.0 |
Outstanding Share Data |
Application of Critical Accounting Policies |
• | Revenue recognition, costs to obtain a contract, contract assets and liabilities; |
• | Impairment of long-lived assets; |
• | Goodwill; |
• | Stock-based compensation; |
• | Income taxes; and |
• | Business combinations. |
Change In / Initial Adoption of Accounting Policies |
Controls and Procedures |
Trends / Business Outlook |
Certain Factors That May Affect Future Results |
• | Challenges identifying suitable businesses to buy and negotiating the acquisition of those businesses on acceptable terms; |
• | Challenges completing the acquisitions within our expected time frames and budgets; |
• | Challenges in integrating acquired businesses with our business; |
• | Loss of customers of the acquired business; |
• | Loss of key personnel from the acquired business, such as former executive officers or key technical personnel; |
• | Non-compatible business cultures; |
• | For regulatory compliance businesses, changes in government regulations impacting electronic regulatory filings or import/export compliance, including changes in which government agencies are responsible for gathering import and export information; |
• | Difficulties in gaining necessary approvals in international markets to expand acquired businesses as contemplated; |
• | Our inability to obtain or maintain necessary security clearances to provide international shipment management services; |
• | Our failure to make appropriate capital investments in infrastructure to facilitate growth; and |
• | Other risk factors identified in this report. |
• | System or network failure; |
• | Software errors, failures and crashes; |
• | Interruption in the supply of power; |
• | Virus proliferation or malware; |
• | Communications failures; |
• | Information or infrastructure security breaches; |
• | Insufficient investment in infrastructure; |
• | Earthquakes, fires, floods, natural disasters, or other force majeure events outside our control; and |
• | Acts of war, sabotage, cyber-attacks, denial-of-service attacks and/or terrorism. |
• | Established relationships with existing customers or prospects that we are targeting; |
• | Superior product functionality and industry-specific expertise; |
• | Broader range of products to offer and better product life cycle management; |
• | Larger installed base of customers; |
• | Greater financial, technical, marketing, sales, distribution and other resources; |
• | Better performance; |
• | Lower cost structure and more profitable operations; |
• | Greater investment in infrastructure; |
• | Greater worldwide presence; |
• | Early adoption of, or adaptation to changes in, technology; or |
• | Longer operating history; and/or greater name recognition. |
• | Impairment of goodwill or intangible assets; |
• | A reduction in the useful lives of intangible assets acquired; |
• | Identification of assumed contingent liabilities after we finalize the purchase price allocation period; |
• | Charges to our operating results to eliminate certain pre-merger activities that duplicate those of the acquired company or to reduce our cost structure; and |
• | Charges to our operating results resulting from revised estimates to restructure an acquired company’s operations after we finalize the purchase price allocation period. |
• | Longer collection time from foreign clients, particularly in the EMEA region and the Asia Pacific region; |
• | Difficulty in repatriating cash from certain foreign jurisdictions; |
• | Language barriers, conflicting international business practices, and other difficulties related to the management and administration of a global business; |
• | Increased management, travel, infrastructure and legal compliance costs associated with having international operations; |
• | Difficulties and costs of staffing and managing geographically disparate direct and indirect operations; |
• | Volatility or fluctuations in foreign currency and tariff rates; |
• | Multiple, and possibly overlapping, tax structures; |
• | Complying with complicated and widely differing global laws and regulations in areas such as employment, tax, privacy and data protection; |
• | Trade restrictions; |
• | Enhanced security procedures and requirements relating to certain jurisdictions; |
• | The need to consider characteristics unique to technology systems used internationally; |
• | Economic or political instability in some markets; and |
• | Other risk factors set out herein. |
• | Volatility or fluctuations in foreign currency exchange rates; |
• | Volatility or fluctuations in interest rates; |
• | Timing of acquisitions and related costs; |
• | Timing of restructuring activities; |
• | The introduction of enhanced products and services from competitors; |
• | Our ability to introduce new products and updates to our existing products on a timely basis; |
• | The termination of any key customer contracts, whether by the customer or by us; |
• | Recognition and expensing of deferred tax assets; |
• | Legal costs incurred in bringing or defending any litigation with customers or third-party providers, and any corresponding judgments or awards; |
• | Legal and compliance costs incurred to comply with regulatory requirements; |
• | Fluctuations in the demand for our services and products; |
• | The impact of stock-based compensation expense; |
• | Price and functionality competition in our industry; |
• | Changes in legislation and accounting standards; |
• | Our ability to satisfy contractual obligations in customer contracts and deliver services and products to the satisfaction of our customers; and |
• | Other risk factors discussed in this report. |
• | Revenue or results of operations in any quarter failing to meet the expectations, published or otherwise, of the investment community; |
• | Changes in recommendations or financial estimates by industry or investment analysts; |
• | Changes in management or the composition of our board of directors; |
• | Outcomes of litigation or arbitration proceedings; |
• | Announcements of technological innovations or acquisitions by us or by our competitors; |
• | Introduction of new products or significant customer wins or losses by us or by our competitors; |
• | Developments with respect to our intellectual property rights or those of our competitors; |
• | Fluctuations in the share prices of other companies in the technology and emerging growth sectors; |
• | General market conditions; and |
• | Other risk factors set out in this report. |
October 31, | January 31, | ||
2019 | 2019 (Audited) | ||
ASSETS | |||
CURRENT ASSETS | |||
Cash | 28,848 | 27,298 | |
Accounts receivable (net) | |||
Trade (Note 5) | 36,231 | 31,493 | |
Other (Note 6) | 5,522 | 4,331 | |
Prepaid expenses and other | 11,353 | 9,027 | |
Inventory (Note 7) | 193 | 95 | |
82,147 | 72,244 | ||
OTHER LONG-TERM ASSETS (Note 19) | 12,731 | 10,510 | |
PROPERTY AND EQUIPMENT, NET (Note 8) | 15,757 | 12,612 | |
RIGHT-OF-USE ASSETS (Note 13) | 13,176 | - | |
DEFERRED INCOME TAXES | 24,090 | 3,598 | |
INTANGIBLE ASSETS, NET (Note 9) | 270,723 | 176,192 | |
GOODWILL (Note 10) | 523,918 | 378,178 | |
942,542 | 653,334 | ||
LIABILITIES AND SHAREHOLDERS’ EQUITY | |||
CURRENT LIABILITIES | |||
Accounts payable | 7,954 | 5,147 | |
Accrued liabilities (Note 11) | 35,455 | 29,392 | |
Lease obligations (Note 13) | 3,987 | - | |
Income taxes payable | 2,168 | 1,592 | |
Deferred revenue (Note 19) | 41,532 | 34,236 | |
91,096 | 70,367 | ||
LONG-TERM DEBT (Note 12) | 9,274 | 25,464 | |
LONG-TERM LEASE OBLIGATIONS (Note 13) | 9,692 | - | |
LONG-TERM DEFERRED REVENUE (Note 19) | 737 | 855 | |
LONG-TERM INCOME TAXES PAYABLE | 7,750 | 7,634 | |
DEFERRED INCOME TAXES | 15,188 | 15,507 | |
133,737 | 119,827 | ||
COMMITMENTS, CONTINGENCIES AND GUARANTEES (Note 14) | |||
SHAREHOLDERS’ EQUITY (Note 15) | |||
Common shares – unlimited shares authorized; Shares issued and outstanding totaled 84,151,724 at October 31, 2019 (January 31, 2019 – 76,864,866) | 524,012 | 276,753 | |
Additional paid-in capital | 457,975 | 454,722 | |
Accumulated other comprehensive loss | (25,974) | (25,201) | |
Accumulated deficit | (147,208) | (172,767) | |
808,805 | 533,507 | ||
942,542 | 653,334 |
Three Months Ended | Nine Months Ended | ||||
October 31, | October 31, | October 31, | October 31, | ||
2019 | 2018 | 2019 | 2018 | ||
REVENUES | 83,026 | 70,008 | 241,570 | 204,141 | |
COST OF REVENUES | 22,133 | 19,150 | 63,126 | 55,695 | |
GROSS MARGIN | 60,893 | 50,858 | 178,444 | 148,446 | |
EXPENSES | |||||
Sales and marketing | 10,142 | 9,312 | 30,309 | 27,776 | |
Research and development | 13,383 | 11,901 | 39,469 | 35,708 | |
General and administrative | 8,407 | 7,931 | 25,113 | 22,015 | |
Other charges (Note 20) | 799 | 529 | 3,463 | 2,250 | |
Amortization of intangible assets | 14,525 | 10,354 | 41,404 | 29,909 | |
47,256 | 40,027 | 139,758 | 117,658 | ||
INCOME FROM OPERATIONS | 13,637 | 10,831 | 38,686 | 30,788 | |
INTEREST EXPENSE | (497) | (613) | (4,100) | (1,678) | |
INVESTMENT INCOME | 39 | 40 | 151 | 140 | |
INCOME BEFORE INCOME TAXES | 13,179 | 10,258 | 34,737 | 29,250 | |
INCOME TAX EXPENSE (Note 18) | |||||
Current | 2,327 | 1,641 | 5,688 | 4,727 | |
Deferred | 1,186 | 716 | 3,490 | 1,138 | |
3,513 | 2,357 | 9,178 | 5,865 | ||
NET INCOME | 9,666 | 7,901 | 25,559 | 23,385 | |
EARNINGS PER SHARE (Note 16) | |||||
Basic | 0.11 | 0.10 | 0.32 | 0.30 | |
Diluted | 0.11 | 0.10 | 0.31 | 0.30 | |
WEIGHTED AVERAGE SHARES OUTSTANDING (thousands) | |||||
Basic | 84,136 | 76,854 | 80,818 | 76,821 | |
Diluted | 85,342 | 77,863 | 81,991 | 77,767 |
Three Months Ended | Nine Months Ended | ||||
October 31, | October 31, | October 31, | October 31, | ||
2019 | 2018 | 2019 | 2018 | ||
Comprehensive income | |||||
Net Income | 9,666 | 7,901 | 25,559 | 23,385 | |
Other comprehensive income (loss): | |||||
Foreign currency translation adjustment, net of income tax expense (recovery) of $58 and ($88) for the three and nine month periods ended October 31, 2019 ($53 and ($146) for the same periods in fiscal 2019) | 939 | (3,104) | (773) | (11,891) | |
Total other comprehensive income (loss) | 939 | (3,104) | (773) | (11,891) | |
COMPREHENSIVE INCOME | 10,605 | 4,797 | 24,786 | 11,494 |
Three Months Ended | Nine Months Ended | ||||
October 31, | October 31, | October 31, | October 31, | ||
2019 | 2018 | 2019 | 2018 | ||
Common shares | |||||
Balance, beginning of period | 523,383 | 275,210 | 276,753 | 274,536 | |
Stock options and share units exercised | 629 | - | 1,646 | 674 | |
Issuance of common shares, net of issuance costs (Note 15) | - | - | 236,568 | - | |
Acquisitions (Note 3) | - | 1,536 | 9,045 | 1,536 | |
Balance, end of period | 524,012 | 276,746 | 524,012 | 276,746 | |
Additional paid-in capital | |||||
Balance, beginning of period | 456,784 | 452,747 | 454,722 | 451,151 | |
Stock-based compensation expense (Note 17) | 1,324 | 1,002 | 3,588 | 2,736 | |
Stock options and share units exercised | (133) | - | (335) | (138) | |
Balance, end of period | 457,975 | 453,749 | 457,975 | 453,749 | |
Accumulated other comprehensive income (loss) | |||||
Balance, beginning of period | (26,913) | (24,039) | (25,201) | (15,252) | |
Other comprehensive income (loss), net of income taxes | 939 | (3,104) | (773) | (11,891) | |
Balance, end of period | (25,974) | (27,143) | (25,974) | (27,143) | |
Accumulated deficit | |||||
Balance, beginning of period | (156,874) | (188,560) | (172,767) | (211,623) | |
Net income | 9,666 | 7,901 | 25,559 | 23,385 | |
Cumulative adjustment upon modified retrospective accounting policy adoption | - | - | - | 7,579 | |
Balance, end of period | (147,208) | (180,659) | (147,208) | (180,659) | |
Total Shareholders’ Equity | 808,805 | 522,693 | 808,805 | 522,693 |
Three Months Ended | Nine Months Ended | ||||
October 31, | October 31, | October 31, | October 31, | ||
2019 | 2018 | 2019 | 2018 | ||
OPERATING ACTIVITIES | |||||
Net income | 9,666 | 7,901 | 25,559 | 23,385 | |
Adjustments to reconcile net income to cash provided by operating activities: | |||||
Depreciation | 1,176 | 1,098 | 3,143 | 3,019 | |
Amortization of intangible assets | 14,525 | 10,354 | 41,404 | 29,909 | |
Stock-based compensation expense (Note 17) | 1,324 | 1,002 | 3,588 | 2,736 | |
Other non-cash operating activities | - | (269) | 11 | (339) | |
Deferred tax expense | 1,186 | 716 | 3,490 | 1,138 | |
Deferred tax charge | - | (49) | - | (49) | |
Changes in operating assets and liabilities: | |||||
Accounts receivable | |||||
Trade | (2,502) | 260 | 2,881 | (780) | |
Other | 276 | 539 | (782) | 120 | |
Prepaid expenses and other | (1,409) | (28) | (3,525) | (2,278) | |
Inventory | (51) | 17 | (87) | 67 | |
Accounts payable | 3,591 | 1,216 | 2,000 | 3,588 | |
Accrued liabilities | 1,931 | 451 | 3,071 | 805 | |
Income taxes payable | 228 | (357) | 579 | (1,953) | |
Operating leases | 106 | - | 516 | - | |
Deferred revenue | (2,518) | (3,631) | (3,963) | (3,056) | |
Cash provided by operating activities | 27,529 | 19,220 | 77,885 | 56,312 | |
INVESTING ACTIVITIES | |||||
Additions to property and equipment | (1,484) | (1,131) | (3,879) | (3,078) | |
Acquisitions of subsidiaries, net of cash acquired (Note 3) | (11,718) | (9,443) | (292,053) | (67,932) | |
Cash used in investing activities | (13,202) | (10,574) | (295,932) | (71,010) | |
FINANCING ACTIVITIES | |||||
Proceeds from borrowing on the credit facility | 12,000 | 9,953 | 297,015 | 68,468 | |
Credit facility repayments | (25,514) | (17,956) | (313,376) | (53,493) | |
Payment of debt issuance costs | (71) | - | (1,885) | - | |
Issuances of common shares for cash, net of issuance costs (Note 15) | 547 | (27) | 238,350 | 338 | |
Payment of contingent consideration | - | (1,531) | - | (1,531) | |
Cash (used in) provided by financing activities | (13,038) | (9,561) | 220,104 | 13,782 | |
Effect of foreign exchange rate changes on cash | 197 | (393) | (507) | (1,469) | |
Increase (decrease) in cash | 1,486 | (1,308) | 1,550 | (2,385) | |
Cash, beginning of period | 27,362 | 34,068 | 27,298 | 35,145 | |
Cash, end of period | 28,848 | 32,760 | 28,848 | 32,760 | |
Supplemental disclosure of cash flow information: | |||||
Cash paid during the period for interest | 265 | 408 | 3,473 | 1,288 | |
Cash paid during the period for income taxes | 2,286 | 3,107 | 5,300 | 6,202 |
Visual Compliance | CORE | STEP-com | Best-Transport | Total | |
Purchase price consideration: | |||||
Cash, less cash acquired related to Visual Compliance ($170), CORE ($213), STEPcom ($2,700) and BestTransport ($507) | 239,863 | 21,833 | 18,639 | 11,718 | 292,053 |
Common shares issued | 9,045 | - | - | - | 9,045 |
Contingent consideration | - | 1,450 | - | - | 1,450 |
Net working capital adjustments payable / (receivable) | 1,147 | 62 | 193 | (1) | 1,401 |
250,055 | 23,345 | 18,832 | 11,717 | 303,949 | |
Allocated to: | |||||
Current assets, excluding cash acquired | 6,403 | 689 | 1,413 | 814 | 9,319 |
Property and equipment | 30 | 2,048 | 257 | 35 | 2,370 |
Deferred income tax asset | 30,924 | - | - | - | 30,924 |
Right-of-use assets | 1,188 | 68 | 232 | 194 | 1,682 |
Current liabilities | (840) | (352) | (874) | (284) | (2,350) |
Deferred revenue | (10,267) | (278) | (813) | (9) | (11,367) |
Lease obligations | (1,188) | (68) | (232) | (194) | (1,682) |
Deferred income tax liability | (282) | (3,332) | (2,316) | (1,352) | (7,282) |
Net tangible assets (liabilities) assumed | 25,968 | (1,225) | (2,333) | (796) | 21,614 |
Finite life intangible assets acquired: | |||||
Customer agreements and relationships | 32,186 | 4,600 | 10,839 | 3,000 | 50,625 |
Existing technology | 69,422 | 6,800 | - | 3,800 | 80,022 |
Trade names | 528 | 200 | 102 | 50 | 880 |
Non-compete covenants | 3,166 | 300 | 205 | 150 | 3,821 |
Goodwill | 118,785 | 12,670 | 10,019 | 5,513 | 146,987 |
250,055 | 23,345 | 18,832 | 11,717 | 303,949 |
Visual Compliance | CORE | STEPcom | Best Transport | |
Customer agreements and relationships | 14 years | 13 years | 9 years | 12 years |
Existing technology | 7 years | 6 years | N/A | 6 years |
Trade names | 5 years | 8 years | 3 years | 3 years |
Non-compete covenants | 5 years | 5 years | 3 years | 2 years |
Three Months Ended | Nine Months Ended | ||||
October 31, | October 31, | October 31, | October 31, | ||
2019 | 2018 | 2019 | 2018 | ||
Revenue | 83,243 | 80,274 | 248,854 | 239,350 | |
Net income | 9,657 | 7,084 | 25,727 | 19,862 | |
Earnings per share | |||||
Basic | 0.11 | 0.09 | 0.32 | 0.26 | |
Diluted | 0.11 | 0.09 | 0.31 | 0.26 |
• | Level 1—inputs are based upon unadjusted quoted prices for identical instruments traded in active markets. |
• | Level 2—inputs are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities. |
• | Level 3—inputs are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques that include option pricing models, discounted cash flow models, and similar techniques. |
Fair Value of Derivatives Designated as Hedge Instruments | Fair Value of Derivatives Not Designated As Hedge Instruments | Fair Value | |
Derivative assets: | |||
Equity contracts | - | 4,939 | 4,939 |
October 31, | January 31, | |
2019 | 2019 | |
Trade receivables | 37,980 | 33,350 |
Less: Allowance for doubtful accounts | (1,749) | (1,857) |
36,231 | 31,493 |
October 31, | January 31, | |
2019 | 2019 | |
Net working capital adjustments receivable from acquisitions | 55 | 55 |
Other receivables | 5,467 | 4,276 |
5,522 | 4,331 |
October 31, | January 31, | |
2019 | 2019 | |
Cost | ||
Computer equipment and software | 38,171 | 34,870 |
Furniture and fixtures | 1,409 | 1,262 |
Leasehold improvements | 789 | 444 |
Equipment installed with customers | 827 | - |
Assets under construction | 1,356 | - |
42,552 | 36,576 | |
Accumulated depreciation | ||
Computer equipment and software | 25,680 | 23,070 |
Furniture and fixtures | 720 | 634 |
Leasehold improvements | 276 | 260 |
Equipment installed with customers | 119 | - |
26,795 | 23,964 | |
Net | 15,757 | 12,612 |
October 31, | January 31, | |
2019 | 2019 | |
Cost | ||
Customer agreements and relationships | 226,231 | 177,224 |
Existing technology | 263,175 | 184,641 |
Trade names | 8,582 | 7,754 |
Non-compete covenants | 9,986 | 6,173 |
507,974 | 375,792 | |
Accumulated amortization | ||
Customer agreements and relationships | 93,674 | 82,028 |
Existing technology | 134,457 | 110,051 |
Trade names | 4,938 | 4,456 |
Non-compete covenants | 4,182 | 3,065 |
237,251 | 199,600 | |
Net | 270,723 | 176,192 |
October 31, | January 31, | |
2019 | 2019 | |
Balance at beginning of year | 378,178 | 350,148 |
Acquisition of Aljex | - | 18,903 |
Acquisition of Velocity Mail | - | 8,448 |
Acquisition of PinPoint | - | 6,306 |
Acquisition of Visual Compliance | 118,785 | - |
Acquisition of CORE | 12,670 | - |
Acquisition of STEPcom | 10,019 | - |
Acquisition of BestTransport | 5,513 | - |
Adjustments on account of foreign exchange | (1,247) | (5,627) |
Balance at end of year | 523,918 | 378,178 |
October 31, | January 31, | |
2019 | 2019 | |
Accrued compensation and benefits | 20,676 | 16,771 |
Accrued professional fees | 970 | 1,137 |
Other accrued liabilities | 13,809 | 11,484 |
35,455 | 29,392 |
October 31, | January 31, | |
2019 | 2019 | |
Credit facility | 9,274 | 25,464 |
Total amount outstanding | 9,274 | 25,464 |
Available for use | 340,726 | 324,536 |
Three Months Ended | Nine Months Ended | |
October 31, 2019 | October 31, 2019 | |
Operating lease cost | 1,348 | 3,653 |
Short-term lease cost | 216 | 721 |
Total operating lease cost | 1,564 | 4,374 |
Three Months Ended | Nine Months Ended | ||
October 31, 2019 | October 31, 2019 | ||
Operating cash outflows from operating leases included in measurement of lease liabilities | 1,215 | 3,048 | |
New ROU assets obtained in exchange for lease obligations | 921 | 5,643 |
October 31, 2019 | |||
Weighted average remaining lease term (years) | 4.4 | ||
Weighted average discount rate (%) | 2.9 |
Years Ended January 31, | Operating Leases | ||
Remainder of 2020 | 1,193 | ||
2021 | 4,127 | ||
2022 | 3,039 | ||
2023 | 2,343 | ||
2024 | 1,785 | ||
2025 and thereafter | 2,214 | ||
Total lease payments | 14,701 | ||
Less: imputed interest | (1,022) | ||
Total lease obligations | 13,679 | ||
Current | 3,987 | ||
Long-term | 9,692 |
Years Ended January 31, | Operating Leases | Capital Leases | Total |
2020 | 4,627 | 51 | 4,678 |
2021 | 3,046 | 2 | 3,048 |
2022 | 1,979 | - | 1,979 |
2023 | 1,470 | - | 1,470 |
2024 | 1,038 | - | 1,038 |
2025 | 737 | - | 737 |
2026 | 733 | - | 733 |
2027 | 271 | - | 271 |
13,901 | 53 | 13,954 |
Three Months Ended | Nine Months Ended | ||||
October 31, | October 31, | October 31, | October 31, | ||
2019 | 2018 | 2019 | 2018 | ||
Net income for purposes of calculating basic and diluted earnings per share | 9,666 | 7,901 | 25,559 | 23,385 | |
Weighted average shares outstanding | 84,136 | 76,854 | 80,818 | 76,821 | |
Dilutive effect of employee stock options | 303 | 235 | 302 | 208 | |
Dilutive effect of restricted and performance share units | 903 | 774 | 871 | 738 | |
Weighted average common and common equivalent shares outstanding | 85,342 | 77,863 | 81,991 | 77,767 | |
Earnings per share | |||||
Basic | 0.11 | 0.10 | 0.32 | 0.30 | |
Diluted | 0.11 | 0.10 | 0.31 | 0.30 |
Three Months Ended | Nine Months Ended | ||||
October 31, | October 31, | October 31, | October 31, | ||
2019 | 2018 | 2019 | 2018 | ||
Cost of revenues | 58 | 43 | 161 | 117 | |
Sales and marketing | 195 | 118 | 511 | 321 | |
Research and development | 77 | 51 | 208 | 135 | |
General and administrative | 994 | 790 | 2,708 | 2,163 | |
Effect on net income | 1,324 | 1,002 | 3,588 | 2,736 |
Nine Months Ended | ||||
October 31, 2019 | October 31, 2018 | |||
Expected dividend yield (%) | - | - | ||
Expected volatility (%) | 23.5 | 23.6 | ||
Risk-free rate (%) | 1.4 | 2.0 | ||
Expected option life (years) | 5 | 5 |
Number of Stock Options Outstanding | Weighted- Average Exercise Price | Weighted- Average Remaining Contractual Life (years) | Aggregate Intrinsic Value (in millions) | ||
Balance at January 31, 2019 | 879,338 | $21.41 | 4.7 | 8.7 | |
Granted | 367,173 | $37.98 | |||
Exercised | (90,378) | $15.13 | |||
Forfeited | (18,400) | $31.49 | |||
Balance at October 31, 2019 | 1,137,733 | $26.79 | 4.9 | 13.4 | |
Vested or expected to vest at October 31, 2019 | 1,137,733 | $26.79 | 4.9 | 13.4 | |
Exercisable at October 31, 2019 | 475,237 | $19.18 | 3.6 | 9.2 |
Number of PSUs Outstanding | Weighted- Average Granted Date Fair Value | Weighted- Average Remaining Contractual Life (years) | Aggregate Intrinsic Value (in millions) | ||
Balance at January 31, 2019 | 530,383 | $18.02 | 5.5 | 16.6 | |
Granted | 53,729 | $53.54 | |||
Performance units issued | 45,762 | $23.19 | |||
Balance at October 31, 2019 | 629,874 | $21.15 | 5.3 | 24.3 | |
Vested or expected to vest at October 31, 2019 | 629,874 | $21.15 | 5.3 | 24.3 | |
Exercisable at October 31, 2019 | 470,673 | $15.02 | 4.3 | 18.2 |
Number of RSUs Outstanding | Weighted- Average Granted Date Fair Value | Weighted- Average Remaining Contractual Life (years) | Aggregate Intrinsic Value (in millions) | ||
Balance at January 31, 2019 | 337,066 | $14.42 | 5.6 | 10.6 | |
Granted | 37,611 | $37.96 | |||
Balance at October 31, 2019 | 374,677 | $16.54 | 5.3 | 14.5 | |
Vested or expected to vest at October 31, 2019 | 374,677 | $16.54 | 5.3 | 14.5 | |
Exercisable at October 31, 2019 | 299,773 | $12.69 | 4.4 | 11.6 |
Number of CRSUs Outstanding | Weighted- Average Remaining Contractual Life (years) | ||||
Balance at January 31, 2019 | 45,063 | 1.6 | |||
Granted | 30,086 | ||||
Vested and settled in cash | (23,870) | ||||
Balance at October 31, 2019 | 51,279 | 1.7 | |||
Non-vested at October 31, 2019 | 51,279 | 1.7 |
Deferred Revenue | |
Balance at January 31, 2019 | 35,091 |
Recognition of deferred revenue | (25,119) |
Deferral of revenue | 30,940 |
Increases from business combinations | 1,749 |
Effect of movements in foreign exchange | (392) |
Balance at October 31, 2019 | 42,269 |
Current | 41,532 |
Long-term | 737 |
Contract Assets | |
Balance at January 31, 2019 | 812 |
Transfers to trade receivables from contract assets | (424) |
Increases as a result of delivered term licenses recognized as revenue during the period, net of amounts transferred to trade receivables | 783 |
Effect of movements in foreign exchange | (8) |
Balance at October 31, 2019 | 1,163 |
Three Months Ended | Nine Months Ended | ||||
October 31, | October 31, | October 31, | October 31, | ||
2019 | 2018 | 2019 | 2018 | ||
Acquisition-related costs | 799 | 524 | 3,463 | 2,231 | |
Restructuring plans | - | 5 | - | 19 | |
799 | 529 | 3,463 | 2,250 |
Three Months Ended | Nine Months Ended | ||||
October 31, | October 31, | October 31, | October 31, | ||
2019 | 2018 | 2019 | 2018 | ||
Revenues | |||||
United States | 51,561 | 42,169 | 150,743 | 121,817 | |
Europe, Middle-East and Africa | 20,839 | 19,895 | 60,365 | 60,464 | |
Canada | 7,321 | 5,130 | 20,668 | 12,785 | |
Asia Pacific | 3,305 | 2,814 | 9,794 | 9,075 | |
83,026 | 70,008 | 241,570 | 204,141 |
Three Months Ended | Nine Months Ended | ||||
October 31, | October 31, | October 31, | October 31, | ||
2019 | 2018 | 2019 | 2018 | ||
Revenues | |||||
License | 1,577 | 1,592 | 5,034 | 4,793 | |
Services | 72,560 | 61,125 | 210,975 | 178,615 | |
Professional services and other | 8,889 | 7,291 | 25,561 | 20,733 | |
83,026 | 70,008 | 241,570 | 204,141 |
October 31, | January 31, | |
2019 | 2019 | |
Total long-lived assets | ||
United States | 120,875 | 119,161 |
Europe, Middle-East and Africa | 33,696 | 28,433 |
Canada | 118,254 | 40,413 |
Asia Pacific | 13,655 | 797 |
286,480 | 188,804 |
Corporate Information |
Computershare Investor Services Inc. | Computershare Trust Company |
100 University Avenue | 12039 West Alameda Parkway |
Toronto, Ontario M5J 2Y1 | Suite Z-2 Lakewood, Colorado |
North America: (800) 663-9097 | 80228 USA |
Phone: (416) 263-9200 | Phone: (303) 262-0600 |
Phone: | (519) 746-8110 |
(800) 419-8495 | |
Fax: | (519) 880-1473 |