Bullboard - Stock Discussion Forum Descartes Systems Group Inc T.DSG

Alternate Symbol(s): DSGX

The Descartes Systems Group Inc. is focused on logistics and supply chain management business processes. It provides on-demand, software-as-a-service (SaaS) solutions focused on improving the security and sustainability of logistics-intensive businesses. The Company allows customers to use its modular, SaaS solutions to route, track and help improve the safety, compliance of delivery resources;... see more

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Post by retiredcf on Dec 04, 2024 8:28am

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Currently have a $135.00 target. GLTA

Q3/F25: SEVERAL POTENTIAL TAILWINDS

THE TD COWEN INSIGHT

As expected, another consistent quarter. Strong one-time License revenue drove a slight top line beat. We remain favourable on the name given what we believe could be a positive setup for accelerating Services organic growth from recent hardware upgrades, global trade uncertainty, and cross-selling. Combined with a favourable M&A environment, we believe Descartes' momentum can continue.

Impact: SLIGHTLY POSITIVE

Slight organic growth acceleration. Revenue of $168.8mm was slightly ahead of estimates for $165.6mm (TD)/ $164.8mm (consensus). Total organic growth was 10%, a slight uptick q/q from 9%, but we believe that may have been largely due to stronger-than-expected License revenue as Services organic growth remained in the 7% range.

The slight top-line beat was offset by slightly lower EBITDA margin from a higher mix of low-margin hardware from the GroundCloud upgrade cycle and recent acquisitions. The hardware cycle is now complete and margins should normalize from Q4/F25. Management estimates EBITDA margin would have been 44% excluding these.

Several tailwinds. We see several catalysts that could accelerate organic growth.

The GroundCloud upgrade cycle could lead to higher Services revenue given an expanded

install base.
We expect an uncertain trade environment to increase demand for Descartes' solutions, particularly its Global Trade Intelligence solutions. Management expects a pickup in interest in the near-term. We believe this also drives margin expansion given strong operating leverage.
Cross-selling newly acquired solutions, such as combining Sellercloud and Descartes' existing e-commerce solutions. Descartes has already seen early success in selling the products together.

Integrations going well. In addition to early success with Sellercloud, acquisitions made earlier in the year are tracking ahead of plan. OCR and ASD generated margins below the corporate average, but management remains confident that they can expand it to "very high margins" over time, consistent with our thesis.

Favourable M&A environment. The company generated $59mm of FCF in the quarter to end the quarter with $181mm of cash and no debt, even after the two acquisitions made in the quarter. Management noted a favourable environment, which echoed EVP of Corporate Development, Ed Gardner's, comments last week at our Technology Conference that target valuations were more reasonable. We expect this accelerated pace of acquisitions to continue.