The Descartes Systems Group Q1 2026 Earnings Call Transcript

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Provided by Quartr
June 4, 2025
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Operator

Good afternoon, ladies and gentlemen, and welcome to the Descartes Systems Group Quarterly Results Conference Call. At this time, all lines are in listen only mode. Following the presentation, we will conduct a question and answer session. This call is being recorded on Wednesday, 06/04/2025. I would now like to turn the conference over to Mr. Scott Pengen. Please go ahead.

John Scott Pagan
John Scott Pagan
President & COO at The Descartes Systems Group

Thank you and good afternoon everyone. Joining me on the call today are Ed Ryan, CEO and Alan Brett, CFO. 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.

John Scott Pagan
John Scott Pagan
President & COO at The Descartes Systems Group

These forward looking statements include statements related to our assessment of the current and future impact of geopolitical, trade, tariff and economic uncertainty on our business and financial condition Descartes' operating performance, financial results and condition, 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.

John Scott Pagan
John Scott Pagan
President & COO at The Descartes Systems Group

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 Ted.

Edward J. Ryan
Edward J. Ryan
CEO & Director at The Descartes Systems Group

Hey, thanks Scott and welcome everyone to the call. Today we're reporting strong first quarter revenues and annual adjusted EBITDA growth consistent with our plans in very challenging and uncertain market conditions for our customers. We're excited to go over these results with you and give you some of our perspective on the current business environment, but first let me give you a roadmap for the call. I'll start by hitting some highlights of last quarter and some aspects of how our business performed. I'll then hand it over to Alan who will go over the Q1 financial results in more detail.

Edward J. Ryan
Edward J. Ryan
CEO & Director at The Descartes Systems Group

After that, I'll come back and provide an update on how we see the current business environment and how our business was calibrated for Q2. And we'll then open it up to the operator to coordinate the Q and A portion of the call. Let's start with the first quarter that ended April 30. Key metrics we monitor include revenues, profits, cash flow from operations, operating margins and returns on our investments. For this past quarter, we again had very good performance in each of these areas. Total revenues were up 12% from a year ago, with services revenues up 14% from a year ago. Income from operations was up 9% from a year ago, with adjusted EBITDA up 12%.

Edward J. Ryan
Edward J. Ryan
CEO & Director at The Descartes Systems Group

Our adjusted EBITDA margin was up one point from a year ago to 45%. We paid $115,000,000 plus some restructuring costs to acquire 3GTMS, an acquisition I'll speak to later. We also generated almost $54,000,000 in cash from operations in Q1 in a quarter where we also had payments to restructure 3GTMS immediately at closing. At the end of the quarter, we had more than $175,000,000 in cash and we were debt free with an undrawn $350,000,000 line of credit. We remain well capitalized, cash generating, growing and ready to continue to invest in our business.

Edward J. Ryan
Edward J. Ryan
CEO & Director at The Descartes Systems Group

We had a few things that were the primary drivers of growth in our business and I'll talk about each of these now. First was in our transportation management area. First area of strength was in our transportation management pillar, in particular with our MacroPoint real time visibility business. With so many challenges with goods that are moving across borders, solutions that help companies with more efficient domestic transportation moves have seen strong demand. We believe that we have the highest quality tracking service in the market with a very high percentage of loads able to be tracked through our network due to our consistent focus on interacting with carriers and other transportation management systems to get status updates.

Edward J. Ryan
Edward J. Ryan
CEO & Director at The Descartes Systems Group

We're even leveraging AI technologies to help our customers track an even greater percentage of their loads. As we ended the quarter, we were seeing some of our strongest months ever in the MacroPoint business against the backdrop of declining domestic truckloads in The United States. The recent MyCarrier Portal acquisition also has been a great addition to the transportation management solution stack. There has been a lot of media and market attention on cargo theft and fraud, with criminal networks exploiting systems by creating fake carriers and accepting delivery loads to steal cargo and or get payment. My Carrier Portal helps identify this type of fraud by helping customers evaluate the legitimacy of carriers they are doing business with.

Edward J. Ryan
Edward J. Ryan
CEO & Director at The Descartes Systems Group

We recently held a webinar with the California Highway Patrol to talk about the cargo fraud and It was one of our highest attended events ever. My Carrier Portal has been a great addition to the portfolio allowing us to further distinguish ourselves in the transportation market. We also made another addition to our transportation management portfolio where we combined with three gs TMS in the latter part of this quarter. Three gs has a traditional domestic transportation management system on a modern cloud architecture. With so many challenges in the international trade, making an investment in domestic transportation was logical for us.

Edward J. Ryan
Edward J. Ryan
CEO & Director at The Descartes Systems Group

Three gs also has strengthened partial shipping which is an excellent complement to our existing shipping solutions. Overall, the acquisition provides some great functionality to our existing customers and allows three gs customers with access to our real time visibility and fraud prevention solutions. Three gs did require some restructuring to put it on a path to the margins that Descartes prefers to operate at, which used some of our cash from operations in the quarter to get the business better positioned. In particular, with the acquisition happening near the end of the quarter, it meant that three gs didn't contribute much to our Q1 adjusted EBITDA and will require some operating history before it's fully integrated into our normal calibration. Overall transportation management grew well in a challenging environment.

Edward J. Ryan
Edward J. Ryan
CEO & Director at The Descartes Systems Group

In The US in particular there is still a declining number of freight brokers and domestic truck moves. However, with our ability to become more efficient at tracking shipments and further distinguishing ourselves in the market, we've been able to grow with more tracked loads and more customers. Second area of strength was our global trade intelligence business. Tariff changes have been coming fast and furious increases, decreases, pauses, commodity specific tariffs. It's been a very busy time for our tariff group.

Edward J. Ryan
Edward J. Ryan
CEO & Director at The Descartes Systems Group

Our customers are adjusting almost daily to a new tariff environment and they need to know that they've got a timely and accurate information source to make their decisions with. In addition, our customers are researching how other companies are handling the changes so our data mine research tools are in high demand so that no customer gets left behind. Our best marketing tool is every mention of tariffs in news headlines so it's an area of strength in the quarter. The third area was customs and regulatory compliance. These are primarily customs and security filings related to shipments crossing borders.

Edward J. Ryan
Edward J. Ryan
CEO & Director at The Descartes Systems Group

A couple of things contributed to growth here. First, there were some newer import control system requirements in The EU that have driven demand for solutions to comply. Second, we saw some lumpy filing blips in the market as people rushed imports to get ahead of the pending tariffs or alternatively to take advantage of temporary tariff reprieves. This part of our business is strong as long as shipments are moving. However, one area of the business that has seen a bunch of change is the import of small packages in The United States, otherwise known as de minimis shipments.

Edward J. Ryan
Edward J. Ryan
CEO & Director at The Descartes Systems Group

The US had a filing mechanism called Type 86 that allowed low value shipments under $800 to come into The United States on a tariff free basis. That exemption and filing mechanism was used most often by Chinese e commerce retailers who were selling into The United States. The US has stopped the availability of that exemption for China, meaning there are tariff duties that now need to be paid on those shipments. So in that business we saw an influx of activity in Type 86 before the tariff exemption disappeared on May 2, after the quarter. Since then, there seemed to be a temporary pause from some larger foreign e commerce vendors as they determined how to best import goods to The United States under the new procedures and then a resumption of imports under a more traditional import measure, Type 11 or Type one filings, with tariffs being paid in this case.

Edward J. Ryan
Edward J. Ryan
CEO & Director at The Descartes Systems Group

We can handle those traditional import processes in high volumes so we saw good demand from e commerce vendors to move to our alternative filing solutions, including some large competitive wins from other vendors. So those were the areas that had the largest impact on our growth in the quarter. However, the broader macro environment was very challenging for our customers. At its heart, the global trade environment has caused uncertainty for customers often paralyzing their decision making. We saw shipment volumes down in various modes of transportation, particularly in The U.

Edward J. Ryan
Edward J. Ryan
CEO & Director at The Descartes Systems Group

S. To China trade and West Coast ports. We saw e commerce vendors who import from China struggling with sourcing and or whether to pass tariff changes on to their own customers. We saw the broader market struggling with the potential broader inflationary impact of tariffs on The U. S.

Edward J. Ryan
Edward J. Ryan
CEO & Director at The Descartes Systems Group

Economy. We saw several domestic economies looking at recessionary economic statistics. With that uncertainty in the global trade market and the economy in general, we took steps in May to reduce our costs by completing a restructuring that impacted about 7% of our workforce. We did this to put ourselves in the best position to grow during this challenging environment. Those who followed our business over past years will know that we take our commitment to continue adjusted EBITDA growth very seriously.

Edward J. Ryan
Edward J. Ryan
CEO & Director at The Descartes Systems Group

These cost reductions were to prepare our business for any further challenges our customers may face in this uncertain market. We restructured our business from a position of strength and our company is now in a position to grow consistent with our plans and to be flexible enough to address challenges with our customers that they may face from global trade and or economic conditions. We did it because a similar approach has helped us weather past challenging business environments. We did it because it's what our stakeholders would expect us to do. We restructured our business to be even stronger in the future.

Edward J. Ryan
Edward J. Ryan
CEO & Director at The Descartes Systems Group

We are doing what you'd expected Descartes to do. In Q1 we posted strong double digit annual growth in revenues and adjusted EBITDA consistent with our 10% to 15% annual adjusted EBITDA growth plan and consistent with the ramp up we previously communicated that we expected to see over the year. We grew by acquisition by expanding our transportation management portfolio. We reduced our cost base to mitigate against potential future economic risks. We did exactly what you'd expect Descartes to do.

Edward J. Ryan
Edward J. Ryan
CEO & Director at The Descartes Systems Group

I'm excited about where our business is. Q1 shows that we're on the right track for our plans for the year. My thanks to all the Descartes team members for everything they've done to contribute to a great quarter and a great business. And with that, I'll turn the call over to Alan to go through our Q1 financial results in more detail. Alan?

Allan Brett
Allan Brett
Chief Financial Officer at The Descartes Systems Group

Okay. Thanks, Ed. As indicated, I'm going to walk you through our financial highlights of our first quarter, which ended on April 30. Revenues came in at $168,700,000 in the quarter, an increase of approximately 11.5% from revenues of $151,300,000 in Q1 of last year. Revenue from the acquisitions completed in the back half of last year, as well as the acquisition of three gs TMS completed earlier in the first quarter, contributed nicely to our revenue this quarter, while growth from new and existing customers also contributed, including revenue growth in our Global Trade Intelligence solutions and our MacroPoint free visibility solution.

Allan Brett
Allan Brett
Chief Financial Officer at The Descartes Systems Group

Consistent with past quarters, our revenue mix in the quarter continued to be very strong with services revenue increasing 13.6% to $156,600,000 and coming in at 93% of revenue in the first quarter. License revenues were again minor at less than 1% of revenue in the quarter, while professional services and other revenue came in at $11,800,000 or 7% of revenue, down 9% from $13,000,000 in the same period last year, mainly due to a decline in safety training activity in our ground cloud business. In Q1 last year, we had a sharp increase in this safety training revenue. This is because most of our ground cloud FedEx carriers need to recertify their training every twenty four months. So this revenue stream tends to be quite lumpy, with increases every other year, and this being an off year for our safety training services.

Allan Brett
Allan Brett
Chief Financial Officer at The Descartes Systems Group

Outside of Ground Cloud, professional services revenues were generally flat with the first quarter of last year. In addition, there was also a slight decrease of just over $05,000,000 in revenue this quarter from foreign exchange changes. As despite its more recent weakness, the U. S. Dollar was stronger against the euro, the Canadian dollar and the British pound in Q1 compared to the same quarter last year.

Allan Brett
Allan Brett
Chief Financial Officer at The Descartes Systems Group

We estimate that our growth in services revenue without the impact of recent acquisition or foreign exchange changes would have been approximately 4% in the first quarter. Gross margin for the first quarter came in at 76.4% of revenue this year, down very slightly from gross margin of 76.6 realized in the first quarter last year. With continued operating leverage, our operating expenses increased less than the increase of sales, growing by approximately 10.4% in Q1 over the same period last year, primarily related to the impact of acquisitions that were completed in the back half of last year. As a result of the higher revenues and our continued offering leverage on expenses, we saw adjusted EBITDA grow by 12.1% to $75,100,000 or 44.5% of revenue in the quarter, which was up from $67,000,000 or 44.3% of revenue in the first quarter last year. From a GAAP earnings perspective, net income came in at $36,200,000 up 4% from net income of $34,700,000 in the first quarter last year, and this is despite higher amortization costs and other financial charges related to our recent acquisitions.

Allan Brett
Allan Brett
Chief Financial Officer at The Descartes Systems Group

Cash flow generated from operations came in at $53,600,000 or approximately 71% of adjusted EBITDA in the first quarter, down from operating cash flow of $63,700,000 or 95% of adjusted EBITDA in Q1 last year. Cash flow from operations was negatively impacted this quarter, as we saw a slight increase in our days sales and receivable from an incredible twenty nine days of sales at the end of the fourth quarter '30 back to thirty two days sales and receivable at the end of Q1. Cash flow from operations was also impacted by some onetime acquisition related charges related to the three gs acquisition as well as the payment of prior year annual bonuses. As we had indicated on our conference call at the end of the fourth quarter, and as Ed mentioned earlier on the call, there is a lot of uncertainty out there in the global trade market, especially for our customers as they try to navigate these challenges. So we remain very pleased with these operating results against this uncertain freight market environment.

Allan Brett
Allan Brett
Chief Financial Officer at The Descartes Systems Group

If we look at the balance sheet, our cash balances totaled $176,000,000 at the April, down from cash balances of $236,000,000 at the January, as we used approximately $112,000,000 of our cash balances to complete the three gs acquisition, while we continue to generate additional positive cash flow from operations. As a result, we still have the $176,000,000 of cash as well as $350,000,000 available for us to draw under our credit facility for future acquisitions. We continue to be very well capitalized to allow us to consider all acquisition opportunities in our market, consistent with our business plan. As we look towards the balance of our fiscal twenty twenty six, we should note the following. After spending approximately $1,900,000 in capital additions in the first quarter, we expect to incur approximately 4,000,000 to $5,000,000 in additional capital expenditures for the balance of this year, as our business will continue to be non capital intensive.

Allan Brett
Allan Brett
Chief Financial Officer at The Descartes Systems Group

After incurring amortization costs of $19,100,000 in Q1, we expect amortization expense will be approximately $60,000,000 for the balance of the year, with this figure being subject to adjustment for foreign exchange changes and future acquisitions. Our tax rate in Q1 came in at 24.4% of pretax income, slightly lower than our expected range of 25% to 30%, and this was mainly a result of a few smaller tax benefits and recoveries realized in the first quarter. Looking at the balance of the year, we currently expect our tax rate will trend much closer to our expected range in the next few quarters, meaning that our tax rate for the year is likely to end up in the range of between 2428% of pretax income. So somewhere either side of our blended statutory tax rate of 26.5%. However, as always, we should add that our tax rate may fluctuate from quarter to quarter from one time tax items that may arise as we operate internationally across multiple countries.

Allan Brett
Allan Brett
Chief Financial Officer at The Descartes Systems Group

After incurring stock based compensation expense of $4,400,000 in the past quarter, we currently expect stock compensation to be approximately $20,000,000 for the remainder of fiscal twenty twenty six, subject to any forfeitures of stock options or share units. As we have previously as we have mentioned in the past few quarters, we have estimated that the payments of contingent consideration for our earn out arrangements for the balance of this year will be approximately $2,300,000 subject to any necessary adjustments resulting from the final earn out calculation. Going forward, subject to unusual events or end quarterly fluctuations, we expect to continue to see solid cash flow conversion and expect our cash flow from operations to be between 8090% of our adjusted EBITDA in the quarters ahead. And finally, as Ed indicated earlier in the call, given the economic and global trade uncertainty that many of our customers are facing, we have taken the steps to reduce our cost structure by reducing our global workforce by approximately 7% and eliminating various other operating expenses. As a result, we will be recording a restructuring charge of approximately $4,000,000 in Q2 this year and would highlight that once completed, we would anticipate annual cost savings of approximately 15,000,000 from our Q1 operating expense run rate.

Allan Brett
Allan Brett
Chief Financial Officer at The Descartes Systems Group

Quite simply, we remain committed to managing our business to grow our adjusted EBITDA by 10% to 15%. That remains our objective for the current fiscal year despite the unique and tougher trade global trade environment we operate in. So with that, I'll turn it back to Ed to provide our baseline calibration for Q2.

Edward J. Ryan
Edward J. Ryan
CEO & Director at The Descartes Systems Group

Great. Thanks, Alan. As I said earlier and last quarter, these are challenging business conditions for our customers. Just some of the most recent changes include Tariffs between The US and China at record high levels even with a temporary agreement to reduce those tariffs during the negotiation period Allegations of violations of that temporary US China agreement, putting the temporary reduced tariff structure at risk Increased US tariffs on imports of steel. Imposition and suspension of tariffs on the EU.

Edward J. Ryan
Edward J. Ryan
CEO & Director at The Descartes Systems Group

Challenges and appeals relating to the legality of US tariffs. Warnings to countries that temporary tariff relief measures will expire if new trade agreements with The U. S. Aren't reached by early July, heightened tensions in the war in Ukraine and corresponding sanctions, a new Postmaster General at the U. S.

Edward J. Ryan
Edward J. Ryan
CEO & Director at The Descartes Systems Group

Postal Service with potential changes in policies and services. Our customers can deal with change. Businesses and supply chains are adaptable. However, what's more challenging than change is uncertainty. It's difficult for our customers to make decisions, especially long term ones, when there's no certainty on how or when the landscape will change.

Edward J. Ryan
Edward J. Ryan
CEO & Director at The Descartes Systems Group

But just the belief that it will. When our customers have difficulty predicting how their businesses will perform or be impacted, it becomes more challenging for us. I think we're starting to see some of that uncertainty impacting volumes in what feels like a pretty volatile shipping market. Domestic U. S.

Edward J. Ryan
Edward J. Ryan
CEO & Director at The Descartes Systems Group

Truck volumes remain depressed. Air shipments have been trending with modest growth but look to be under pressure. Ocean traffic has seen massive shifts in trade lanes and port activity with the pullback from China negatively impacting some ports and other ports benefiting from alternate sourcing. Each month we prepare a global ship report that monitors ocean imports into The US with data obtained from US Customs and Border Protection. Our report for May will be coming out in the next few days and highlights that in the month of May, US container imports declined following several months of growth, falling 10% from April and 7% year over year.

Edward J. Ryan
Edward J. Ryan
CEO & Director at The Descartes Systems Group

As part of that, imports from China dropped sharply, down 21% from April and down 7% compared to May 2024. For Descartes, we've grown during challenging business conditions in the past. Our plan is to continue to do so again now. Some of those things that we believe put us in a good position to do that include: We are diversified in domestic logistics and international logistics. Many of the changes right now impact international supply chains.

Edward J. Ryan
Edward J. Ryan
CEO & Director at The Descartes Systems Group

However, we have great strength in domestic transportation moves in our routing and scheduling businesses, transportation management and e commerce and last mile businesses. We are particularly strong in the global trade intelligence business. We believe we can provide a ton of help to our customers in an environment where people are looking for information or help managing tariffs and duties. Continuing updating the sanctioned party list, thirsting for competitive intelligence, and dealing with increased export license complexity. We are diversified globally.

Edward J. Ryan
Edward J. Ryan
CEO & Director at The Descartes Systems Group

We have domestic transportation solutions that can be used around the world, and where they are shifting international trade relations we have an established global network that can be leveraged by our customers. We have proactively taken steps to reduce our cost base to address potential revenue uncertainty. Have a total growth model. We have an extensive track record of acquisition activity to complement organic growth. Changing market conditions often provide us with even more opportunities to add solutions for our customers and grow by acquisition.

Edward J. Ryan
Edward J. Ryan
CEO & Director at The Descartes Systems Group

We are well capitalized. We have more than $175,000,000 in cash and a $350,000,000 undrawn line of credit and we are a cash generating business. Ultimately, regardless of how well Descartes is positioned, our success is determined by our ability to help our customers. Our customers remain uncertain about how these market conditions will impact their businesses. We are mindful of this and the impact of the changing global trade and foreign exchange environments in setting our calibration and considering what our final quarterly financial results may be.

Edward J. Ryan
Edward J. Ryan
CEO & Director at The Descartes Systems Group

In our quarterly report, we provided a comprehensive description of baseline revenues, baseline calibration and their limitations. As of May 26, the day we commenced our cost reduction activities using foreign exchange rates of $0.73 to the Canadian dollar, dollars 1 point 1 4 to the euro, and $1.36 to the pound, we've estimated that our baseline revenues for the second quarter of fiscal twenty twenty six were approximately $150,500,000 and our baseline operating expenses were approximately $92,500,000 We consider this to be our baseline adjusted EBITDA calibration of approximately $58,000,000 for the second quarter of fiscal twenty twenty six or approximately 39% of our baseline revenues as at 05/26/2025. We continue to expect that we will operate in an adjusted EBITDA operating range of 40% to 45%. Our margin can vary in that range given such things as revenue mix, foreign exchange movements, and the impact of acquisitions as we integrate them into our business. These are uncertain times for our customers.

Edward J. Ryan
Edward J. Ryan
CEO & Director at The Descartes Systems Group

It's a challenge for them to know what they can rely on in this global trade environment. Our goal is to continue to show our customers and other stakeholders that one thing they can rely on is Descartes. Thank you, everyone, for joining us on the call today. As always, we're available to talk to you about our business in whatever manner is most convenient for you. And with that, operator, I'll turn it over to you for Q and A portion of the call.

Operator

Thank you very much. Ladies and gentlemen, we will now begin the question and answer session. Please go ahead.

Jackson Bogli
Equity Research Associate at William Blair

Hey guys, it's Jackson Bogle on for Dylan Becker.

Jackson Bogli
Equity Research Associate at William Blair

So I was just curious about the workforce reduction and if there's any additional color that you would give on maybe what areas that was cut out of and how you're thinking about going forward those levers that you'll see in the business? Thanks.

Edward J. Ryan
Edward J. Ryan
CEO & Director at The Descartes Systems Group

Thanks Jackson. Yeah, it was generally across the board and across the board not only for functional areas but geographically. It was about a little under 200 people in our business unfortunately. And we did it to ourselves a healthier business going forward and put ourselves in a position where we can continue to make the kind of margins that that the street has come to expect from us in, you know, in running our business on a daily basis. Things like AI have helped us maybe make some of these cuts a little easier, but at the end of the day, we thought it was the right thing to do and to prepare for the uncertainty that I just talked

Jackson Bogli
Equity Research Associate at William Blair

Your

Operator

next question comes from the line of Paul Treiber from RBC Capital Markets. Please go ahead.

Paul Treiber
Paul Treiber
Director & Research Analyst at RBC Capital Markets

Thanks very much. Just a question on organic services growth. You mentioned it was 4% this quarter. I think last quarter it was 6%. You did a good job calling out some of the stronger growing areas of the business.

Paul Treiber
Paul Treiber
Director & Research Analyst at RBC Capital Markets

But what did you see that were headwinds or what segments were softer that were a drag on organic services growth this quarter?

Edward J. Ryan
Edward J. Ryan
CEO & Director at The Descartes Systems Group

As you might expect, a lot of the uncertainty that was going on led to big movements in transaction volumes. We did all right in some of the areas, I mentioned some of the customs filing and security filing areas that we do okay in, but certainly ocean was down, truck continues in a bit of a depressed state. We did alright on macro point but maybe some of the other areas within truck messaging not as well. And I think that's a result of the tariffs that people aren't sure what to do and they freeze. And 31% of our business or so is that transaction revenue.

Edward J. Ryan
Edward J. Ryan
CEO & Director at The Descartes Systems Group

Of course, we have underlying minimums that are our backstop against that. But the customers weren't getting down to their minimums, they were just doing a little less than they used to. Overall, we're pretty happy with how we performed given if you heard our last call. There's probably even more uncertainty coming into that call. A lot of stuff's changed since then.

Edward J. Ryan
Edward J. Ryan
CEO & Director at The Descartes Systems Group

And we thought the company performed pretty well during that time, made up for some of you know, some areas that we're getting hit with some some areas that we're doing pretty well, like the macro point and the and the, you know, the the the content businesses that I talked about at the beginning of the call.

Paul Treiber
Paul Treiber
Director & Research Analyst at RBC Capital Markets

That's that's helpful to understand. The have have you seen a a change in either renewal rates or, I guess, conversion of sales pipeline as as a result as well?

Edward J. Ryan
Edward J. Ryan
CEO & Director at The Descartes Systems Group

Not much actually. Although, we might anticipate that could happen if it if this keeps up. You know, we've continued to have good sales momentum with with the trade with the subscription deals that we have always done pretty well at. That continued to keep up. I think we haven't seen customer defections or people spending significantly less money with us or trying to change the terms of their contract. But we gotta see what happens in the economy. Those those things happen when the economy turns down.

Edward J. Ryan
Edward J. Ryan
CEO & Director at The Descartes Systems Group

I haven't seen yet where where the economy is going. A lot of it has to do how quickly does this end. Does The US negotiate an end to a lot of these tariff situations with the countries where they just delayed them ninety days? Do they delay another ninety days or something like that? What happens with the China negotiation, things like that are are are the balls that are up in the air that that having us say, you know, we're not sure what's gonna happen next.

Edward J. Ryan
Edward J. Ryan
CEO & Director at The Descartes Systems Group

In the meantime, we you know, you know us as conservative operators. We got to weather the storm and cut our costs and try to run our business as efficiently as we can under the circumstances.

Paul Treiber
Paul Treiber
Director & Research Analyst at RBC Capital Markets

And then just lastly, just on three gs TMS, the contributed, I think, $2,400,000 in the quarter. Is that a normal run rate to assume going forward? And then could you just confirm that it's not reflected in the baseline?

Allan Brett
Allan Brett
Chief Financial Officer at The Descartes Systems Group

No. From a baseline perspective, Paul, we've I mean, typical with us with acquisitions, I mean, we're getting to know that business. We're getting to know the renewal rates and renewal times, etcetera. So we've incorporated conservatively incorporated that into the baseline right now. So it is reflected in baseline.

Allan Brett
Allan Brett
Chief Financial Officer at The Descartes Systems Group

Again, pretty typical as we get to know businesses more. We've owned that business for two months now. So we'll perfect that. And I think we said that in the prepared remarks that it is, for the most part reflected in baseline calibration.

Operator

Your next question comes from the line of Raimo Lenschow from Barclays. Please go ahead.

Raimo Lenschow
Raimo Lenschow
Managing Director at Barclays

Perfect. Thank you. Ed, you've seen downturns before. How do you compare what you're seeing at the moment with other ones that's been, like, two thousand, twenty twenty two, 20 20 three, earlier, like

Edward J. Ryan
Edward J. Ryan
CEO & Director at The Descartes Systems Group

I mean, at the moment, it doesn't feel as bad. But what's interesting is there's I think there's a lot more uncertainty right now. People don't know what's going to happen. I think in in the pandemic, they may not have known what's gonna happen right away, but they were preparing for the worst in the pandemic for everything to shut down. And it turns out it got better pretty quickly.

Edward J. Ryan
Edward J. Ryan
CEO & Director at The Descartes Systems Group

In 'eight, I think people really prepared for the worst and there really was a bad situation for about a year until government stepped in and started pumping more money into the economy. We were not only in a recession but a depression. Right now I think it's hard to identify what we're in. Are we in a recession right now? Are we close to one?

Edward J. Ryan
Edward J. Ryan
CEO & Director at The Descartes Systems Group

Does all this go away if the tariffs get renegotiated or if the final analysis that you're not allowed to change all these tariffs. We just have to see. There's a lot of balls in the air and our customers I think don't know what to do. And they're still shipping stuff. But certainly not everything ships to and from The United States.

Edward J. Ryan
Edward J. Ryan
CEO & Director at The Descartes Systems Group

There's lots of other stuff shipping around the world, other locations that we benefit from as well. But US is obviously a big portion of the world's container volume and shipment volume. And we're kind of behaving as you might expect us to do. We're trying to be conservative and manage our business to keep making money. We on the call, we're a total growth model.

Edward J. Ryan
Edward J. Ryan
CEO & Director at The Descartes Systems Group

We see this as if things get worse, we see this as an opportunity to keep making money and use that money to buy up competitors that might not be in as good a position as us. We're just watching what's going on like everybody else and trying to run our company the best through it. It doesn't seem like dire circumstances, not yet at least. If I had to guess, I'd say probably won't get as bad as some of the other downturns we've had, but I don't know either for sure.

Raimo Lenschow
Raimo Lenschow
Managing Director at Barclays

And then you this time you actually reacted quickly with the changes on the cost base and it's always sad to see coming through. Like talk a little bit about what drove that to do it now rather than wait. Thank you.

Edward J. Ryan
Edward J. Ryan
CEO & Director at The Descartes Systems Group

Thanks, Raimo. Yes, that's just our with the way we operate, right? You saw us do that in the beginning of the pandemic. We think it was in May in the pandemic, had a 5% reduction in force because our revenue went down 5%. This is a reaction similar to that, right?

Edward J. Ryan
Edward J. Ryan
CEO & Director at The Descartes Systems Group

We see a lot of uncertainty in the market and say, hey, need to react to that. And if we can't control the revenue right now, we can at least control the cost. And it's important to us to keep making money and to keep trying to make 10% to 15% growth in EBITDA every year. That's really the main promise that we make to our shareholders. And we're going to be able to live up to that promise and put ourselves in a position to live to fight another day and get through this a little better than other companies do so that when they get themselves in trouble, we have the money to buy up some of the better assets just like we did in the 'eight crisis and maybe to a lesser extent in the COVID crisis.

Raimo Lenschow
Raimo Lenschow
Managing Director at Barclays

Okay. Makes sense. Good luck.

Edward J. Ryan
Edward J. Ryan
CEO & Director at The Descartes Systems Group

Thank you.

Operator

Your next question comes from the line of Stephanie Price from CIDC. Please ask your question.

Stephanie Price
Equity Research Analyst - Software and Services at CIBC World Markets

Thank you. Ed, I was hoping you could talk a little bit about the appointment of the new Chief Commercial Officer. And I'm just curious if you're expected to make additional changes within the sales organization.

Edward J. Ryan
Edward J. Ryan
CEO & Director at The Descartes Systems Group

No. I mean, we've built work here five, six years now. We're very comfortable with him. He was being groomed for this move anyway. And, timing, you know, may have been a bit of a surprise to us, but, you know, I think there's a lot of faith in our company that he's the right guy for the job.

Edward J. Ryan
Edward J. Ryan
CEO & Director at The Descartes Systems Group

And happy for him that he's getting to step up. For the most part, he's running a large part of the Salesforce leading into this anyway, and now he's taken over the whole Salesforce. So I think for the most part, not going to see a whole lot of change in our sales effectiveness.

Stephanie Price
Equity Research Analyst - Software and Services at CIBC World Markets

Great. And then just on the consolidation that we're seeing within the space, obviously, WiseTech announced the acquisition of E2 Open. Just curious, what your thoughts are around the competitive environment here and how you see it evolving over time.

Edward J. Ryan
Edward J. Ryan
CEO & Director at The Descartes Systems Group

I mean, it's probably a sign of the times, I've been saying for a while prices are coming down. People are more willing to come into a price range that we think is an appropriate amount to pay for a company. The WiseTech E2 Open deal is probably a sign of that. We looked at that deal a long time ago and decided it probably wasn't a great fit for us. Wish WiseTech the best in that.

Edward J. Ryan
Edward J. Ryan
CEO & Director at The Descartes Systems Group

We're not really competitive with either of those two companies in the market per se. But we do think we're in a very good position now just with a lot of cash that we're sitting on and a lot of debt capacity that we have to make additional acquisitions in the future as prices come more into line. And we're in a healthier position than most to take advantage of that. And we see stuff that's closer fit to what we like, we'd like to be able to jump on it and make sure that we make it part of our global logistics network.

Stephanie Price
Equity Research Analyst - Software and Services at CIBC World Markets

Thank you.

Edward J. Ryan
Edward J. Ryan
CEO & Director at The Descartes Systems Group

Thank you, Steph.

Operator

Your next question comes from the line of John Shao from National Bank. Please go ahead.

John Shao
John Shao
Stock Analyst at National Bank

Yes. Thanks for taking my question. Understand there's a bit of noise around international freight volume at this point because that one could be potentially volatile. But how should we think about the domestic freight volume, especially the correlation between domestic, international, Any trends or any considerations you may share with us given that it sounds like you're doubling down investment domestic?

Edward J. Ryan
Edward J. Ryan
CEO & Director at The Descartes Systems Group

Yeah. We're exposed to both. The tariff changes in the international space are between The US and the rest of the world, but not other parts of the world to other parts of the world. So there's still two thirds of our international business that's in normal shape at the moment. We've been in a fortunate position to do very well in domestic despite maybe that market being a weaker market for the last year and a half to two years and hope to continue that.

Edward J. Ryan
Edward J. Ryan
CEO & Director at The Descartes Systems Group

And also as we expand overseas and domestic markets overseas, I think we have a real opportunity to take the dominance that we've enjoyed here in North America over the last couple of years. So kind of growing in the face decreasing transaction volumes in domestic transportation. We continue to grow that business because we've been able to pick up business from our competitors because we think we have a stronger offering. And we're looking forward to bringing some of that overseas in the coming

John Shao
John Shao
Stock Analyst at National Bank

You got it. Thanks for the colors. And in terms of the organic growth, considering some of the tariffs pauses after Q1. So how should we think about organic growth profile for Q2 and maybe going forward? Do think it's going to be similar to the current level?

Edward J. Ryan
Edward J. Ryan
CEO & Director at The Descartes Systems Group

The short answer is I don't know. We'll have to see what happens. I'm probably saying I don't know more than I normally have to say right now in the last couple months. We'll just have to see. I mean, plan on running our business to perform well either way.

Edward J. Ryan
Edward J. Ryan
CEO & Director at The Descartes Systems Group

We're very focused on making money, and we plan to make the kind of money that we've always promised people that we would make, despite whatever happens to the revenue. If you remember back ten, twelve years ago, we were growing 10% to 15% every year with 1%, two %, and 3% organic growth. So even at 4%, which is not as well as we were doing a year and a half ago, and I think everyone might be able to see why. We're hoping that that turns up. We're hoping that these tariff situations get settled and people can eliminate some of the uncertainty in their business and start to move forward and make decisions.

Edward J. Ryan
Edward J. Ryan
CEO & Director at The Descartes Systems Group

And that will help our revenue growth there. In the meantime, we're planning on running our business so that we can still keep making money at the clip that we've always promised people that we would.

John Shao
John Shao
Stock Analyst at National Bank

Thanks. Maybe one last question. Just try to reconcile your cost reduction with your goal to grow EBITDA by 10% to 15% on an annual basis. So my question is that is it so is expected cost savings already included in that target or just purely incremental to the target?

Edward J. Ryan
Edward J. Ryan
CEO & Director at The Descartes Systems Group

No, it was an effort to make sure that we are in a position to hit those targets. It may become incremental if the growth rates go up. Some of these tariff issues get settled and people get back to shipping stuff like they normally did, we may end up doing better because of it. But we made these decisions to make sure we're in a safe position to continue to do 10% to 15% growth in EBITDA like we've always said we would.

John Shao
John Shao
Stock Analyst at National Bank

Thanks again.

Edward J. Ryan
Edward J. Ryan
CEO & Director at The Descartes Systems Group

Thank you.

Operator

Next question comes from the line of Scott Group from Wolfe Research. Please go ahead.

Cole Couzens
Senior Equity Research Associate at Wolfe Research, LLC

Hey guys, this is Cole Cousins on for Scott Group. Just quick question on de minimis. Is there any way that you guys can frame up how much of your transactional business is air freight? And do you have a sense for how much of that is tied to de minimis? And I know you hit on it a little in the prepared comments, but can you expand more on the activity you're seeing now that de minimis has gone away?

Edward J. Ryan
Edward J. Ryan
CEO & Director at The Descartes Systems Group

I don't think we've separately broken that out. What I can tell you is that we've done quite well under the circumstances. If you think about what's happened here, everyone was basically told that there's no more de minimis filing with China where most of it was coming from. You can imagine that if there's no more type 86 filings, and it's relatively small part of a quarter's revenue, but it's not nothing either. We were doing very well in it.

Edward J. Ryan
Edward J. Ryan
CEO & Director at The Descartes Systems Group

And, they all went away one day, May 2. I think what we're doing about it, and we've benefited quite a bit from it, we also are the global leader in type one filings, type two filings, and type 11 filings, which is what everyone switched to. And I think a lot of these companies, they paused for a week or two and just said, I don't know what I'm going to do here. This is like the Sheens and the Timus and a lot of other people like them. And then they started shipping again.

Edward J. Ryan
Edward J. Ryan
CEO & Director at The Descartes Systems Group

And I think we were ready for that. Some of our competitors were not. We were able to pick up business from them as a result of that, because they could not handle the volume in these new types of transactions that we had a lot of experience with already, but we're kind of new to some of our competitors. And we picked up a bunch of business as a result of that. So oddly enough, it's working out pretty well for us.

Cole Couzens
Senior Equity Research Associate at Wolfe Research, LLC

Okay, great. Maybe just more broadly with the rest of the transactional Air and Ocean business. Kind of can you describe what you saw following the ninety day pause? And maybe is there any indication from shippers at this point as to what's to be expected after the pause? Or is it just way too uncertain at this point?

Edward J. Ryan
Edward J. Ryan
CEO & Director at The Descartes Systems Group

No one's one's, anyone will speculate about what's going to happen after the pause. No one seems to know for sure, including us. Prior to all this, as you might have expected, there was some pull through where people were trying to get stuff in before tariffs hit. Then we saw a shift from the West Coast ports to the East Coast ports, where West Coast volume was down significantly, but East Coast volume was up. And that's tended that seems to have subsided now as well.

Edward J. Ryan
Edward J. Ryan
CEO & Director at The Descartes Systems Group

And I told you the stats for May, they were lower across the board in ocean. Air has held up pretty well. Domestic continues, I think, to be in a great recession. But we've kind of done pretty well in that. And we've picked up a lot of business from our competitors during that time.

Edward J. Ryan
Edward J. Ryan
CEO & Director at The Descartes Systems Group

And we think we offer a great service in that area with MacroPoint. And we by far have the most connections out there. We've been able to get people to switch to us in the process from some of our competitors. That's been pretty good news for us.

Cole Couzens
Senior Equity Research Associate at Wolfe Research, LLC

Okay. Thanks, guys. I'll turn it back.

Edward J. Ryan
Edward J. Ryan
CEO & Director at The Descartes Systems Group

Thanks, Kyle.

Operator

Next question comes from the line of Lachlan Brown from Redburn Atlantic. Please go ahead.

Lachlan Brown
Analyst at Redburn Atlantic

Hi, Ed, Alan. Thanks for the questions. GTI Solutions has a growth driver for this business at the moment. You able to provide any detail on the growth that you're seeing with sorry if I'm not clear. Are you able to provide any detail that you're seeing within the Tariff and Duties database?

Lachlan Brown
Analyst at Redburn Atlantic

And then just offer any commentary on the performance of the other side of the global trade intelligence solutions, sanctioned parties and bills of lading?

Edward J. Ryan
Edward J. Ryan
CEO & Director at The Descartes Systems Group

The sanctioned parties is largely business as usual. We've been doing very well there. But really, the strength in that business has been on the tariffs and duties portions where the rates are changing all the time. We're seeing very good growth rates there year over year. I think we're somewhere almost approaching 20% right now.

Edward J. Ryan
Edward J. Ryan
CEO & Director at The Descartes Systems Group

And I expect that's going to continue as long as tariffs are in the news every day. People are going to be looking for more access to that database. A little bit to our surprise and a pleasant surprise is the DataMind business that's also in that content area has done very well as people have started to look in that database a lot more aggressively to try and figure out what to do next. And that's been a pleasant surprise for us. So when these transaction volumes have gone down and you'd say, jeez, it's all bad news for Descartes, I'd go, well, some of the areas are actually doing all right based on what's going on because we've got a broad solution set that helps people in a lot of areas even when some of the shipment volume is down.

Edward J. Ryan
Edward J. Ryan
CEO & Director at The Descartes Systems Group

So that's why you see us put up what I'd say is decent results in the face of a very uncertain environment where people are frozen and not shipping as much as they did just a few months ago.

Lachlan Brown
Analyst at Redburn Atlantic

That's very clear. Thanks. And on the three gs TMS acquisition, I appreciate it's early days. But could you talk to the integration process and how you're thinking about the cross sell, upsell opportunity? And also, could you provide any detail on the pricing structure, if it's volume based or recurring subscription, and if there are plans to unify it with the pricing model for the other TMS systems?

Edward J. Ryan
Edward J. Ryan
CEO & Director at The Descartes Systems Group

It's largely a subscription business. It's early days on the integration there. We thought that we and I mentioned this in the prepared comments. We needed to get their cost structures in line with ours. So we had a bit of a restructuring right away.

Edward J. Ryan
Edward J. Ryan
CEO & Director at The Descartes Systems Group

They want them when we bought the company. You've seen us do this a few times now. MacroPoint, we did this. Visual Compliance, we did this. Just in an effort to to get them to run the way that we run.

Edward J. Ryan
Edward J. Ryan
CEO & Director at The Descartes Systems Group

And, you know, we have to take a cash charge for that, which is, you know, just a accounting issue. But, you know, in the long run, think that's gonna allow us to operate that business more profitably and get it integrated into Descartes more quickly. If you've heard us talk about how we do integrations, we go fast. We move everyone into their component parts of our business and that's already happened And try and make them part of the same team. And I know already that they're selling three gs with MacroPoint and my carrier portal all bundled together a number of times already.

Edward J. Ryan
Edward J. Ryan
CEO & Director at The Descartes Systems Group

So that's a little bit of a sign to me that the acquisition is going to work well. So we're excited about that.

Lachlan Brown
Analyst at Redburn Atlantic

Thanks, Ed. I appreciate the questions.

Edward J. Ryan
Edward J. Ryan
CEO & Director at The Descartes Systems Group

All right, thank you. You're welcome.

Operator

Your next question is from the line of Richard Chu from Scotiabank. Please go ahead. Hi, this

Richard Chu
Equity Research Associate - Technology at Scotiabank Global Banking and Markets

is Richard in for Kevin today. I was wondering if you could talk a bit more about the acquisition pipeline. If you look across roughly your half dozen or so areas of logisticssupply chain industry that you cover, are there any areas that are standing out as a particular area of focus or interest? Can you talk about valuations and competition with peers or private equity, which might also be looking to make some acquisitions?

Edward J. Ryan
Edward J. Ryan
CEO & Director at The Descartes Systems Group

The acquisition market for us is looking very good at the moment. You've seen us do a lot in the last year and a half. I think you're probably likely to see that continue. Prices are coming down. Contrary to what you said a second ago, we are not seeing private equity firms show up nearly as much as they used to.

Edward J. Ryan
Edward J. Ryan
CEO & Director at The Descartes Systems Group

We're seeing them back out of deals all over the place or be selling companies instead of buying companies. A good friend of mine in private equity once told me, we're either buying or we're selling, we're not doing both. And I think in large part they are selling right now. And trying to, they have investors that are saying, where's my money? I'd like to get some money back out of this thing.

Edward J. Ryan
Edward J. Ryan
CEO & Director at The Descartes Systems Group

And they're feeling that pressure. When they do show up in deals, they're not showing up nearly as aggressively, as they have in the past, and that's creating an opportunity for us. High interest rates harm them a lot more than they harm us. We're making money and using our cash flow to buy companies. They were levering up to buy companies and doing so four, five, six, seven times, which in our world would be very dangerous.

Edward J. Ryan
Edward J. Ryan
CEO & Director at The Descartes Systems Group

We probably wouldn't go past three. And they were normally three would be too low for them. They would think that was not using their cash well enough. All of a sudden when interest rates are up in the high single digits, that changes the game. And it doesn't change it for us really, because we're making profits.

Edward J. Ryan
Edward J. Ryan
CEO & Director at The Descartes Systems Group

We're putting that cash in the bank and using it to fund future acquisitions. And so we're kind of playing a different game than they are. And we want to be around when prices keep coming down, the economy does take a turn for the worse here. We want to be able to keep making the same kind of margins we were making and growing the same amount every year, even with lower revenue growth. And that's why you see us take a lot of the actions that we've described here on the call.

Edward J. Ryan
Edward J. Ryan
CEO & Director at The Descartes Systems Group

I could argue this is when we're at our best historically. As times get tough and the decisions get very difficult, and we've been through a lot of that before. It's a long tenured management team that's been working together for a long time. And we've done well in a lot of difficult situations together. If I could describe it, when trouble like this starts, a lot of teams start fighting with each other about having to cut costs and why are you cutting costs and I'm not and blah, blah, All these things, that's not what's going on here.

Edward J. Ryan
Edward J. Ryan
CEO & Director at The Descartes Systems Group

You have a bunch of people that have been through this before and they're almost going, hey, no one likes doing this, but we are good at it. And we're going to do a good job here so that we come out in a better position than we went into it, and come out in a better position than our competitors. Which puts us in a very good position to grow handsomely as things start to improve. You saw that happen in 'eight. You saw that happen in 2020.

Edward J. Ryan
Edward J. Ryan
CEO & Director at The Descartes Systems Group

And we're certainly gearing up to make sure that happens here.

Richard Chu
Equity Research Associate - Technology at Scotiabank Global Banking and Markets

Got it. Thank you. Also, I was wondering is there any way to give us a view of the breakdown of your customers or revenue base by SMB versus enterprise? And are you seeing any changes, positive or negative, in this current macro on the SMB portion of the business?

Edward J. Ryan
Edward J. Ryan
CEO & Director at The Descartes Systems Group

No. I I I don't know if I I don't know if I I don't know enough to break it down. But but I could tell you, we we're we're seeing you know, the the things haven't gotten that bad. We're seeing customers still sign contracts, pay their bills. Certainly our larger customers have been paying, and even our small and medium sized ones.

Edward J. Ryan
Edward J. Ryan
CEO & Director at The Descartes Systems Group

Remember, most of our smaller ones are on credit card payments. They kind of have to pay their bills. Medium ones, maybe it's the area where you'd see that kind of change if things got bad. But we haven't seen it yet.

Richard Chu
Equity Research Associate - Technology at Scotiabank Global Banking and Markets

Okay, great. Thanks for taking my questions.

Operator

Thanks. The next question comes from the line of Robert Young from Canaccord. Please go ahead.

Robert Young
Managing Director & Head of Research at Canaccord Genuity Inc

Hi, good evening. The comment you made about MacroPoint, the real time visibility driving some share gains just given your coverage and the demand you're seeing there. I think last quarter you suggested that that was particularly a function of the shipper market and you're moving into their big retailers and manufacturers. I was curious if you could expand on that, maybe dig into that a little bit if that's what's going on.

Edward J. Ryan
Edward J. Ryan
CEO & Director at The Descartes Systems Group

There's a little of that going on. I think the biggest thing is picking up more, three PLs, and freight brokers, and picking up more business from them as they consolidate. You know, we tend to do business with almost all the big three p l's and and and freight brokers in the country. And as some of the smaller or medium sized guys close their doors, they're getting picked up by the, you know, some of our bigger bigger customers, the Robinsons and Conways, etcetera of the world. Convoys, excuse me.

Edward J. Ryan
Edward J. Ryan
CEO & Director at The Descartes Systems Group

And that's been good for us. You know, they go back to us because we have better data. We have track rates almost at 90%. Our competitors have track rates in the 50s. And if you want to track all your shipments, and you send them in, and you only get to track half of them as your visibility solution provider, all that good.

Edward J. Ryan
Edward J. Ryan
CEO & Director at The Descartes Systems Group

And if you send it in to us and you're tracking 90% of them, I think you're pretty happy. And you say, hey, that's a good guy to be with. And so when you buy up another small company, you tend to switch them over to us. Or when you have a contract with multiple players in the visibility space, and you go to renegotiate those contracts, tend to send most of the business to the guy that does the best. That's us.

Robert Young
Managing Director & Head of Research at Canaccord Genuity Inc

All right. And then in the call earlier you said that you're not seeing any of the customers tripping their minimums on the transaction revenue. Was a Q1 comment or is that as of today and like is there any pricing pressure at all that you're seeing? I would assume given that comment that there's not a lot of pricing pressure or pressure to renegotiate minimums, but maybe just expand on that and then I'll pass on.

Edward J. Ryan
Edward J. Ryan
CEO & Director at The Descartes Systems Group

No, we're not seeing any yet. I don't think haven't heard anyone say we're in a recession yet. Although, we may hear three months from now that we are in one now. But I you know, I'm not seeing our customers in any kind of dire straits, and we're not I don't think I've seen anyone hit the bottom of their minimum. Their their minimums are usually set at 85 or 90% of their of their normal volume. And I haven't seen anyone of note hit that.

Robert Young
Managing Director & Head of Research at Canaccord Genuity Inc

Great. Thanks for the color. I'll pass on.

Edward J. Ryan
Edward J. Ryan
CEO & Director at The Descartes Systems Group

Thank you, Rob.

Operator

The last question comes from the line of Mark Chappell from Loop Capital Markets. Please ask your question.

Mark Schappel
Managing Director at Loop Capital Markets LLC

Hi, thank you for taking my question. I was wondering if you could just comment on the sentiment you're seeing from CIOs with respect to moving forward with large TMS upgrades or expansions. And are you seeing TMS upgrades actually being crowded out by other IT initiatives?

Edward J. Ryan
Edward J. Ryan
CEO & Director at The Descartes Systems Group

No, we continue to see and we've seen this for the last several years. Let's say the logistics and supply chain initiatives are rising to the top of the organizations because their importance has increased in the last ten years. Really, maybe even more specifically last five since the pandemic. And I haven't seen any real change in that yet. Think if the economy turned and it got worse, you might start to see that even in our space.

Edward J. Ryan
Edward J. Ryan
CEO & Director at The Descartes Systems Group

But we haven't seen it yet in our space. Our subscription sales continue to go well. Don't think we had a record quarter this quarter subscription sales, but we were close to the high end of subscription sales over the last two years. Happy that's the case. Now look, if we go into recession, that could change.

Edward J. Ryan
Edward J. Ryan
CEO & Director at The Descartes Systems Group

In the last year, we've had a lot of customers say stuff to us like, we've canceled a number of IT projects here. We're not canceling yours because it's important. But that always catches my attention because I think if things got a little worse, it might catch us too. But that has not happened yet.

Mark Schappel
Managing Director at Loop Capital Markets LLC

Thank you.

Edward J. Ryan
Edward J. Ryan
CEO & Director at The Descartes Systems Group

Thank you, Marshall.

Operator

There are no further questions at this time. I'd like to turn the call over to Mr. Ed Ryan for closing comments. Sir, please go ahead.

Edward J. Ryan
Edward J. Ryan
CEO & Director at The Descartes Systems Group

Hey, great guys. Thanks for your time. I'll be on the street in the coming weeks. We look forward to seeing a lot of you. And otherwise, look forward to reporting back to you on our Q2 here in September this year. Thanks guys.

Operator

This concludes today's conference call. Thank you very much for your participation. You may now disconnect.

Executives
    • John Scott Pagan
      John Scott Pagan
      President & COO
    • Edward J. Ryan
      Edward J. Ryan
      CEO & Director
    • Allan Brett
      Allan Brett
      Chief Financial Officer
Analysts
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Key Takeaways

  • Q1 revenues rose 12% YoY to $168.7 M and adjusted EBITDA grew 12% to $75.1 M, with a 45% margin; Descartes is debt-free with $175 M+ cash and a $350 M undrawn credit facility.
  • The MacroPoint real-time visibility unit and global trade intelligence segment saw strong demand as customers seek AI-driven load tracking and up-to-date tariff data amid cross-border complexity.
  • Acquisitions of 3GTMS and MyCarrier Portal broadened domestic TMS capabilities and cargo fraud prevention, with early success in cross-selling to existing customers.
  • In response to uncertain global trade and softer shipment volumes, Descartes enacted a 7% workforce reduction, recording a $4 M Q2 restructuring charge to secure $15 M in annual cost savings.
  • Q2 baseline guidance is set at approximately $150.5 M revenue and $58 M adjusted EBITDA (39% margin), within the company’s 40–45% target range despite market volatility.
AI Generated. May Contain Errors.
Earnings Conference Call
The Descartes Systems Group Q1 2026
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