Descartes Systems Group Inc

TSX:DSG

Good afternoon, ladies and gentlemen, and welcome to the Descartes Systems Group Quarterly Results Conference Call. [Operator Instructions] This call is being recorded on Wednesday, March 5, 2025. I would now like to turn the conference over to Scott Pagan. Please go ahead.

Thanks, and good afternoon, everyone. Joining me remotely on the call today are Ed Ryan, CEO; and Allan Brett, CFO. And I trust that everyone has received a copy of our financial results press release that was issued earlier today.

Portions of today's call other than historical performance include statements of forward-looking information within the meaning of applicable securities laws. These statements are made under the safe harbor provisions of those laws. These forward-looking statements include statements related to our assessment of the current and future impact of geopolitical trade tariffs 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 Securities and Exchange Commission, the Ontario Securities Commission 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 information may not be appropriate for other purposes. We don't undertake or accept any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements to reflect any change in our expectations or any change in events, conditions, assumptions or circumstances on which any such statement is based, except as required by law.

And with that, let me turn the call over to Ed.

Hey, thanks, Scott, and welcome, everyone, to the call. Today, we're reporting record fourth quarter and annual results and continued strong services revenue and adjusted EBITDA growth. 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 road map for this call.

I'll start by hitting some highlights of last quarter and the fiscal year and some aspects of how our business performed. I'll then hand it over to Allan, who will go over the Q4 and FY '25 financial results in more detail. 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 FY '26. And we'll then open up to the operator to coordinate the Q&A portion of the call.

So let's start with the fourth quarter that ended on January 31. 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 a very good performance in each of those areas. Total revenues were up 13% from a year ago with services revenues up 15% from a year ago. Net income was up 27% from a year ago with adjusted EBITDA up 14%. Our adjusted EBITDA margin climbed 2 points to 45% from Q3 and 1 point from a year ago. We also generated almost $61 million in cash from operations in Q4 or 81% of adjusted EBITDA, in line with how we would expect the business to perform.

That quarter topped off a great year with record results. For the year, revenues were up 14%. Net income was up 24%, and adjusted EBITDA was up 15%. Our headline targets are 10% to 15% adjusted EBITDA growth per year, so it's great to see the business performing as expected.

At the end of the year, we had over $235 million in cash, and we were debt-free with an undrawn $350 million line of credit. We remain well capitalized, cash generating, growing and ready to continue to invest in our business.

We had a few things that were the primary drivers of growth in our business, and I'll talk a bit about each of those now. First off was our strength in domestic logistics and supply chain. Our business has had a long history of helping domestic transportation moves, including our deep strength in truck route scheduling, dispatch and execution solutions, last-mile delivery enablement, mobile delivery monitoring execution, vehicle tracking, transportation management and driver training. We've continued to make investments in these solutions over the past year to help our customers make their fleets more efficient, provide customers with Uber-like fast last-mile delivery experiences, and plan and track shipments on vehicles that they've hired.

One area of investment for us continues to excel. Our MacroPoint solutions are still the leading customer source for real-time visibility. The solution is integrated to our own and other transportation management solutions to provide customers a seamless ability to track shipments. And with its integration to the Global Logistics Network, it can provide visibility even deeper in the supply chain to other modes of transportation where necessary before the domestic move.

A broad network of connected carriers, freight brokers and other logistics intermediaries and shippers give us better tracking efficiency than any provider out there. So MacroPoint was a great catalyst of growth and we think an important area of continued investment as domestic transportation increases in importance.

The second area was our Global Trade Intelligence business. This encompasses such things as our tariffs and duties technologies, our sanctioned party screening solutions and our Datamyne trade trend research tools. We saw strong demand for these solutions in Q4, likely in no small part due to the focus on the global trade environment.

Potential and implemented tariff changes have had our teams very busy updating our solutions and supporting our customers with various tariff-related questions. Sanction lists went through many changes from both an outgoing and incoming U.S. administration. And with the trade environment becoming more challenging, we've seen an increase in interest in our Datamyne trade research tools as companies monitor competitors' and peers' trade flows to understand the most efficient and cost-effective way to move goods from existing and potentially new suppliers and routes.

The interest in our Global Trade Intelligence solutions was very apparent at the in-person innovation forum we recently held in Washington, D.C. At the event, we shared many new developments in our tools, including those leveraging artificial intelligence technologies to help with tariff classification and research and enhancements to our risk assessment capabilities. We had many Descartes speakers and government trade representatives on site to provide the latest information. The high attendance reflected a thirst for information at this point about global trade issues as well as interest in not just speaking to Descartes but to share information with other attendees about how businesses are coping with the amount of -- amount and pace of change in the global trade landscape. So big interest in Global Trade Intelligence, which was reflected in our Q4 results.

The third area of contribution was from our recent acquisitions. In fiscal 2025, we combined with 5 businesses, consistent with our total growth strategy. Our plans for the year were to grow our business 10% to 15% over the previous year through a combination of organic and acquisition activities. Our business generates cash that can be reinvested to improve the business for our customers and stakeholders, including in acquisitions. We consider where to invest based, in part, on returns we can generate in our invested capital.

As I mentioned, we combined with 5 businesses this year. I've spoken about how their contribution to our business has been reflected on previous calls. However, I wanted to provide a bit more of an update on our 2 most recent acquisitions, MyCarrierPortal and Sellercloud. Our MyCarrierPortal investment helps U.S. freight brokers with risk management of the thousands of truck carriers they deal with for domestic moves. Their platform allows the brokers to evaluate the risk of working with a carrier based on a number of factors, including licensing, past service record, safety potential, fraud risk, insurance compliance.

This is a natural fit with our MacroPoint business where we're helping freight brokers track loads and identify potential available domestic truck capacity. Our MyCarrierPortal integration is well ahead of plan, and the contribution to the combined business has been exceptional. In particular, the combined offering of MacroPoint and MyCarrierPortal has been well received by customers with several new customers coming on using the combined solutions, a great investment, a great team and excellent contribution to our business in Q4.

Our Sellercloud investment has been paying similar dividends as a great contributor to Q4 ahead of our plans. Sellercloud focuses on inventory and order management for e-commerce sellers who are using multiple channels to sell, with particular strength with small and mid-market e-tailers. By combining Sellercloud with our strength in warehousing and shipping of e-commerce orders, we offer a very comprehensive suite to our customers that's flexible as they grow and add new sales channels. In particular, the combination of Peoplevox and Sellercloud is a very powerful offering for our customers. We've already seen significant post-deal joint selling success in the U.S., Europe, and Australia, a good Q4 contributor with momentum as we enter the new fiscal year.

I'll provide some more perspectives later on the current trade environment, which is to hit what we saw this past quarter. There were some slight general increases in volumes across air and ocean modes, which we attribute to some imports being expedited ahead of potential tariffs and the general holiday flow. But I wouldn't characterize it as significant or across the board in all industries, as it appears that many businesses continue to evaluate how to best proceed in the current trade environment. Our global shipping report that we put out every month noted that we saw some of the highest January ocean shipping numbers and almost record numbers of imports from China ahead of tariffs. But again, this was ahead of the new tariffs put in place and the Chinese Lunar New Year slowdown, so good volumes for Q4 were certainly helpful.

It's a challenging business environment for our customers. Our primary purpose is to be able to help our customers meet these types of business challenges. Our own business has been designed to weather significant changes to the global and domestic trade landscape. We focus on total growth and have diversified our business across international and domestic supply chains. We grow organically and by way of acquisition. We're diversified across all modes of transportation. We provide business value across 7 solution pillars. We have over 26,000 customers with low customer concentration. We serve all parties to supply chain and logistics transactions, carriers, logistics service providers, ports, governments and shippers. We serve customers on a global basis with a global workforce. We believe that all of these levers to our business provide us with many opportunities to help manage our business through prosperous and challenging times.

Descartes is a business our customers rely on, that our team can be proud of and that our stakeholders have relied on to consistently deliver. Descartes has shown again with our results this past quarter and year.

So let me just summarize it as I hand it over to Allan to give the full financial details in the quarter and year-to-date. We had good financial results, the business performed well, and we believe that's a good reflection of the value that our customers continue to get from our solutions.

The quality and contribution of our acquisitions we've added to our business and the hard work that our team continues to put in for our customers. We ended the quarter with more than $230 million in cash, $350 million in available credit and a market opportunity where we can continue to grow the business for our customers, both organically and through acquisition. We remain focused on profitable growth so that we can continue to ensure that our customers have a secure, stable and growing technology partner that can help them with their challenges well into the future. My thanks to the entire Descartes team for everything they've done to contribute to a great quarter, year and business overall.

With that, I'll turn the call over to Allan to go through our Q4 financial results in more detail. Allan?

Hey, thanks, Ed. As indicated, I'm going to walk you through our financial highlights for our fourth quarter and year ended January 31, 2025. We are pleased to report quarterly revenues of $167.5 million this quarter, an increase of just over 13% from revenues of $148.2 million in Q4 of last year. Our revenue mix in the quarter continued to be very strong. Despite a negative headwind from foreign exchange, service revenue increased over 15% to $156.5 million from $135.7 million last year in the fourth quarter with services revenue coming in at 93% of total revenues this quarter, up from 92% of total revenue in Q4 last year.

Removing the impact of both recent acquisitions as well as the negative impact from changes in FX rates, we would estimate that our growth in services revenue from new and existing customers would have been approximately 6% this quarter when compared to the same quarter last year.

Professional service and other revenue, including hardware revenue, came in at $10.7 million or just over 6% of revenue for the quarter, down slightly from $11.1 million or 7% of revenue in the same quarter last year, mainly due to lower -- slightly lower hardware revenue this quarter when compared to the same quarter last year. Note that as planned for and as messaged last quarter, hardware revenue was down more than $3.5 million in the quarter from Q3, where we had just completed a replacement program of certain AI-enabled cameras in our GroundCloud business.

In addition, after a larger license revenue quarter in Q3 of approximately $3.5 million, license revenue came in at $300,000 in the quarter, which was also a drop from $1.4 million in license revenue recorded last year in the fourth quarter. For the year, revenue was a record $651 million, up just under 14% from revenue of $573 million in the previous year, again, despite a negative impact from foreign exchange rates.

For the year, services revenue came in at $590 million or 91% of revenue, up from approximately $521 million last year as revenue from acquisitions as well as from growth in revenues from new and existing customers both contributed nicely to our revenue this year. Gross margin came in at 76% of revenue for the fourth quarter and the year in our fiscal 2025, consistent with the gross margins realized in the fourth quarter and for the entire year last year.

For the fourth quarter and the year, our operating expenses increased primarily related to the impact of the 5 acquisitions completed in the year, including the OCR acquisition, which was completed early in FY '25. For the year, operating expenses increased by just under 12%. As a result of solid revenue growth and gross margin as well as controlled growth in operating expenses, adjusted EBITDA came in at a record $75.0 million in the fourth quarter or 44.8% of revenue, up just over 14% from adjusted EBITDA of $65.7 million or 44.3% in the fourth quarter last year.

After having our adjusted EBITDA as a percentage of revenue weakened in Q2 and Q3 this year as a result of the lower margin from the higher hardware revenue mentioned earlier, strong operating leverage from organic growth as well as return to lower hardware revenue resulted in a recovery of our adjusted EBITDA margin during the fourth quarter. Looking back to the annual results again, as a result of revenue growth from both acquisitions as well as from sales to new and existing customers, we continue to see strong adjusted EBITDA growth to a record $284.7 million or 43.7% of revenue for our fiscal 2025, up 15% from $247.5 million or 43.2% of revenue last year.

We should also note that in order to streamline our operations and reduce several redundant positions across our business, during the fourth quarter, we completed a restructuring plan to reduce approximately 45 personnel or just under 2% of our workforce. This restructuring plan, which we've now completed, is expected to reduce our operating expenses by approximately $4 million annually and resulted in expense and other charges in our operating results of just under $800,000 in the fourth quarter.

From a GAAP earnings perspective, net income for the fourth quarter came in at $37.4 million, up 18% from net income of $31.8 million in the fourth quarter last year. For the year, net income was $143.3 million or $1.64 per diluted common share, up almost 24% from $115.9 million or $1.34 per diluted common share last year. While these operating results in strong -- with these strong operating results and collections from customers, cash flow generated from operations came in at $60.7 million or 81% of adjusted EBITDA in the fourth quarter this year compared to cash flow from operations of $63.4 million or 96% of adjusted EBITDA in the fourth quarter last year. And these are when we exclude both the impact of earn-out payments made on past acquisitions in both periods.

For the year, cash flow from operations, again excluding the impact of these higher earn-out payments in both periods, was $244.3 million or 86% of adjusted EBITDA, up 11% from $220.3 million or 89% of adjusted EBITDA last year. Overall, as Ed mentioned, we are certainly pleased with our operating results in the fourth quarter and fiscal 2025 overall as we continue to see revenue growth, allowing us to achieve 15% growth in adjusted EBITDA, while we improved our adjusted EBITDA margin to 43.7% of revenue, and we achieved strong growth in cash flow from operations for the year.

If we look at our balance sheet, our cash balances totaled $236 million at the end of January. For the year, excluding the payment of earn-out payments on past acquisitions, we generated operating cash flow of just over $244 million. As mentioned earlier, that was offset by deploying approximately $290 million in capital towards new acquisitions. And we also paid an additional $34 million in earnouts related to past acquisitions. So after ending the year with just over $236 million of cash and an undrawn line of credit of $350 million, we are clearly well capitalized and positioned to execute on acquisition opportunities in our market consistent with our plan.

As we look to the current year, our fiscal 2026, we should note the following: after incurring approximately $6.8 million in capital additions this past year, we expect to incur between $6 million and $7 million in additional capital additions this coming year. After incurring amortization expense of $69.4 million this year, we expect amortization expense will come in slightly higher at $71.2 million for fiscal 2026 with this figure being subject to adjustment for foreign exchange rates and future acquisitions.

After paying contingent consideration or earn-out payments of approximately $34 million on past acquisitions last year, we would currently anticipate that we will make additional earn-out payments of approximately $3 million in FY '26. Our income tax rate in the fourth quarter came in at approximately 23.3% of pretax income, resulting in a tax rate for the year of 24.2% in FY '25, which is lower than our statutory tax rate, mainly a result of the reversal of certain uncertain tax positions during fiscal 2025.

For FY '23 (sic) [ FY '26 ] we're expecting the tax rate will be in the range of 24% to 28% of our pretax income, which means there will be something on either side of our blended statutory tax rate of approximately 26.5%. And finally, we are currently expecting stock compensation will be approximately $15.1 million for fiscal 2026, subject to any future equity grants as well as any forfeitures of stock options or share units.

And with that, I'll now turn it back over to Ed to provide our baseline calibration for Q1.

Hey, great, Allan. These are challenging business conditions for our customers. Just some of the changes from the last 30 days are as follows: U.S. imports -- U.S. has imposed tariffs on imports from China, Canada and Mexico ranging from 10% to 25%, though just this afternoon, the White House announced a 1-month exception for automakers that comply with the USMCA. Canada and China have responded with their own tariffs, with Mexico planning on tariffs starting later this week. The U.S. has announced it will impose reciprocal tariffs on products from other countries to restore perceived trade imbalances. The U.S. has indicated it may impose tariffs on the EU. The de minimis tariff exemption for low-value imports was suspended, but that suspension has been temporarily lifted. The U.S. administration is also considering changes to the USPS that could include it no longer being an independent agency and changes to its economic structure. The U.S. is revisiting its sanction regime that it has imposed in connection with the war in the Ukraine. The International Longshore and Warehouse Union reached a labor deal with the ports to remove labor uncertainty. Supplemental U.S. port fees have been proposed for vessels that aren't U.S. made. Some shipping has resumed in the Red Sea, and there's new ownership of the ports in the Panama Canal.

That's a lot of change that has come very quickly. For tariff changes, our customers often have open questions about if they will come into effect and if so, for how long. These types of business conditions cause a ton of uncertainty that make it very hard for our customers to make decisions. Businesses have been somewhat paralyzed as they consider decisions for the short and long term. They've got to consider how to restructure their supply chains and logistics operations, with the potential for movement of manufacturing and sourcing facilities, changes in trading partners, heightened scrutiny and sanctions on particular goods and countries, the potential for further sanctions and tariff changes.

For Descartes, we've had experience with challenging business conditions such as in 2008. We were able to grow through those challenging times, and our goal is to continue to do so now. Some of the things that we believe put us in a good position to do that include: we're diversified in domestic logistics and international logistics. Many of the changes right now impact international supply chains. However, we have great strength in domestic transportation moves, in our routing and scheduling businesses, transportation management, and e-commerce last-mile businesses. We're particularly strong in global trade intelligence. We believe we can provide a ton of help to our customers in an environment where people are looking for information. We're helping to manage tariffs, continually updating sanctioned party lists thirsting for competitive intelligence and dealing with increased export licensing complexity.

We're diversified globally. We've got domestic transportation solutions that can be used around the world. And where there's shifting international trade relations, we have an established global logistics network that could be leveraged by our customers.

We have a total growth model. We have an extensive track record of acquisition activity to complement the strong organic growth we've been delivering. Changing market conditions often provide us with even more opportunities to add solutions for our customers and grow by acquisition. And finally, we're well capitalized. We have more than $235 million in cash and $350 million in undrawn line of credit. 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 are uncertain about how these market conditions will impact their business. They just don't know.

Different industries, products and customers are going to be impacted differently by recent changes. Some industries where there are limited alternative sourcing options will pass these increased costs directly to end users and customers. Others may make decisions to be less profitable to remain price competitive, and others may decide to exit markets altogether. It's difficult for our customers to forecast what's going to happen next, which also makes it more challenging for us to forecast exactly what will happen in our own business.

For Descartes, our annual goal, as it has been for each of the past many years, is to grow our adjusted EBITDA by 10% to 15% over the previous year. As I mentioned, we plan to do this through a combination of organic and inorganic activities. With the business uncertainty that our customers are facing now, it's quite possible that Descartes' quarterly patterns or distribution of growth this fiscal year may be different than in past years, though the annual goal remains the same. We're mindful of this and the impact of the challenging global trade and foreign exchange environments and setting our calibration and considering what our final quarterly financial results may be.

In our annual report, we've provided a comprehensive description of baseline revenues based on calibration and their limitations. As of February 1, 2025, using the foreign exchange rate of $0.69 to the Canadian dollar, $1.04 to the euro and $1.24 to the pound, we estimate that our baseline revenues for the quarter of fiscal 2026 were approximately $145 million, with our baseline operating expenses were approximately $89.5 million. We consider this to be our adjusted EBITDA calibration of approximately $55.5 million for the first quarter of fiscal '26 or approximately 38% of our baseline revenues as at February 1, 2025. We continue to expect that we'll operate in an adjusted EBITDA operating margin range of 40% to 45%. Our margins 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.

Things are hard at the moment for our customers. Things are changing for them rapidly and consistently. We strive to be a partner that they can count on, helping isolate them from at least some of the complexity clouding their ability to make business decisions.

Thanks to 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, I'll now turn the call over to the operator for questions.

[Operator Instructions] Your first question comes from Dylan Becker of William Blair.

You kind of hinted at this on the tail end of your remarks, Ed, but wondering what obviously global complexity uncertainty is going to look like for Descartes this year? I mean, if anything, that's probably the new certainty and it's driving a lot of decisioning questions, I'm sure, from customers. There's a lot of variables. Some may be speculative in nature at this point in time. But how should we think about kind of a simplified netting out? Because historically, complexity has served as a net positive for Descartes.

Yes, we think it will be here as well. But for our customers, there's a lot of uncertainty and things are changing and changing back quite frequently just in the past month or 2. Obviously, I mentioned we operate -- our Global Trade Intelligence business is a big beneficiary of people needing to pay close attention to this information. So that's great for us.

To the extent it affects trade flows, we can benefit and suffer right along with our customers depending on what it does to their business as they move stuff across borders and the challenges they may face when they do that. There's net positives in there for us. There's net negatives if they reduce the amount of goods that they ship across borders.

You probably heard it in my prepared remarks. We don't really know what's going to happen next. We just want to be prepared to help our customers where they need help, and we want to be prepared to manage our business consistently where we need to pay attention to things that are changing.

So I think we've done a very good job of that in the past. I'd expect us to continue to do a good job of that. We're pretty conservative. That's why I'm bringing all this up on the call. But the big answer to this is we don't know what's going to happen next, and I don't think anyone else does either.

Sure. Yes, I think that's totally fair and to your point, probably a good place to be, at least for an area customers to continue to lean into and look for some level of clarity, if there is any. Maybe on the AI front, right, you do have a substantial data set that you can leverage and help kind of drive some efficiency despite some of this uncertainty. I guess maybe how are you guys thinking about incremental areas for external monetization connection points throughout that data as well as maybe, Allan, anything you guys are seeing internally in your ability to kind of deploy and manage and service your customers that can drive incremental kind of operating leverage across the business?

Thanks, Dylan. Yes, we're seeing a ton of opportunity with AI. I've mentioned a bunch of them on previous calls, both in our own internal operations and development, customer support and marketing ability for us to be more efficient in delivering services and also provide better service to the customers, which is all great news. In addition to that, we have the ability for AI in our actual products to deliver, and that's probably what we're most excited about in the long run. I mentioned a bunch of them on previous calls and the global trade intelligence pillar and the transportation management pillar and the fleet management pillar.

But just some examples, we have an AI model for improved denied party screen, the GTI pillar. We've seen significant productivity improvements over the last 6 to 8 months as we're doing that and rolling out to customers. We've released a beta chatbot for the Datamyne service to interact with our trade data, which will help customers gain better usability of that information. In the fleet pillar, we're using machine learning models to improve ETA calculations, which then, in turn, improves the customer's planning process.

So there's lots of examples of this in the business, and we keep coming up with new ones almost every day. We've separated out an AI team that's able to go in and help any of the pillars with ideas that they have. And so I think this is going to be a big business for us in the long run.

If you think about it, people are increasingly putting IoT devices out in the field to tell you what various trucks, planes, ships and engine components, tires, et cetera, all these things that are reporting back to us about what's going on in the field, and right at the same time, AI comes out and gives us the ability to go through that information very rapidly and help our customers make better decisions. I think 10 years from now, that's going to be a very big part of our business. So we're excited about that opportunity.

Your next question comes from John Campbell of Stephens Inc.

On the margin front, I get there's a lot of uncertainty here still. But if I kind of put these puzzle pieces together, I mean, the revenue mix shift was clearly helpful this quarter. It seems like that probably continues. You've done the cost reduction plan. That's going to add a little bit of savings next year. And then you've got a couple of acquisitions in the mix, and if history kind of holds, you've had past acquisitions. You have worked margins up over time.

So it seems like you've got some tailwinds as you get into next -- or get into this fiscal year. I know a lot is going to hinge on the pattern or is kind of the phasing of revenue if that holds up. But Allan, if we assume that the normal cadence of revenue kind of holds up here, it seems like you're going to be kind of pushing north of that 45%, the high end of your current target. I know you want to see a couple of quarters in the bag and I know you want to see some of this resolution kind of come about. But I'm curious about your thoughts on the range and how we should be thinking about -- just broadly about margin this year.

Allan, let me take this one. So John, if you watched us in the past, we usually bump up against even a couple of times through that range before we adjust it up. We're pretty cautious about this kind of stuff, and there's a couple of reasons. One, foreign exchange can change it quickly. You're seeing that right now, the foreign exchange movement going on at the moment that's strengthening U.S. dollar, which changes the numbers around.

We don't really care so much. We run the whole business. But it's out there, and it would affect the percentages that we provide to you. Two and maybe more importantly, most of the businesses that we buy -- and you know we're pretty acquisitive and a lot of good deals going on right now and if there's a lot of uncertainty in the market, and we're a stable business or at least a lot more stable than other companies in our industry, we might be in a very good position to buy companies. And when we do, oftentimes, those companies don't have nearly as high an EBITDA margin as we do.

So for me to tell you that it's going to keep going up, I would have to assume that all things are going to stay the same and I don't believe they will. We buy a business that makes 25%, 30% profit margin with an expectation that we're going to grow it over time to more of our levels. But the day we buy it, it drags our EBITDA margin down considerably, and we always have that in the back of our mind when we're putting out these numbers.

So now it's possible that we'll bump up against it again. It's possible that we'll go over it. I'm not going to apologize for that when it happens. But at the same time, I want to be conservative when we're putting it out there. It's very possible we go buy some other businesses, and that temporarily drags our EBITDA margin down. And that's a good thing in our mind. But I also don't want to miss a number that I told you we'd hit.

Yes, totally makes a lot of sense.

Actually, let me add one more thing. Let me add one more thing to that, John. We -- over time, we have a core business that as it grows, it keeps getting more profitable, meaning it has a very low cost incrementally. And as our business grows, we have -- and all things being equal, which we know that they're not going to be, but if all things were to remain the same, we do believe that we would keep driving that number up because the core business does have some relatively fixed cost components to it that the revenue goes up and the cost stays the same, and that's a constant driver upwards on that number. And at the same time, some of the things I mentioned like acquisitions have the potential to drag it down, and that's why we're conservative about it. I'm sorry.

Okay. That's helpful. And then you kind of hinted at this, but on the M&A front, I mean, lot of market uncertainty out there. I mean, if you guys are starting to feel that, I can only imagine kind of the subscale players, what they're feeling right now. So maybe if you could talk to whether that's made its way -- starting to make its way into the multiples. Have you seen any change there? And then any change as far as new opportunities? Are they coming to you organically or being shown to you?

We've seen it over the last year, and you see that's helping us get deals done. We've got 5 deals done this year. We think we're in a pretty good position to get more done in the future. At the same time, I think the real question you're asking is am I seeing it right now because of the uncertainty that's going on in the last month. And the answer to that is, no, it doesn't go that fast. It'd be a couple of months before people go, "Oh boy, this is going to be a problem. Maybe I should sell my business for less."

There's usually a lag, and I wouldn't be surprised if there were this time, if, in fact, things turn out not positive that they're going to. If the world runs into trouble, we're probably going to fare better than most. And some of those companies are going to be in a position where they feel like they have to sell and that's going to affect the purchase price, and that will be good for us.

Your next question comes from Stephanie Price of CIBC.

Just circling back on the tariff discussion. You mentioned 2008 in your prepared remarks. Can you dig into that historical precedent a little and just talk a bit about what the typical consumer behavior was in those volatile times and if you're seeing the same thing this time around?

I can -- let me talk about it, '08. I haven't seen much of it yet, but I wonder what's going to happen if prices go up. Certainly in '08, when you saw -- it was a moment in time, October 2008 where everything hit the fan and everything ground to a halt and Christmas slowed down, and the next year, we were on the verge of a depression. And we definitely saw consumer spending go down.

You probably heard me talk about this before if you've been with us for a while. Our shipment volumes were down about 8% that year, which has always been shocking to me, right, when you think of it down even worse. I think what you see is people still have to get certain things. They have to get food. They have to get diapers. They have to get certain basic things. They might not be buying boats and jet skis, but they're still running their life as soon as they -- or assuming they still have a job. They make bigger changes if they don't. But most people kept their jobs during that time.

At the same time, it was tough times for people. And just you see why it was only down 8%. I -- look, can go -- you might not buy a lobster but you still have to buy chicken, and the chicken costs the same amount of money to move as the lobster does. So for us, there's similar transaction numbers. They were down 8%, but they weren't down 30% to 40%. And I don't think we're in a time like that. It certainly doesn't feel like that right now to me. Just feel like there's a lot of uncertainty in that right now, and that maybe makes people freeze for a little bit before they figure out what to do next.

We really benefited during that time. When I look back on it, I think it wasn't fun to go through it, but when I look back, we picked up some of the best acquisitions at very good prices in the coming 3 or 4 years because of that recession. And I don't know what we're heading into right now, and we know that we are in a recession. But if we are or we head into one, part of me goes, well, this isn't going to be that much fun, but another part of me goes like, we may end up doing pretty well in this.

We may be able to look back on this time laughing at it going, this is the set of things that propelled the next stage of growth at Descartes. So we probably have a different outlook on it than most businesses just because of who we are and what we do and all the things I mentioned in the prepared remarks on the call, but those are some of the thoughts we have about it.

That's good color. And then just on MacroPoint, you also mentioned that in the prepared remarks. Can you talk a little bit more about the growth you're seeing there, the growth rate of the business? And what sort of additional investments you're looking to make in the business?

Yes, that continues to do very well for us. We've become the leader in the brokerage space and really starting to move in even the shipper space because of our track rates. And our competitors are tracking 55% to 60% of the shipments that they have, and we're tracking 85% to 90% of the shipments. That means if I give you a shipment to track, half the time, you're not going to be able to find it, and you're not going to give me any tracking on it.

That is one of the broker market where there's high volume and they really need to track as many of the shipments as possible. And that's put us in a very good position because we have a lot of truckers on our network. We have competitors there that run this like a software company and we run it like a network, and that's, I think, been very helpful for us.

And then -- so we're taking customers from them and breaking into the shipper market, which we haven't paid as close attention to over the years as they have. But I think we're heading in that direction as well, and I think they're going to appreciate higher track rates as well as we start to move into it. So we're making investments to make the software better and better for big retailers and manufacturers, and I think you're going to see us head in that direction over time.

Your next question comes from Paul Treiber of RBC Capital Markets.

Just you mentioned the uncertainty in the environment and potentially that customers could pause what they're doing to evaluate that. The professional services in the quarter and license revenue were lighter than the previous quarter. Is that related to seasonality? Or did you begin to see some of that pause impacting the revenue there?

No, no. In fact, let me frame that. We're mostly looking at the services number at the time, and that recurring number is the way that we drive our business. I'd like to have no professional services revenue, meaning that everyone can just get our software and use it right away. I don't think it's ever going to be that simple. In some of the software packages, some of them are that simple actually but not all of them.

And they need people to go in and install them and make sure that they get what they're paying for. And we want to be there to do that for them. But I'm not as focused on those 2 numbers. I mean, we want growth in recurring revenue, and we sell professional services so that we can install our products that need to be installed over a period of time because they're a little more complicated to run.

The licenses, I'd rather themselves recurring now, software fees. But some customers have old deals with us where they're able to get license fees, so they do. But no, we're price selling as well as we've sold in this past quarter, so no, nothing there.

And shifting and looking at service revenue, Allan mentioned, I think it was 6% organic or constant currency or organic service revenue growth. I think it was down a little bit from the prior quarters. Any moving parts there to call out just in terms of the comparison to the last couple of quarters?

Nothing big. I mean, it's all related to volumes on individual -- across a lot of little customers and nothing that -- I understand everyone who's not working at our company's 6%, 6.5%, 7%, 7.5%. What's the difference between them? And to us, it's probably more. We just want to keep them -- see them keep growing. There could be lots of little reasons up and down and a lot of it outside of our control.

It is important to us that it keeps growing. We keep telling everyone we're going to grow EBITDA 10% to 15%, and that's what we're focused on. And it truly is what we're focused on, but at the same time, we're aware that growing revenue is important in that mix, and 6%, 7%, those are fine numbers as far as we're concerned. Remember, the guys that run this company have been here for 30 years. I've seen 1%. I've seen 0.5% growth. So 6%, 7%, 8% all sounds great to me.

And then just a bigger picture question. You mentioned there's a lot of interest in your global trade intelligence products because of the tariff uncertainty. How much is that -- first of all, getting you in the door? And then once you're in the door, is it opening up the discussion around broader digital transformation of supply chains?

Yes. Sometimes. I mean, the biggest driver of that is our network, right? So people sign up for a network, and then we start, now that you're on the network, here's what else you can do. That's certainly the biggest way and the best way that we get people in the door and sell them more stuff. But yes, it happens from time to time with global trade intelligence. People get in trouble. They get fined. Their lawyers say, "Hey, how do you prevent this from happening in the future?" And they say, "We didn't know we weren't [indiscernible]." Their lawyer goes, "That's not a good answer." And they refer them to us, and we'll help them with sanction parties.

People have global trade issues where they overpaid or underpaid. And if you underpay, there's a big fine. And if you overpay, it takes a long time and a lot of work to get your money back. It's kind of odd that way. So more and more people, especially as the tariffs are changing every day, tend to look to us for our GTI solutions. We're now the biggest in the business and certainly, we think the best. And it's absolutely a way in the door for us. Probably the second or third biggest way in the door, biggest way being the network.

So it's nice to be in a position we're in right now, with all the tariff talk, to be able to help our customers deal with it and come up with more innovative solutions to help them deal with it more accurately and more efficiently. But there's a lot of other stuff we do. And if customers come in and buy that, we'd love the opportunity to show them all the additional things that we can do for them.

Your next question comes from Kevin Krishnaratne of Scotiabank.

Maybe kind of on back to Paul's question, can you remind us again the sort of structure of your sales team? How big is sort of the upsell/cross-sell team? I can imagine you're probably getting a lot of inbounds, but talk about how you might be being proactive in looking at your realistic customers, looking at what products they've got and just trying to help educate them on what they should be buying next. And maybe you can also talk about some of the feedback from your innovation forum that you've had with customers.

Yes. So I think sales force is in around 300 now. And they're all able to cross sell, and they're all able to sell new stuff. We break them into 2 groups: MRDM, manufacturers, retailers, distributors, mobile service providers; and then the other group being logistics and transportation providers. And they're all doing both, really. They're all selling new products to new customers and more often cross selling. It's probably 65%, at times up to 70% cross-sell. We have 26,000 customers, and that results in a lot of cross-selling. We used to have pretty low cross-selling numbers 15 years ago, but we really focused on it. And as we've gotten bigger, it's become a very big part of what we do.

Innovation forums, we had one in D.C. and a couple in Chicago a few months ago, very well received. Coming out of the pandemic, we used to have one big user group. With a lot of different kinds of companies, they are doing a lot of different things and a lot of different tracks. And after the pandemic, where we weren't able to have the user group, we decided to start doing it this way, which is a little more focused and we can go in and maybe, partially for our own people's time and partially for the customers, to make sure we're very focused on them while they're there.

We've broken it into smaller chunks and around the country that do it in different locations where maybe more of the users are. So we had a lot of success doing it. I think customers get a lot from us. We certainly get a lot from them. You probably heard me mention before, a lot of our ideas about what to buy next and what business to get into come from them and come from them specifically at these forums.

And maybe the most important thing, and I mentioned on the call earlier today, they get to talk to each other, right, because they're all solving problems in -- similar problems in different ways and they get to hear how other people are doing it. And I think their businesses benefit from that. It makes it a somewhat unique event for customers to come to and get great information. So we're excited about it.

Got it. Second question for me is on de minimis. You brought it up. I know it's been back and forth and back and forth here. But can you talk about how you see any changes there impacting your business? I can think on the positive, I mean, e-commerce, a bit of a boon for you. You've also got a business, NetCHB, that sort of plays in that space. But on the other hand, if it goes away completely, does that mean better business for the more traditional customs brokers who are also your customers and you've got tools for them as well? I'm just trying to think about...

It does. You actually said it all pretty well. We don't know what's going to happen yet. The de minimis may go down. It could go away. It could stay the same. We do a lot of the de minimis transactions. They go at very low fees per transaction. We do even more of the customs -- regular customs filing transactions. They go at higher fees per transaction because they're for entire containers, something like that.

It really depends. Wait to see what the rule comes out as. We have a lot of confidence that if it lowers, that we are going to lose those de minimis transactions that are very, very low transaction fee and pick up a lot of new customs filings at higher transaction fees because they're a more sophisticated transaction or maybe I should say, a much more sophisticated transaction.

So I don't know how it's going to work yet. I don't know what the impact will be. If a customer puts all of a particular commodity in one container, that's only going to be one customs filing, which might have been hundreds before. They also might put 30 different types of packages in those containers, and then it'll end up being 30 different customs filings, which would end up being a lot better for us. So not only do I see what the rules are, but I got to see how the customers react to it. And if I just spend too much time worrying about it, it's probably going to be good for us, and we'll just have to see what happens when the government does something or decides that they're not going to.

Your next question comes from Cole Couzens of Wolfe Research.

This is Cole on for Scott Group. I know you called out some pull forward ahead of tariffs in the quarter. Is there any way to quantify how much that helped you guys? And unrelated, maybe coming out of the Chinese New Year, what kind of activity are you seeing so far to start the year?

I don't think -- to the first part of your question, it helped, but I don't know want to -- nothing material. Second part of your question, I can't really answer because it's talking about a period of time that we're not reporting on. So I don't see any big changes. You can look at our global -- our monthly global shipping report. It'll give you some information about it. But without saying too much, it's similar stuff, similar stuff to prior years at the moment.

Okay. And there's been a lot of uncertainty about the potential charges on Chinese-built ships and shipping companies. And how do you guys see that kind of playing out as we go into 2025?

I don't think it's going to be a big deal for us. Almost every container ship in the world, minus the Jones Act ships that are here in the United States going to Puerto Rico, Alaska, and Hawaii are foreign built. So if they're going to charge for foreign-built ships, every ship that's bringing containers to the United States pretty much from another country -- in fact, every ship from another country, I believe, will be in a foreign-built ship. So I don't know what to say about that other than I don't think that's going to matter much to us, but it will certainly matter to our ocean carrier customers.

Okay. And if I could squeeze one last question in. Obviously, EBITDA growth was strong in the quarter and then for the full year. And I know you guys said that quarterly patterns might be a little bit different here in 2025. Can you expand on what exactly you meant by that? And I know you're focused on continued 10% to 15% EBITDA growth going forward. But maybe there's a lot of uncertainty right now. Kind of what's your confidence that, that can continue kind of into fiscal 2026?

No, we're confident we're going to deliver that in 2026. We put the caveat in there because I don't know how long you've been watching us, but we're pretty cautious operators. If we see something going on in the business, we'll make changes to deal with it. We don't know what's going to happen next. We're not making changes right now because we don't know what's going to happen.

But if stuff started to happen quickly and it started to make changes -- negative changes to our business, we're going to need a little bit of time to deal with that. And if it goes the other way around and it goes great for our business, we don't have to worry about it, but we just wanted to tell people with the uncertainty that we're seeing, that even if we didn't do it quarter-to-quarter, we plan on doing it year-to-year. And that's maybe just a commentary on how we've always operated the business. When things go bad, we react and we do stuff about it. And if they go great, I'll be happy. Maybe I don't want to do too much but want to warn people that that's how we're going to handle it.

Your next question comes from John Shao of National Bank.

So there are some articles online about the tariffs on Canadian software but technically doesn't sound realistic. So what's your take on this?

I don't have a lot of comment on it. I don't think it's charged now. We don't know what's going to happen in the future, but I -- look, a lot of our stuff's domiciled in other locations, so I don't know if that's going to be part of the issue or not. But we don't believe it's going to have any impact on us at the moment.

Okay. Got it. And Ed, you also mentioned a couple of drivers of organic growth in your prepared remarks. But I'm just curious about the other side of the balance. Any example of your business that might potentially be under pressure if the trade environment starts to get worse from here?

Well, I don't know that this is going to happen, but I think if less stuff starts shipping internationally because tariffs are high and certain products that are kind of forced out of the market because of that, that's a possibility. If that happens, we'll suffer along with everyone else who gets -- who has lower shipment volume. I don't get paid by the shipment for stuff, and if there's less stuff going across the border, we get less transaction volumes from it.

That's the area where we would be impacted. I mean, everything else is almost good for us, right, if you think about it. Increased complexity, you always hear us talking about that, and we're certainly facing increased complexity right now. In the long run, I believe this will benefit us no matter what happens in the short run. And it's putting a lot of focus on supply chain and logistics, which means money is going to start -- more money is going to flow to supply chain and logistics to help solve the problem in the first place.

The people usually put their money is in a technology because that's where they get their biggest bang for the buck. So in the long run, I'm very optimistic about it. In the short run, if less stuff starts moving across a particular border because the tariffs went up and I get paid to move that stuff or to process the transactions about that stuff, we're going to have a short-term issue along with everybody else. And we're not immune from that. At the same time, overall, I think this is probably going to end up being very good news for us because it plays into the things that we're best at.

Your next question comes from Mark Schappel of Loop Capital Markets.

Ed, during your prepared remarks, you called out areas of your business where you saw strength in the quarter, particularly MacroPoint, Global Trade Intelligence. Could you just talk a little bit about maybe parts of the business that were not quite as strong in the quarter?

I don't know if we had any areas that were, what I would call, weak. The shipment processing was maybe a little slower than normal. You can see that in the trade flows but made up for in other areas like MacroPoint. That's a shipment processing business that was doing very well at the same time. I don't know that we had anything that we thought was doing badly at the moment. We put up pretty good growth numbers and most of the stuff was performing pretty well. Global Trade Intelligence was doing better than normal because of what you see going on. But I didn't really have anything that was, I would say, down significantly.

Great. And then as a follow-up, could you just comment a little bit about what you're seeing on the pricing front? Are customers becoming more aggressive trying to get price concessions? Are you seeing some of your competitors giving up something on the pricing front?

Not really, no. Pricing issues tend to crop up more when you get into a deeper kind of recession environment. We're not in that, in any stress right at the moment. I think our customers are mostly focused on how to deal with these tariff issues and what changes it brings to our business, and they're probably trying to buy more stuff from us. And usually when they're trying to buy more stuff from us, they're not sticking it to us on price. They're trying to figure out how to get the best software to solve the problem that they're having. So at the moment, we're not seeing that.

Your next question comes from Steven Li of Raymond James.

Ed, any thoughts on Amazon getting into LTL? And if it impacts your customers, does it hurt you in a similar way? Or are there offsets?

We do a lot of business in Amazon. It's probably good to have more competition there. And no, I mean, as with all the LTL providers, we see a bunch of them go out of business. We usually pick them up with the other ones. So I think you might end up seeing the same thing here.

Okay. Okay. Helpful. And on your calibration, your baseline revenues and operating expense is very similar to last quarter. Can we expect Q1 to be similar to Q4 in terms of revenues and EBITDA?

You mean absolute numbers or percentages?

Yes, actual numbers. Yes, in terms of calibration.

Well, Allan [indiscernible]. Yes, Allan may step in and give you more here. But I believe there's a headwind of FX going on right now that may end up making the absolute numbers closer than they normally are. I don't know that they're going to be -- they'll probably still be higher. But Allan, I don't know if you have anything to add to that.

Yes, Steven, there's certainly an FX headwind that's sitting in those numbers. You see it in the exchange rates that we gave you in calibration that definitely are different from Q3 and what we experienced in Q4. So keep that in mind. At the same time, I think back to Ed's points earlier, it's an uncertain set of times, so I think our calibration reflects some level of that uncertainty.

Got it. And Allan, I've got you on. You said services plus 6% constant currency organic. What would that number be for overall revenues, constant currency and organic?

Yes. We had lower license revenue. We had slightly lower hardware revenue in the professional services and other bucket, so slightly less than that. The FX headwind was over $2 million year-over-year and sequentially. So we certainly had some compression there that was purely FX, but overall growth is slightly lower than that 6% just given the lower numbers in license and hardware revenue.

So something like 5%?

In that range, yes, Steven.

Your next question comes from Robert Young of Canaccord Genuity.

On the trade intelligence, you said lots of demand, especially recently. And the biggest driver, I think you said at the current network, so existing customers and you really focus on cross-sell. Is there any metrics or maybe even a rough idea that you can share with us on penetration there and whether you expect that penetration obviously to move forward pretty quickly in this environment because it looks so complex? And then I'll pass the line.

Well, I expect us to keep picking up new customers there. I expect us to keep selling more stuff to existing customers there. And probably something that may not be so obvious to you, more and more people will buy it that never needed it before. There's more and more e-commerce businesses popping up that need this information. We tend to pick up a lot of the new guys. So I don't see any real end in sight to that growth.

If you look at the 26,000 customers, I mean, I imagine there's a lot of really small ones, freight brokerage and stuff. Like do all of those customers, is there a use case for all of your customers to use trade intelligence? Or is this something more just in the larger customers where they'd be that complex?

Yes, it's mostly midsized and larger guys. If you have one product that's going to one country, you can probably watch the tariff rate yourself. If you have 10, maybe you can go watch it yourself. When you start having 50 that go to 50 countries, 500 that go to 50 countries, there's no way you're going to do that properly yourself. And those are the people that need to buy it.

So not every customer needs to do it. A lot of our customers only do domestic. But as soon as they start buying or start making some product that goes to a lot of different countries, they end up needing the solution to solve the problem, or they end up paying the wrong rate and that's a real problem for them.

Your next question comes from Lachlan Brown of Redburn Atlantic.

In the interest of time, I'll just keep it to the one question. Allan mentioned the reduction of the 45 personnel in the fourth quarter in his remarks. Just the areas of the business that these reductions came from?

Yes, Lachlan, it came across the business. When we look at our business, we do this all the time. We're constantly assessing our business. We just look across the business. And for the most part, these are role eliminations as we streamline our business and something you can expect from Descartes on a fairly regular basis but spread out across the entire business.

There are no further questions at this time. I would hand over the call to Ed Ryan for closing remarks. Please go ahead.

Hey, everyone, thanks very much for your time on today's call, and we look forward to reporting back to you on Q1 results in June of this year. And otherwise, we look forward to seeing you guys out on the street with your customers. So have a great day. Thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation, and you may now disconnect.