Descartes Systems Group Inc

TSX:DSG

Q3-2026 Earnings Call

[Operator]

Good afternoon, ladies and gentlemen, and welcome to Descartes Systems Group Quarterly Results Call. [Operator Instructions]

I would now like to turn the conference call over to Scott Pagan. Please go ahead.

[J. Pagan, executive]

Thanks, and good evening, everyone. Joining me in person on the call today are Ed Ryan, CEO; Allan Brett, CFO; and Ed Gardner, EVP, Corporate Development. 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 future. and current 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 of revenues and incurrence of expenses potential acquisitions and acquisition strategy, cost reduction and integration initiatives, timing of management changes, the approval and potential share purchase under a normal course issuer bid 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. 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 Ryan.

[Edward Ryan, executive]

Thanks, Scott, and welcome, everyone, to the call. Today, we're reporting record strong quarterly revenues and adjusted EBITDA. We're now ahead of our year-to-date plans and focused on a strong end of the year. We're excited to go over these results with you and describe how we're well positioned to help our customers in an environment where they're making many tariff and artificial intelligent investment decisions. But first, let me give you a road map on this call.

I'll start by hitting some highlights of last quarter, some aspects of how our business performed and how we're positioned to help customers. I'll then hand it over to Allan, who will go over the Q3 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 Q3. And we'll then open it up to the operator to coordinate the Q&A portion of the call.

So let's start with the third quarter that ended October 31. Key metrics we monitor include revenue, profits, cash flow from operations, operating margins and returns on our investments. For this past quarter, we again had strong record performance in each of those areas. Total revenues were at a record high of $187.7 million, up 11% from a year ago. Record high services revenues were up 16% from a year ago with our continued focus on generating recurring revenues. Record net income was up 20% from a year ago. Record income from operations was up 24% from a year ago. Record adjusted EBITDA was up 19% from a year ago. Our adjusted EBITDA margin was up 3 points from a year ago to 46%. We generated a record high of $73 million in cash from our operations, up 22% from a year ago. So strong record results across all of these key metrics.

At the end of the quarter, we had $279 million in cash, and we were debt-free with an undrawn $350 million line of credit. That included us using $37 million of our cash in Q3 to acquire Finale inventory, an acquisition that we discussed on our September financial results call. We remain well capitalized, cash generating, growing and ready to continue to invest in our business. Our principal growth drivers in Q3 were largely the same as I've described in detail in past quarters. They are as follows: first, global trade data and intelligence. It remains a chaotic tariff and trade environment for our customers. In the last 90 days, our customers have seen these significant changes. -- want a truth on tariffs between China and the U.S., extending the tariff status quo while negotiations continue; two, tariff expansions on metals, copper, timber and furniture; three, tariff relief for food stuff; four, new reciprocal trade agreements between the U.S. and countries like Argentina, Switzerland and Malaysia; and five, the implementation and temporary pause and enforcement of BIS 50, a regulation that expanded the number of denied parties that the U.S. entities needed to screen against.

We continue to be a provider of choice for our customers for car data, sanction party assistance and research on trade flows. We help our customers keep their business flowing and help them plan for tomorrow. When things are changing rapidly, they rely on us for timely and accurate updates. In Q3, the changing trade environment provided strong demand for our solutions. Second is foreign trade zones. The uncertain trade and tariff environment has many of our customers needing more of our help to find the most efficient way to import goods. One mechanism that's being investigated by more of our customers than ever before is foreign trade zones or FTZs. These are designated spaces for U.S. companies to import goods on a tariff and duty deferred basis, only triggering payment when the goods are removed from the FTZ for shipment into free circulation. There's a detailed regulatory regime to manage these FTCs, including keeping track of everything flowing in and out of the FTZ and regular government reporting. However, with heightened and uncertain tariffs, it has become an effective way for our customers to manage their imports and cash flow. We've seen higher demand for our FTZ solutions than in previous years, and that was a good driver again this quarter. The third is e-commerce customs clearance. Earlier in the year, the U.S. eliminated the dominates exemption, which allows foreign companies to ship goods duty-free to U.S. customers where the value of the goods was less than $800. With that exemption gone, foreign e-commerce sellers needed to adapt to a new regulatory structure with new filings and submissions of tariffs.

To do this, these sellers and their brokers need solutions that can handle large volumes and velocities of shipments that interact with U.S. customs and get goods quickly to prevent delivery delays. We have market-leading solutions to help these high velocity importers, and it was a strong driver of growth in the quarter. The fourth is real-time shipment visibility. Shippers and brokers want real-time visibility into the location of shipments in transit. Shipment tracking is an expected part of the consumer experience. So this is critical information for customers. In the business-to-business environment, shipment tracking allows for better planning on preparing delivery resources, whether they be loading dock doors or human resources unloading trucks. Getting accurate location information isn't always simple, particularly in the truck market as many smaller independent truckers may not have the technology to provide automated location information.

However, our MacroPoint solutions are the best at getting tracking information, leveraging carefully designed mobile applications and artificial intelligence agents. This market-leading tracking rate led to continued strong network performance by MacroPoint in the quarter. So similar revenue drivers to previous quarters have contributed to our record revenue performance this quarter. When combined with the cost rationalization effort we undertook earlier this year, we also had record operating performance.

So next, I want to talk about artificial intelligence because it's becoming a bigger and bigger part of our business. I mentioned artificial intelligence helped our MacroPoint business, but I wanted to take a bit more or talk a bit more about how AI impacts cart overall. First, let me give some context for when you're thinking about Descartes. Descartes is the network business with a huge network infrastructure. We run the global logistics network. We're built by connecting huge numbers of shippers, carriers, governments and logistics intermediaries together. We are not an enterprise software business. Logistics and supply chain problems are not enterprise problems. They are intra-enterprise problems and challenges. To solve them, you need data from multiple external sources, and that's what we do.

We transmit and house massive amounts of data to help our customers source trusted clean, formatted and real-time data because that's what's most valuable to them. So the questions I've been getting from shareholders, analysts and others is what's the impact of artificial intelligence on Descartes' business? The answer is that the impact is overwhelmingly positive. I'll talk about this in detail, but in summary, AI increases demand for our data and decision-making tools. Our customers want massive amounts of clean, formatted real-time data to help them make decisions on our own network or to power their own AI investments. Data is the fuel for AI solutions. That data needs to be from a trusted source, everyone knows poor data can lead to poor decision-making and execution.

AI allows us to offer new solutions and services leveraging our network infrastructure and data and AI allows us to run our network and business more efficiently.

Now let me go into a bit more detail. The first GLM data powers AI. AI tools massively speed up the pace of automation for our customers with AI agents or agentic AI and we expect that most of our customers will eventually be running some form of AI tools to automate processes within their business. These AI tools are powered by data, businesses that will be the most successful with AI are the ones that can train their tools with enormous amounts of current and clean data. In the supply chain and logistics world, that means that our customers' AI strategies and successes relying on getting more clean data from their trading partners. Our customers need information about things like the location, schedule and amounts of resources not in their control, including inventory, vehicles, vessels and people. This is why AI makes Descartes Global logistics network even more important for the customers. The Global Logistics Network helps our customers get massive amounts of real-time data for an enormous number of global trading partners delivered in a clean manner that can empower AI tools.

The scale, reach and global nature of Descartes network has never been more important to our customers. Descartes is a network business, we get paid as we help customers get and process more data. We believe that AI is a huge potential tailwind in demand for our global logistics network. The second is that the GLN data includes the collective intelligence of the network. We expect that our customers will use AI to answer questions about how to best run their own businesses. and the power of AI may mean that they'll be able to answer questions that they haven't even thought of asking yet.

But some of those questions will be best answered using the collective intelligence of data available on the Global Logistics Network. Then give it as the difference between predicting the traffic patterns on a particular road using only vehicles in your own fleet compared to being able to get a better answer for traffic patterns using the vehicles of every participant on the Global Logistics Network, where the difference between responding to a shipment delay by limiting yourself to 1 airline, you've worked with versus every possible alternative with an air carrier available over the Global Logistics Network.

Collective intelligence, available over a massively scaled network matters when you're solving interenterprise solutions and that collective intelligence is another data source that powers AI for our customers. The third area is the GLN fueled AI with real-time information. Further, the most successful businesses will power their AI with current information so that the answers they get aren't stale. For that, our customers really need real-time and constantly updated information from a trusted source dedicated to data, and that's what the Global Logistics network provides. We're processing shipment moves and getting location information in real time. We're quickly updating compliance rules, sanctioned parties, tariff rates, trade agreements and regulations, shipping rates and schedules. We live, eat and breathe supply chain and logistics at scale. And we believe that's even more powerful business in the AI world.

So we believe that just the fact that our customers want to use AI increases demand for the Global Logistics Network, but AI also allows us to make meaningful changes in the services and value we deliver to customers and also in how we make our own operations more efficient and effective. Next area is AI enables new GLN services for our customers. We recently ran an internal employee AI Descartes hackathon with exactly that go in mind. What our employees' ideas for using AI to deliver more value to customers or making our business more efficient. We had overwhelming employee interest and participation with more than 50 new suggestions for projects, and this is in addition to the projects we've already completed or have underway.

Generally, we leverage AI for customers in 2 ways: One, by delivering new automated services that were too expensive or challenging when they were manual, and two, by allowing our customers to leverage the large amounts of data on the GLN to get better or faster answers that can help them manage their business. An example of new automated services include using a agentic AI with our MacroPoint business. MacroPoint helps our broker and shipper customers get location information on in-transit shipments. Oftentimes, we can get this information from direct data feeds to vehicle telematics or trucking company transportation management systems. However, there's still a substantial number of small and/or independent truckers that don't have those technological capabilities.

Having a staff of hundreds of people to call these trucks and ask them where they are, just isn't economically feasible for our customers. However, with agentic AI, we can work with them to download and use our mobile app or automate inquiries to truckers and get more tracking information for our customers much more efficiently. In just a few short months, we've had more than 300,000 outreaches using our AI agents, resulting in more than 180,000 drivers joining the MacroPoint network. The result is happy customers, more billable truck loads for our customers. So it's a great example of an enhanced service that just wasn't feasible before AI automation came to the table.

Some other things that were already gone underway for our customers, natural language searches of our GLN data mine U.S. import information and faster results to get competitive intelligence. Automated logic and denied party screening to deal with challenging match scenarios on parties with ambiguous names and addresses. This allows customers to process large shipment volumes more quickly. Free trade eligibility assessments using AI recommendations based on past practices, helping our customers reduce their tariff bill, automated tariff classification suggestions for goods, using AI agents to interpret lengthy carrier rate agreements and present optimal selection recommendations; and finally, leveraging actual historical delivery service times for particular businesses to allow for better planning decisions.

AI also allows us to run our own network more efficiently. AI allows us to make our own internal operations more efficient by automating tasks, minimizing human error and enabling oversight and analysis that wasn't previously possible. For us, AI can help us with these areas such as enhanced network security as we deploy tools to monitor, target and even counterattack malicious activity, more intense network performance monitoring to minimize service disruptions, code development by providing engineers with a running start with suggested code and development or maintenance of services. This is something we're already seeing great benefit in. And finally, automated and self serve customer service, leveraging the enormous amounts of product documentation that we produce.

So AI has a great opportunity for Descartes and for our Global Logistics Network. We believe it will spur further demand for our trusted real-time clean formatted GLN data and the collective intelligence of the network. It's already allowing us to deliver additional value to our customers with enhanced services. and it's helping make our business more efficient. We believe that the inner enterprise scaled network infrastructure of our business puts us in a much better position to benefit from AI than legacy or emerging point or enterprise technology solutions.

To sum up before I hand it over to Alan, Q3 was a very strong quarter for us. Trade and tariff uncertainty fuel demand for many of our services, we saw AI have a meaningful impact on our service delivery to customers and we completed an acquisition of our -- in our e-commerce pillar that's already contributing an excellent job all around by Artcare team. I'd look to touch on one other item outlined in our press release today, and that is that we're planning on a CFO transition after the end of this fiscal year. Alan has decided that after more than 30 years as a public company CFO, including 12 at Descartes, he wants to take steps towards retirement. So Allan will be handing things over to Ed Gartner in March 2026 and consistent with our established CFO succession plan. Alan is going to stick around in the business as an adviser to help us with the CFO transition and also more generally to keep helping our business grow. It continues to be a great privilege to work with Alan. He cares for the business a ton, which I think is reflected in his desire to stay involved with the business going forward.

We're also thrilled to have Ed Gartner ready to assume the CFO role, someone that I've worked with for more than 20 years, and Alan has worked with over his entire 12-year stint at Descartes and as a ton of financial experience with our business and the many acquisitions that we brought on board and will likely already be a familiar face to many shareholders and analysts. With Allan and Ed's long working relationship together, we expect a seamless transition in March. So those are our plans for the future, but we still have Allan on the San until March.

So now I'll turn the call over to him to go through our Q3 financial results in more detail. Allan?

[Allan Brett, executive]

Thanks very much, Ed. I appreciate those words. So as indicated, I'm going to take you through our financial highlights for our third quarter, which ended on October 31. We are pleased to report record quarterly revenue of $187.7 million this quarter, an increase of 11% from revenue of $168.8 million in Q3 last year. While revenue from acquisitions completed in the past 12 months, including the acquisitions of 3G TMS and Finali inventory completed earlier this year contributed nicely to this growth. Our growth in services revenue from new and existing customers from our existing solutions was also a very significant driver of growth this quarter when compared to the same period last year.

Looking at our revenue details further. Our revenue mix in the quarter continued to be very strong, with services revenue increasing 16% to $173.7 million compared to $149.7 million in the same period last year representing approximately 93% of total revenues in the third quarter this year. Based on these results, we estimate that organic services growth on an FX-neutral basis came in right around 7% in Q3 after averaging closer to 4% in each of Q1 and Q2 this year. While we saw some reasonable strength in our transaction volumes in Q3, the majority of the growth in services revenue this quarter continue to come from strong results in the global trade intelligence pillar as well as strength in our e-commerce customs filing business and our transportation management solutions, including MacroPoint free visibility solution again this quarter.

As expected, partially offsetting the strong growth in services revenue, license revenue came in at $1.7 million or 1% of revenue in the quarter, down from license revenue of $3.5 million recorded last year in Q3. While professional services and other revenue came in at $12.1 million or 6% of revenue, down from $15.6 million in the third quarter last year. That's mainly a result of the inclusion of approximately $3.7 million of low-margin hardware sales from our ground cloud business in our Q3 results in last year's comparable period.

As indicated, these lower license and hardware sales were expected, and we continue to focus on driving growth in services revenue across our business. For the first 9 months of this year, revenue came in at $536 million, an increase of 11% from revenue of $484 million in the same period last year. Again, with revenue from acquisitions completed this year as well as organic growth in our existing solutions, both driving this revenue growth. Again, services revenue drove this growth year-to-date growing approximately 15% over the same 9-month period year-to-date last year.

Gross margin came in at 77% of revenue in the third quarter up from gross margin of 74% in the third quarter last year, again driven by the low-margin hardware sales we recorded in last year's results. Excluding these hardware sales, gross margin would have improved slightly over the same quarter last year as a result of the continued leverage we experienced with revenue growth from new and existing customers. Operating expenses increased by approximately 11% in the third quarter over the same period last year, and this was heavily related to the cost coming from the acquisitions completed in the past 12 months, offset partially by the cost benefit of the restructuring plan that we put in place during Q2 of this year.

So as a result of continued cost control and the operating leverage we get from both acquisitive and organic revenue growth, we recorded adjusted EBITDA growth of 19% to a record $85.5 million or 45.6% of revenue, up from $72.1 million or 42.7% of revenue in the third quarter last year. For the first 3 quarters of the year, adjusted EBITDA has increased by 15% to $241 million from $210 million in the same period last year, with adjusted EBITDA ratios increasing to 44.9% from 43.4%. If we look at our GAAP financials, net income came in at $43.9 million or $0.50 per diluted common share in the third quarter, up nicely from net income of $36.6 million or $0.42 per diluted common share in the third quarter last year.

We should also note that the income tax expense for the third quarter came in at $14.5 million or 24.8% of pretax income which is slightly lower than our blended statutory tax rate of 26.5%, mainly as a result of recognizing some previously unrecorded R&D tax benefits from previous periods. Net income for the 9-month year-to-date period was $118 million or $1.35 per diluted common share compared to $106 million or $1.21 per diluted common share in the last year in the 9 months, again, as a result of higher operating profits from our growing business.

With these operating results and strong AR collection offset partially by higher cash tax payments in the quarter, cash flow generated from operations came in at $73.4 million or 86% of adjusted EBITDA in the third quarter, up from $60.1 million or 83% of adjusted EBITDA in the third quarter last year. For the 9 months year-to-date, our operating cash flow has increased 20% to approximately $190 million or 79% of adjusted EBITDA, up from $159 million of adjusted EBITDA in the same 9-month period last year.

In these 9-month periods, cash flow from operating activities was impacted by the following: first, in the year, impacted costs and compare cash flow impacted the payment of $55 million contingent asset ratio for previous deals, we show these on the acquisitions. [Technical Difficulty] in the first half of the year, we need to incur approximately 1 additional in the fourth quarter of this year.

We see approximately 50% of our cash as in the fourth quarter to complete amortization expense will be approximately $21 million for the fourth quarter, with this figure being subject to adjustment for foreign exchange rates and future acquisitions. Our income tax rate for the first 9 months of the year came in at approximately 24.1% of pretax income which is just below our blended statutory tax rate of 26.5%.

For the fourth quarter, we currently expect our tax rate will come in fairly close to our abundant statutory tax rate. And as a result, we should experience a tax rate in the range of 24% to 28% of pretax income in Q4. However, as always, we should state that our tax rate may fluctuate quarter-by-quarter from onetime tax items that may arise as we operate internationally across multiple countries. And finally, after incurring stock-based compensation expense of $14.8 million in the first 9 months of the year, we currently expect stock compensation to be approximately $6 million in the fourth quarter subject to any forfeitures of stock options or share units.

So that's it for the financial update. As Ed mentioned, we have a well-planned CFO transition in the works, and I'm excited to be able to work with Ed Gartner on the [Audio Gap].

[Edward Ryan, executive]

Thanks, Allan. These continue to be challenging business conditions for our customers. From a tariff and trade perspective, I outlined earlier, some of the things that have happened over the past 90 days. Looking forward, the U.S. Supreme Court is considering the lengthy -- sorry, the legality of many tariffs with no identified time line for resolution. Customers are also adjusting to new commodity-specific tariffs -- and given the speed with which they were implemented, remain uncertain about additional tariff changes they may see in Q4.

And the remains ongoing geopolitical tensions impacting trade, whether it's tensions in the Middle East, impacting trade lanes, the ongoing war in Ukraine impacting it and its resulting trade sanctions or the potential [Audio Gap] how consumers will behave in this economic environment and the early returns seem positive. This binary action will have a big impact on general economic activity and shipping related to inventory replenishment in 2026.

For Descartes, we've grown during challenging business conditions in the past. Our plan is to continue to do so now. Some of the things that we believe continue to put us in a good position to do that include 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 or help managing tariffs, continually updating sanction party list first for competitive intelligence dealing with increased export licensing complexity and implementing new duty deferred foreign trade zones.

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 can be leveraged by our customers. Our network model and processing of large amounts of clean formatted real-time data put us in a great position to capitalize on AI opportunities. We have a total growth model. We have an extensive track record of acquisition activities to complement organic growth. Changing market conditions often provide us with even more opportunities to add solutions for our customers and grow by acquisition.

Finally, we're a well-capitalized cash-generating business. At Q3 quarter end, we had $279 million in cash and $350 million in -- excuse me, undrawn line of credit. In our quarterly report, we provided a comprehensive description of baseline revenues, baseline calibration and their limitations. As of November 1, 2025, using foreign exchange rates of $0.71 to Canadian dollar, $1.15 to the euro and 132 to the -- great Britain pound and including the estimated contribution from the acquisition of Finale inventory, we estimate that our baseline revenues for the fourth quarter of fiscal 2026 were approximately $161 million and our baseline operating expenses were approximately $98.5 million.

We consider this to be our baseline adjusted EBITDA calibration of approximately $62.5 million for the fourth quarter of fiscal 2026 or approximately 39% of our baseline revenues as at November 1, 2025. We're currently operating above our expected adjusted EBITDA operating margin range of 40% to 45%. Our margin can vary in any period given such things as revenue mix, foreign exchange movements and the impact of acquisitions as we integrate them into our business. For now, we're keeping our target range to 45%. However, we'll monitor how we're performing over the coming quarters to consider whether any upward adjustment is appropriate.

We've noticed that there's been uncertainty in public market conditions that have contributed to lower than historical valuation multiples for many logistics and supply chain technology companies including Descartes. Considering how Descartes is currently performing, we remain optimistic about our ability to achieve our long-term financial plans. However, it's uncertain how public markets will trade for the foreseeable future given everything going on in the world. With that uncertainty, we believe it's prudent and in Descartes' interest to apply to start a normal course issuer bid to have the option to purchase Descartes shares in the open market over the next 12 months if and when we think it makes sense.

Having the normal course issuer bid mechanism available to us will allow us to react quickly and appropriately to differing public market conditions. These remain uncertain times for our customers. 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 the one thing they can rely on is De carte. Thank you 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, operator, I'll now turn it over to you for the Q&A portion of the call.

[Operator]

[Operator Instructions] Your first question is from Chris Quintero from Morgan Stanley.

[Christopher Quintero, analyst]

Allan, congrats on a fantastic run here and best of luck in your next part here of your life journey. I wanted to double-click on the organic growth rate, specifically around the transaction volumes. Allan, I think you said reasonable strength. So what did you exactly see there? Was there an improvement in the volumes? Or was it kind of largely a stabilization? How would you describe the volume component here?

[Edward Ryan, executive]

Well, a lot of volume picked up -- Yes, let volume picked up was from our competitors. If you look at the trade steps, ocean and truck were fairly flat, but we were able to grow in those areas because we had solutions that were more attractive to customers than some of the one-hit wonder competitors that we've had in the past. And that enables us to pick up in areas like the Type 86 filing that we pick up quite a bit of business in the BIS-50 area where new government regulation came in and we were able to take our position in the market and go in and get a lot of new customers with bigger contracts that committed to us for a long period of time if we haven't passed customs filing initiatives.

Things like that added up to -- even in the face of transportation statistics that we probably would like them to be better. But we were able to grow substantially. I guess our position in the market and a bunch of things that I mentioned on the call are already helping. I don't think I said it in the prepared comments, but MacroPoint was at 87%, which is the highest truck rate in the industry by 20 points. And -- but still, the customers want to track all their shipments. And we're not using AI to get that number up, it's now 90%. And just in a couple of months, that shift occurred. And that's not only more money for us. It's happier customers, and they're paying us more money, but they want to track all their shipments and that put us in a situation where our customers are happy. We're making more money and we're beating our competitors handily because they haven't moved to market with these kind of solutions as fast as we have.

[Christopher Quintero, analyst]

Got it. Okay. So stable-ish kind of industry volume trends, but you all just really took some market share here in the quarter. I would love to follow up on the AI commentary you gave at totally makes sense from the macro point perspective, improving that tracking percentage rates. How do you think about the monetization angle of it? Are you higher prices? Is there a separate SKU to get some of this agentic capability? How are you thinking about that more broadly?

[Edward Ryan, executive]

Probably a bunch of different ways, but some of the more pertinent ones, and we said we had that challenge with the employees that identified new things. It's doing more for our customers with the data that we already have. So I'll give you an example, take a shipment delay and we know when it's supposed to be there and we see something happen with a plane or a truck or a ship that says, "Hey, there's going to be a problem with this shipment." We could identify that that's going to be a problem; we can figure out what to do about it and executing for them. I can imagine a world in a couple of years where I'm charging a customer to do all of that, but that work used to take them hours and hours internally, and they wouldn't even come up with a very good solution for it.

I could see a world in a couple of years where we may be telling the customer, hey, that shipment you have it's going to be 8 hours late, and they go, "Oh, why that's why is it going to be late and we go because it was going to be late 5 days, and we figured out the problem and we booked you going somewhere else. And as a result, you're only going to be delayed a few hours. And to our customers, that's great news. It could cost them hundreds of dollars to deal with that and have an angry customer. And in the world I just described, we identified the problem faster than they ever would have done it themselves, came up with the best solution we could possibly come up with under the circumstances and rebooked them what they'll pay for and got them in a situation where they got bad news and it didn't work out that badly because we used AI tools and the data on our network to come up with a better solution for their customer.

[Operator]

Your next question is from Dylan Becker from William Blair. .

[Dylan Becker, analyst]

Allan, thanks for the question here. And Allan, congrats on the retirement of the best and a pleasure working together. Maybe sticking on the theme of AI with you, Ed, to start. I appreciate all the color on kind of the opportunity for value and monetization to come, but maybe if we think about the implications to kind of a moat and platform defensibility of the network here, maybe there's perception or at least the bottom threat in competition entering the space. It feels like the scaled network that you guys have is a massive differentiator. But wondering maybe how you think about the network as a leg up not only on compounding value but also maybe the complexity of trying to replicate this or something like this from scratch.

[Edward Ryan, executive]

I mean I've been in the network business, it's my entire life. And I'd just give you 2 examples. You can't really compete with us as a network until you have all the connections. No one's going to switch from my network to yours if you only have half of the connections that I have. They needed people that come in and solve the entire problem. And that makes it very hard for someone new to come in and compete from scratch. Same with the data content business, you have to have all the data. You can't just get some of it and then start competing with us. It's not attractive to customers. And what that means is you have to spend a whole lot of time and effort upfront to to recreate those businesses, if you even could and you can get any customers to do it. It's like by the time you start being able to monetize it, you could be 5, 10 years in. And I can tell you, just on the network side, the data all changes and the connections all change over that period of time. But we're -- we had the advantage of starting from the beginning when all of this started, and building all of this stuff. And there hasn't been a new network entrant in 20 years and data content the same thing, right, as people got to collecting the data content. But how do you get all of it because that's what you need to start.

And the reason our data content businesses are so profitable is we don't charge any individual customer too much money. We have collected all the data over time, and now we just have to update it. And that has a certain cost to it. But once you get over that cost, it is a very profitable business because all the new customers are pure profit. If you wanted to try and start that from scratch, you're losing money for years and years and years to get to the point where you have your head above water. And it just made it unattractive for people to try and get back into it. So I look and go, hey, with all the stuff that we do for these people and the amounts that we charge them, it's not that attractive to get into it. You're going to lose a lot of money for a long period of time until you get into it and it's probably just not worth it to people. and that's why we haven't seen anyone try to do it.

[Dylan Becker, analyst]

Great. That makes perfect sense. And then maybe switching over to Allan or Ed, if you have thoughts on this as well, too. But on the services, the organic services step up how should we think about kind of the sustainability of subscription demand given we continue to highlight multiple moving parts and factors driving sustained complexity here. And then if you do think and you segment it out on kind of the volume recovery side, more of a market share story at this point, how we should think about kind of the volume normalization continuing to play out over time as maybe we get a sense of normalcy at some point here in the future.

[Edward Ryan, executive]

Well, I mean I'll take it, if Allan has anything else to add, he can jump in. I think our customers, they they don't know exactly what's going to happen, and there's a lot of uncertainty out there. I called out a lot of it on the call. I think when that uncertainty goes away, you're going to have -- you're going to see increases in volumes and assuming the economy is in good shape when that happens. And frankly, we don't know the answer to that question. What we do know is that we've got to run our business to keep making 10% to 15% and really trying to beat 15% growth in EBITDA no matter what happens.

It's why you saw us make the moves we did earlier in the year to cut costs. that we wanted to cut costs that we thought, hey, we make 1 promise to our shareholders, and that's what we're going to make 15% or attempt to be even better than that every year more than we did the last. And we are laser-focused on that. And there's some things we can't control in the business. The things we can, we want to try and control on the revenue side. And certainly, on the cost side, though, we have a lot of control. And it's not that we like making the moves that we did. No one likes firing people cutting costs somewhat substantially.

But we thought that's what we have to do to run our business properly and to keep people wanting to invest in our business so that we have the money to go out and buy more companies when other companies get themselves in a whole lot more trouble than we do because they're not willing to make those tough decisions. And we are. And I think that's what separates us from a lot of the other smaller players in this industry that it's easy to be a high flyer. So like what happens when 1 of the engine blows, you got to kind of keep running the business until you can get more power.

[Operator]

The next question is from Paul Treiber from RBC Capital Markets.

[Paul Treiber, analyst]

congrats Allan on the retirement. Just first question, the U.S. Department of Transportation announced a number of changes to U.S. trucking regulations. How do you see those impacting your domestic trucking business positively or negatively?

[Edward Ryan, executive]

I don't know that they're going to have a big impact on us. Most governments come in and put rules in place and we help customers comply with those rules. I'm not sure if that's going to happen with these particular rules. But when you have to track your trucks more accurately when you have to make sure your drivers are legal, and you have to make sure your drivers are not driving overtime or things like that, you need software solutions to track if you have a big fleet and guys like us come in and help people do with that. And oftentimes help act more efficiently in the process. So buy our software comply with some government regulations, but will also help you run your fleet more efficiently so we can save you money at the same time so that you have the money to kind of pay for this new rule the government put in.

So I see a comment there's going to be -- they'll always become. They're always going to have more rules for truckers and we just want to be there and prepared to help them with the ones that we think we can solve for them and have software that we give them that saves them money in 5 other places, too, so that they can continue to afford to pay for some of these things and operate more efficiently, even though the government just told them they had to do something.

[Paul Treiber, analyst]

And then just a second question, just on capital allocation. You did mention valuations are down. You're putting in place NCIB. It sounds like you see opportunistic opportunities. How do you look at the balance between repurchasing shares and capital deployment on acquisitions, like is there a priority for 1 versus the other? Does it depend on relative valuations of each?

[Edward Ryan, executive]

Well, we see a lot of stuff for sale right now. And we think the winner in this space is going to continue to bring businesses in and make them part of their own business. We think with our network, we're in a very good position to do that. There's lots of businesses that would be better if they operate on top of our network. And I see AI drive it a whole lot more business in that way as well. Almost every AI tool I've seen in the logistics and supply chain space looks like a feature to me. I'm sure there was some guy years ago working at word perfect and thinking, well, I've got the best word processor in the market. I've got the legal market all tied up and all of a sudden microclot comes in and goes, and I have Excel, and I have PowerPoint, and I have your e-mail and all the stuff and you go, they can't compete anymore. And I think we're in that kind of situation with the network that we have.

A lot of these businesses are in desperate search of customers, and they will one day be a feature, just like a word or were perfect is a feature as part of the Microsoft suite of tools. I could see these things getting layered onto our network and being a lot more valuable as a result. So I think you're always going to see us gravitate in that direction. At the same time, we recognized that probably because of AI and maybe a couple of other things that are going on in the market, not much to do with us and other than maybe a misunderstanding a little bit of our business, if there's someone out there saying, "Hey, Descartes is an enterprise software company," I'm going like not really, we're a network, and we're different than those other guys. And if you're thinking you're going to take all the enterprise software guys down a little bit because AI might harm them. You shouldn't be footing us in that same category because we have a lot of things that are probably going to take advantage of AI. And we still have to deliver, we still have to make those things happen as you always do. But I like our chances. I like the cards that we have in our hands right now a lot better than I do many other people. And I think that's going to continue to result in more and more acquisitions for us. And as long as we see that, we're going to be trying to buy businesses up.

That having been said, when our multiple drops to a level that that we think is way lower than it should be. And we have some cash on hand, we might see us picking up some stock. Right now, it's out there as a placeholder to make it quicker to do if we wanted to do it. And otherwise, we're going to keep going about our business. And if we believe the market values us properly at some later point, we might not be as focused on it. But right now, we go, hey, it's gotten beat up a lot and maybe you can our mind on fairly.

[Operator]

Your next question is from Kevin Krishnaratne from Scotiabank.

[Kevin Krishnaratne, analyst]

I've just got 1 in Allan also congrats and thanks. It was a better player you're working with you hope to continue to do so going forward in new roles. -- e-commerce, you talked about that being a beneficiary to your organic growth. I know you touched on sort of the transactional piece with the filings and seeing a benefit there. Can you maybe talk about what you're seeing -- you've been beefing up that business to now inventory Seller Cloud. You mentioned the holiday season, things are looking -- get to start off. So any kind of color there, maybe the size of this business, the growth and sort of what you're seeing there with the growing piece of this -- of your e-commerce business?

[Edward Ryan, executive]

I think it's like 12% now. Allan, correct me if I'm wrong, but it continues to grow, and we continue to pick up good assets there that we think provide solutions to the customers that will benefit them in our network in the long run. Finale is a great add-on to Seller Cloud. Finale, if they had a customer that got you big at some point, they used to kind of -- that customer would graduate from there and leave and go to somebody else. Now all of a sudden, we have the ability to have them graduate and go to our next solution of Seller Cloud. So that's attractive for us and maybe shows you how a lot of acquisitions go on the Global Logistics Network. A lot of times, 20 years ago, we were buying stuff and thinking, I hope it grows, but I'm not going to count on that. I'm going to count on being able to cut costs and manage the business more efficiently than the people we bought it from.

Now with 26,000 customers and growing we start to look at these things and go, we can't help but grow these businesses. There's just too many people on our network that would like them. And the example I always use when I'm out talking to shareholders is I buy some company with 500 freight forwarders and they love it. And I look and go, "Wow, we have 5,000 freight forwarders. So if I buy this company, the first thing I'm going to do is walk it around to the other 4,500 and say, "Hey, what do you think of this?" Now they're not all going to buy it initially, but they're all going to take a look if we ask them too. I mean, we've got big relationships with all these people. And when we walk around a new solution to everyone that's -- they have to look at it. And a lot of times, the smaller companies that we're buying, they didn't feel like they have to look at it previously. They looked and went I don't have to meet them at whatever all of a sudden Descartes buys the company and they kind of have to take a look at it. And sometimes, they take a look at it and buy it. And that's good news for us.

That e-commerce space has been going great. We keep picking up more assets there and those assets, we've been able to grow them all. So that's exciting for us. And I think it's going to continue to be a good space for us that you'll see us continue to expand in over the years.

[Operator]

Your next question is from Stephanie Price from CIBC.

[Unknown Analyst]

It's Sam Schmidt on for Stephanie Price. I had a question around the year-to-date adjusted EBITDA growth that's tracking towards the higher end of that 10% to 15% target growth range. How should we think about growth there going forward?

[Edward Ryan, executive]

I think you're going to continue to hear us say, 10% to 15%. We've beaten 15 many times over the last 20 years unapologetically I think we were up almost 30% in 1 quarter, if I remember correctly, 7 or 8 years ago. As our network gets more and more profitable as our revenue picks up at a higher growth rate, when Scott and I started running the business directly 15 years ago, we were growing like 1%, 2%, 3%. And all of a sudden, now we're growing at 4%, 5%, 6%, 7%, 8%, 9%, 10%, depending on what's going on and I go, it's a heck of a lot easier to get to 15% EBITDA growth with 7% organic services growth, because I can leverage that and get that up, get the EBITDA up to 10% or 11% or 12%.

And then I add on a couple of acquisitions and all of a sudden, I'm well over 15%. I don't think you're going to hear us say a different number. We think that's a number that we'll always be in a good position to hit. And we think that if we can keep growing that EBITDA every year, our stock price has to kind of follow along. I was explaining that to one of my kids the other day that we use an investment bank or now it's a private equity guy and I was going, look, I don't know what's going to happen the stock price over time. Companies like ours are valued at different multiples, and we now have a ton of control of that. month-to-month, but we do make more money every year, and that has to end up showing up in the stock price. And we're pretty confident we can continue to do that. And if we do, it's tough for the stock to not keep going up.

[Operator]

Your next question is from Jean Share from TD Cowen.

[Unknown Analyst]

Alan, congratulations on retirement. Good luck with the next chapter. I just want to ask your customer mentality at this point. I understand they're still waiting for some more clarity. But do you think a certain point, they're going to develop some kind of fatigue. And as a result, they're more willing to spend regardless of the environment?

[Edward Ryan, executive]

Yes, we'll see. I hope that's the case. I think as they get more certainty, they will be willing to spend. And we're seeing in the 60% of our business that's subscription sales. We really haven't seen any slowdown. It popped up significantly in the pandemic, and it's never really stopped. The transaction volumes are ebb and flow. They zoomed up in the middle of the pandemic and zoom back down again. And Gap is kind of a steady pace and then they've been up and down for the last 2 years. But I'd call it like lackluster transaction performance. But our subscription sales have continued. I think most of the world realize that logistics and supply chain was a lot more important than they thought it was in the middle of that pandemic because the customers were telling them that. And the first place you put your money is into technology because that's where you get the biggest bang for your buck and that's where the customer notices the most.

And so I think that's been great for us. It continues to today. And we hope when transaction lines pick up, that we're going to benefit from that. I'm pretty sure we will. And in the meantime, we're running our business as best as we can to try and keep it in 15% EBITDA growth every year and keeping a great solution for our customers so that so that they always want to use this, and they want to sign more contracts with us. And we spend a lot of time doing that, and I think it's going to pay off.

[Unknown Analyst]

Got it. I also wanted to go back to the restructuring you did earlier in the year. Can I assume this quarter's OpEx and EBITDA include a full run rate of your cost savings?

[Allan Brett, executive]

Yes, that's correct, John. Absolutely. The full impact, we had partial impact in Q2 and now the full impact is in Q3.

[Operator]

Your next question is from Raanan from Gostin.

[Unknown Analyst]

Alan, congrats on an excellent tenor as on our CFO. Thanks for squeezing me in. I'll keep it to the singular question. In terms of the strong organic delivery in the quarter, you mentioned you're taking share on market volumes. But how should we think about the contribution from other growth drivers like cross-selling, pricing and new logos? Was there an acceleration of any of those drivers quarter-on-quarter?

[Edward Ryan, executive]

Yes. I mean, I mentioned earlier, we're being very successful taking stuff away from our competitors. Cross-selling inches up every year. 15 years ago, it was minimal 20% or something. Now you look at it in 60 to 70 -- 65% to 70% and we continue to get better than that. Probably about 5 questions ago, I explained why as we get a bigger and broader solution set, it's tough for the customers to not consider it and take it seriously. And then the thing I mentioned at the end of the last question is important, right? We spend a lot of time making sure that our customers get what they were promised. I mean I would joke people, but it's true, we will lose money to make sure that you've got what you want. And you know how serious we are about making money, but it's really important to us that our customers get what they were promised. There's only 1 FedEx in the world. And I could say it about any of our big customers.

But I don't want them hating us. I want them to think Descartes would do anything I needed to do to make sure that I was successful in doing it. And you could look and say, "Hey, that's because you charge recurring revenue fees right? You want to get your money. And there's some truth to that. But maybe more broadly, we want them to think we're a good company to do business with. They were fair and that we try our hardest and then we try to make sure that the customer gets what they want. You've heard us say customers for life a lot of times on these calls. That's what we're talking about because I want them -- when they have their 32nd contract with us, I want them to be quite happy to sign the 33rd, 34th and 35th contract with us. It's really important to us. And from 20 years ago where maybe the company wasn't so focused on that kind of stuff and now it is. And I think we know that's the right way to behave. If I'm buying something from someone, if they stick with me, and make sure that they're trying their hardest to make sure they get what they want, I'll deal with some problems some of these things are complicated. I'll deal with problems as long as I know that they're going to keep trying to make sure that I'm successful. And we've gone a great length to do that. And I think that's a big part of the reason you see our cross-selling continue to tick up every year because the customers know we care about them.

[Allan Brett, executive]

Yes, I would just add on that price remains similar to other quarters. Price is a very small part of that growth in Q3 similar to past quarters as well. So no big change there. We're using price increases responsibly to offset inflationary cost for us, but it's not the main driver of our growth.

[Unknown Analyst]

Of course. Congrats on the strong results.

[Operator]

Your next question is from Mark Chapel from Loop Capital.

[Unknown Analyst]

This is Tim Grieve on for Mark. I guess my 1 will be on the TMS replacement cycle. Are you seeing evidence of that accelerating? And where is Descartes win in versus the legacy TMS competitors.

[Edward Ryan, executive]

I don't know that I see it accelerating, but it's a decent market for us right now, and we continue to pick up more transportation management solutions. We have 6 or 7 of them right now, depending on what kind of customer you are Ford or broker free, big retailer manufacturer these types of things. And we have a lot of good solutions to solve those problems. We continue to look at other TMSs when they come up or AI features that we think would be a good part of TMS and I think we're going to continue to remain in a leadership position there, especially with some of the companies that -- the midsize companies that they used to do it, get bought up in the as their focus and they lose their people, and we just keep sticking in there and buying more companies that can solve more types of problems for customers. And over time, I think that has helped us to win the day.

We have a lot of different solutions and sell a lot of different problems, and people look at us and go, those guys are going to be around. They're not going to get bought up by a private equity firm and everything is going to go to [indiscernible] there a public company that's neutral in the industry, [Audio Gap].

[Allan Brett, executive]

Think we just lost Ed's voice there, but he's just emphasizing that that we're well diversified and with the size and scale to manage properly. Sorry, we're just on the whole audio problems for Ed, but hopefully, that answers it for you. .

[Operator]

[Operator Instructions] Your next question is from Scott Group from Wolfe Research.

[Unknown Analyst]

This is Carl on for Scott.

[Edward Ryan, executive]

[indiscernible] Got thrown off the call, but I'm back now.

[Unknown Analyst]

This is call on for Scott. We recently saw a competitor announce a change in their pricing philosophy to get away from per user fees. Maybe what percent of your revenue is based on per user pricing versus volume-based or fixed pricing? And how do you think about this evolving in a world where some of the brokers and borders are talking about structurally reducing headcount?

[Edward Ryan, executive]

Yes, I've heard this argument a bunch of times. There's a bunch of different ways we price. It's not just per user, have all types of transaction processing charges even in some of our subscription services, per truck per mobile handheld device. And yes, sometimes per user, I don't think that's going to be a big challenge for us. If they start to have less people using the system because they become more efficient, we're going to come up with a different way to extract value. I know the guy you're talking about, and I think they probably shot too high and there's a lot of problems with customers right now because of that. And I think if you see us start to do that, it's going to be a more reasonable approach too.

[Unknown Analyst]

Okay. Helpful. And we're seeing some of the orders seeing pretty big increases in customs revenue as a result of de minimis going away. Are you guys also seeing that benefit? And how does a big increase in customs filings and customs complexity impact you guys going forward?

[Edward Ryan, executive]

I mean you hear us say all the time on things called the complexity helps us, and I think that's correct. Look at the situation we're talking about here at the Type 86 we've almost doubled our revenue in that space in just a couple of months. And honestly, 1.5 years ago, we were very concerned they were going to cancel de minimus and all of that business could go away. And what ended up happening was our sales team came up with the approach of we'll just keep charging you for all the shipments that you make per shipment and the same way we were doing it before. And instead of making a type 86 filing, which is going away, we'll make a type 1 filing. And so we were able to switch our customers over to that solution. And we were thinking we were doing pretty well. And then our competitors started really struggling to handle type 1 filing with the massive amount of volume that some of the bigger players were producing millions and millions of transactions a day and our network has the ability to deal with that because we've been doing in customs filings for FedEx and DHL and UPS and a lot of other big players for years and had already dealt with millions of transactions a day.

So we had -- as a network operator versus a software company, which I think a lot of the other guys were just software companies, we had a network that was robust and able to process the transactions quickly. And we saw almost all and then switch over to us, and it really ends up being a gigantic benefit for us in the last several months. So happy about that.

[Operator]

There are no further questions at this time. Please proceed with the closing remarks.

[Edward Ryan, executive]

Thanks, everyone. We look forward to reporting back to you on Q4 in March. And otherwise, if you're looking for one-on-one discussions with us, please reach out to us, and we'll find a way to talk to you. Have a great day, guys. .

[Operator]

Ladies and gentlemen, the conference has now ended. Thank you all for joining. You may now disconnect your lines.