Descartes : Q1 Report (Q1FY26%20Shareholder%20Report%20Final)
DSG.TO
Published on 06/04/2025 at 17:11
The Descartes Systems Group Inc.
Quarterly Report to Shareholders
Management's Discussion and Analysis of Financial Condition and Results of Operations 3
Overview 5
Consolidated Operations 9
Quarterly Operating Results 15
Liquidity and Capital Resources 16
Commitments, Contingencies and Guarantees 18
Outstanding Share Data 19
Application of Critical Accounting Policies and Estimates 20
Change In / Initial Adoption of Accounting Policies 20
Controls and Procedures 21
Trends / Business Outlook 21
Certain Factors That May Affect Future Results 25
Condensed Consolidated Balance Sheets 38
Condensed Consolidated Statements of Operations 39
Condensed Consolidated Statements of Comprehensive Income 40
Condensed Consolidated Statements of Shareholders' Equity 41
Condensed Consolidated Statements of Cash Flows 42
Notes to Condensed Consolidated Financial Statements 43
Corporate Information 63
Our Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") contains references to Descartes using the words "we," "us," "our" and similar words and the reader is referred to using the words "you," "your" and similar words.
This MD&A also refers to our fiscal years. Our fiscal year commences on February 1stof each year and ends on January 31stof the following year. Our current fiscal year, which will end on January 31, 2026, is referred to as the "current fiscal year," "fiscal 2026," "2026" or using similar words. Our previous fiscal year, which ended on January 31, 2025, is referred to as the "previous fiscal year," "fiscal 2025," "2025" or using similar words. Other fiscal years are referenced by the applicable year during which the fiscal year ends. For example, 2027 refers to the annual period ending January 31, 2027 and the "fourth quarter of 2027" refers to the quarter ending January 31, 2027.
This MD&A, which is prepared as of June 4, 2025, covers our quarter ended April 30, 2025, as compared to our quarter ended April 30, 2024. You should read this MD&A in conjunction with our unaudited condensed consolidated financial statements for our first quarter of fiscal 2026 that appear elsewhere in this Quarterly Report to Shareholders. You should also read this MD&A in conjunction with our audited annual consolidated financial statements, related notes thereto and the related MD&A for fiscal 2025 that are included in our most recent annual report to shareholders (the "2025 Annual Report"), as filed on March 5, 2025.
We prepare and file our consolidated financial statements and MD&A in United States ("US") dollars and in accordance with US generally accepted accounting principles ("GAAP"). All dollar amounts we use in this MD&A are in US currency, unless we indicate otherwise.
We have prepared the MD&A with reference to the Form 51-102F1 MD&A disclosure requirements established under National Instrument 51-102 "Continuous Disclosure Obligations" ("NI 51-102") of the Canadian Securities Administrators. As it relates to our financial condition and results of operations for the interim period ended April 30, 2025, pursuant to NI 51-102, this MD&A updates the MD&A included in the 2025 Annual Report.
Additional information about us, including copies of our continuous disclosure materials such as our annual information form, is available on our website at https://http://www.descartes.com, through the EDGAR website at https://http://www.sec.gov or through the SEDAR+ website at https://http://www.sedarplus.com/.
Certain statements made in this Quarterly Report to Shareholders, constitute forward-looking information for the purposes of applicable securities laws ("forward-looking statements"), including, but not limited to: statements in the "Trends / Business Outlook" section and statements regarding our expectations concerning future revenues and earnings, including potential variances from period to period; our assessment of the potential impact of geopolitical events, such as the ongoing conflict between Russia and Ukraine (the "Russia-Ukraine Conflict"), and between Israel and Hamas ("Israel-Hamas Conflict"), or other potentially catastrophic events; our assessment of the potential impact of tariffs, sanctions and other actions by individual countries on global trade and our business; results of operations and financial condition; our expectations regarding the cyclical nature of our business; mix of revenues and potential variances from period to period; our plans to focus on generating services revenues yet to continue to allow customers to elect to license technology in lieu of subscribing to services; our expectations on losses of revenues and customers; our baseline calibration; our ability to keep our operating expenses at a level below our baseline revenues; our future business plans and business planning process; allocation of purchase price for completed acquisitions; our expectations regarding future restructuring charges and cost-reduction activities; expenses, including amortization of intangible assets and stock-based compensation; goodwill impairment tests and the possibility of future impairment adjustments; capital expenditures; acquisition-related costs, including the potential for further performance-based contingent consideration; our liability with respect to various claims and suits arising in the ordinary course; any
commitments referred to in the "Commitments, Contingencies and Guarantees" section of this MD&A; our intention to actively explore future business combinations and other strategic transactions; our liability under indemnification obligations; our reinvestment of earnings of subsidiaries back into such subsidiaries; our dividend policy; the sufficiency of capital to meet working capital, capital expenditure, debt repayment requirements and our anticipated growth strategy; our ability to raise capital; our adoption of certain accounting standards; and other matters related to the foregoing. When used in this document, the words "believe," "plan," "expect," "anticipate," "intend," "continue," "may," "will," "should" or the negative of such terms and similar expressions are intended to identify forward-looking statements. These forward-looking statements are subject to risks and uncertainties and are based on assumptions that may cause future results to differ materially from those expected. The material assumptions made in making these forward-looking statements include the following: Descartes' ability to successfully identify and execute on acquisitions and to integrate acquired businesses and assets, and to predict expenses associated with and revenues from acquisitions; the impact of network failures, information security breaches or other cyber-security threats; disruptions in the movement of freight and a decline in shipment volumes including as a result of the impact of current and future trade barriers, including tariffs, further protectionistic measures and reactive countermeasures, the ongoing conflict between Russia and Ukraine (the "Russia-Ukraine Conflict"), and between Israel and Hamas ("Israel-Hamas Conflict"), or contagious illness outbreaks, a deterioration of general economic conditions or instability in the financial markets accompanied by a decrease in spending by our customers; global shipment volumes continuing to increase at levels consistent with the average growth rates of the global economy; countries continuing to implement and enforce existing and additional customs and security regulations relating to the provision of electronic information for imports and exports; countries continuing to implement and enforce existing and additional trade restrictions and sanctioned party lists with respect to doing business with certain countries, organizations, entities and individuals; our continued operation of a secure and reliable business network; the continued availability of the data and content that is utilized in the delivery of services made available over our network; relative stability of currency exchange rates and interest rates; equity and debt markets continuing to provide us with access to capital; our ability to develop solutions that keep pace with the continuing changes in technology; and our continued compliance with third-party intellectual property rights. While management believes these assumptions to be reasonable under the circumstances, they may prove to be inaccurate. Such forward-looking statements also involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements of, or developments in our business or industry, to differ materially from the anticipated results, performance or achievements or developments expressed or implied by such forward-looking statements. Such factors include, but are not limited to, the factors discussed under the heading "Certain Factors That May Affect Future Results" in this MD&A and in other documents filed with the Securities and Exchange Commission, the Ontario Securities Commission and other securities regulatory authorities across Canada from time to time. If any of such risks actually occur, they could materially adversely affect our business, financial condition or results of operations. In that case, the trading price of our common shares could decline, perhaps materially. Readers are cautioned not to place undue reliance upon any such forward-looking statements, which speak only as of the date made. Forward-looking statements are provided for the purpose of providing information about management's current expectations and plans relating to the future. Readers are cautioned that such information may not be appropriate for other purposes. Except as required by applicable law, we do not 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 statements are based.
We use technology and networks to simplify complex business processes. We are primarily focused on logistics and supply chain management business processes. Our solutions are predominantly cloud-based and are focused on improving the productivity, security and sustainability of logistics-intensive businesses. Customers use our modular, software-as-a-service ("SaaS") and data solutions to route, track and help improve the safety, performance and compliance of delivery resources; plan, allocate and execute shipments; rate, audit and pay transportation invoices; access and analyze global trade data; research and perform trade tariff and duty calculations; file customs and security documents for imports and exports; and complete numerous other logistics processes by participating in a large, collaborative multi-modal logistics community. Our pricing model provides our customers with flexibility in purchasing our solutions either on a subscription, transactional or perpetual license basis. Our primary focus is on serving transportation providers (air, ocean and truck modes), logistics service providers (including third-party logistics providers, freight forwarders and customs brokers) and distribution-intensive companies (including retailers, manufacturers, distributors, and mobile business service providers) for which logistics is either a key or a defining part of their own product or service offering, or for which our solutions can provide an opportunity to reduce costs, improve service levels, or support growth by optimizing the use of assets and information.
Logistics is the management of the flow of resources between a point of origin and a point of destination - processes that move items (such as goods, people, information) from point A to point
B. Supply chain management is broader than logistics and includes the sourcing, procurement, conversion and storage of resources for consumption by an enterprise. Logistics and supply chain management are ever evolving as companies are increasingly seeking automation and real-time control of their supply chain activities. We believe companies are looking for integrated solutions for managing inventory in transit, conveyance units, people, data and business documents.
We believe logistics-intensive organizations are seeking to reduce operating costs, differentiate themselves, improve margins, and better serve customers. Global trade and transportation processes are often manual and complex to manage. This is a consequence of the growing number of business partners participating in companies' global supply chains and a lack of standardized business processes.
Additionally, global sourcing, logistics outsourcing, imposition of additional customs and regulatory requirements and the increased rate of change in day-to-day business requirements are adding to the overall complexities that companies face in planning and executing in their supply chains. Whether a shipment is delayed at the border, a customer changes an order, or a breakdown occurs on the road, there are increasingly more issues that can significantly impact the execution of fulfillment schedules and associated costs.
The rise of ecommerce has heightened these challenges for many suppliers with end-customers increasingly demanding narrower order-to-fulfillment periods, lower prices and greater flexibility in scheduling and rescheduling deliveries. End customers also want real-time updates on delivery status, adding considerable burden to supply chain management as process efficiency is balanced with affordable service.
In this market, the movement and sharing of data between parties involved in the logistics process is equally important to the physical movement of goods. Manual, fragmented and distributed logistics solutions are often proving inadequate to address the needs of operators. Connecting manufacturers and suppliers to carriers on an individual, one-off basis is too costly, complex and risky for organizations dealing with many trading partners. Further, many of these solutions do not provide the flexibility required to efficiently accommodate varied processes for organizations to remain competitive. We believe this presents an opportunity for logistics technology providers to unite this highly fragmented community and help customers improve efficiencies in their operations.
As the market continues to change, we have been evolving to meet our customers' needs. While the rate of adoption of newer logistics and supply chain management technologies is increasing, a large number of organizations still have manual business processes. We have been educating our prospects and customers on the value of connecting to
trading partners through our Global Logistics Network ("GLN") and automating, as well as standardizing, multi-party business processes. We believe that our target customers are increasingly looking for a single source, neutral, network-based solution provider who can help them manage the end-to-end shipment - from researching global trade information, to the booking of a shipment, to the tracking of that shipment as it moves, to the regulatory compliance filings to be made during the move and, finally, to the settlement and audit of the invoice.
Additionally, regulatory initiatives mandating electronic filing of shipment information with customs authorities require companies to automate aspects of their shipping processes to remain compliant and competitive. Our customs compliance technology helps shippers, transportation providers, freight forwarders and other logistics intermediaries to securely and electronically file shipment and tariff/duty information with customs authorities and self-audit their own efforts. Our technology also helps carriers and freight forwarders efficiently coordinate with customs brokers and agencies to expedite cross-border shipments. While many compliance initiatives started in the US, compliance has now become a global issue with significantly more international shipments crossing several borders on the way to their final destinations.
Increasingly, data and content have become central to supply chain planning and execution. Complex international supply chains are affected by logistics service provider performance, capacity, and productivity, as well as regulatory frameworks such as free trade agreements. We believe our Global Trade Data, Trade Regulations, Free-Trade-Agreement, and tariff/duty rate and calculation solutions help give our customers the intelligence they need to improve their sourcing, landed cost, and transportation lane and provider selection processes.
Descartes' Logistics Technology Platform unites a growing global community of logistics-focused parties, allowing them to transact business while leveraging a broad array of applications designed to help logistics-intensive businesses thrive.
The Logistics Technology Platform fuses our GLN, an extensive logistics network covering multiple transportation modes, with a broad array of modular, interoperable web and wireless logistics
management solutions. Designed to help accelerate time-to-value and increase productivity and performance for businesses of all sizes, the Logistics Technology Platform leverages the GLN's multimodal logistics community to enable companies to quickly and cost-effectively connect and collaborate.
Descartes' GLN, the underlying foundation of the Logistics Technology Platform, manages the flow of data and documents that track and control inventory, assets and people in motion. Designed expressly for logistics operations, it is native to the particularities of different transportation modes and country borders. As a state-of-the-art messaging network with wireless capabilities, the GLN helps manage business processes in real-time and in-motion. Its capabilities go beyond logistics, supporting common commercial transactions, regulatory compliance documents, and customer specific needs.
The GLN extends its reach using interconnect agreements with other general and logistics-specific networks, to offer companies access to a wide array of trading partners. With the flexibility to connect and collaborate in unique ways, companies can effectively route, translate and transfer data to and from partners and deploy additional Descartes solutions on the GLN. The GLN allows "low tech" partners to act and respond with "high tech" capabilities and connect to the transient partners that exist in many logistics operations. This inherent adaptability creates opportunities to develop logistics business processes that can help customers differentiate themselves from their competitors.
Descartes' Logistics Application Suite offers a wide array of modular, cloud-based, interoperable web and wireless logistics management applications. These solutions embody Descartes' deep domain expertise, not merely "check box" functionality. These solutions deliver value for a broad range of logistics-intensive organizations, whether they purchase transportation, run their own fleet, operate globally or locally, or work across air, ocean or ground transportation. Descartes' comprehensive suite of solutions includes:
Routing, Mobile and Telematics;
Transportation Management;
Ecommerce, Shipping & Fulfillment;
Customs & Regulatory Compliance;
Global Trade Intelligence;
B2B Messaging & Connectivity; and
Broker & Forwarder Enterprise Systems.
The Descartes applications forming part of the Logistics Technology Platform are modular and interoperable to allow organizations the flexibility to deploy them quickly within an existing portfolio of solutions. Implementation is streamlined because these solutions use web-native or wireless user interfaces and are pre-integrated with the GLN. With interoperable and multi-party solutions, Descartes' solutions are designed to deliver functionality that can enhance a logistics operation's performance and productivity both within the organization and across a complex network of partners.
Descartes' expanding global trade intelligence offering unites systems and people with trade information to enable organizations to work smarter by making more informed supply chain and logistics decisions. Our global trade intelligence solutions can help customers: research and analyze global trade movements, regulations and trends; reduce the risk of transacting with denied parties; increase trade compliance rates; optimize sourcing, procurement, and business development strategies; and minimize duty spend.
Descartes' GLN community members enjoy extended command of operations and accelerated time-to-value relative to many alternative logistics solutions. Given the inter-enterprise nature of logistics, quickly gaining access to partners is paramount. For this reason, Descartes has focused on growing a community that strategically attracts and retains relevant logistics parties. Upon joining the GLN community, many companies find that a number of their trading partners are already members with an existing connection to the GLN. This helps to minimize the time required to integrate Descartes' logistics management applications and to begin realizing results. Descartes is committed to continuing to expand community membership. Companies that join the GLN community or extend their participation find a single place where their entire logistics network can exist regardless of the range of transportation modes, the number of trading partners or the variety of regulatory agencies.
Our sales efforts are primarily directed towards two specific customer markets: (a) transportation companies and logistics service providers; and (b) manufacturers, retailers, distributors and mobile business service providers. Our sales staff is regionally based and trained to sell across our
solutions to specific customer markets. In North America and Europe, we promote our products primarily through direct sales efforts aimed at existing and potential users of our products. In the Asia Pacific, Indian subcontinent, South America and African regions, we focus on making our channel partners successful. Channel partners for our other international operations include distributors, alliance partners and value-added resellers.
Descartes' 'United By Design' strategic alliance program is intended to ensure complementary hardware, software and network offerings are interoperable with Descartes' solutions and work together seamlessly to solve multi-party business problems.
'United By Design' is intended to create a global ecosystem of logistics-intensive organizations working together to standardize and automate business processes and manage resources in motion. The program centers on Descartes' Open Standard Collaborative Interfaces, which provide a wide variety of connectivity mechanisms to integrate a broad spectrum of applications and services.
Descartes has partnering relationships with multiple parties across the following three categories:
Technology Partners - Complementary hardware, software, network, and embedded technology providers that extend the functional breadth of Descartes' solution capabilities;
Consulting Partners - Large system integrators and enterprise resource planning system vendors through to vertically specialized or niche consulting organizations that provide domain expertise and/or implementation services for Descartes' solutions; and
Channel Partners (Value-Added Resellers) -Organizations that market, sell, implement and support Descartes' solutions to extend access and expand market share into territories and markets where Descartes might not have a focused direct sales presence.
Our marketing efforts are focused on growing demand for our solutions and establishing Descartes as a thought leader and innovator across
the markets we serve. Marketing programs are delivered through integrated initiatives designed to reach our target customer and prospect groups. These programs include digital and online marketing, partner-focused campaigns, proactive media relations, and direct corporate marketing efforts.
On March 24, 2025, Descartes acquired all of the shares of 3GTMS ("3GTMS"), a leading provider of transportation management solutions. The purchase price for the acquisition was approximately $112.7 million, net of cash acquired, which was funded from cash on hand.
The following table shows, for the periods indicated, our results of operations in millions of dollars (except per share and weighted average share amounts):
First Quarter of
2026
2025
Total revenues
168.7
151.3
Cost of revenues
39.7
35.4
Gross margin
129.0
115.9
Operating expenses
60.3
54.6
Other charges
3.4
3.9
Amortization of intangible assets
19.1
15.0
Income from operations
46.2
42.4
Investment and other income
1.9
4.1
Interest expense
(0.2)
(0.3)
Income before income taxes
47.9
46.2
Income tax expense (recovery)
Current
12.3
12.3
Deferred
(0.6)
(0.8)
Net income
36.2
34.7
EARNINGS PER SHARE BASIC
0.42
0.41
DILUTED
0.41
0.40
WEIGHTED AVERAGE SHARES OUTSTANDING
(thousands) BASIC
85,677
85,274
DILUTED
87,577
87,116
Total revenues consist of license revenues, services revenues and professional services and other revenues. License revenues are derived from perpetual licenses granted to our customers to use our software products. Services revenues are comprised of ongoing transactional and/or subscription fees for use of our services and products by our customers and maintenance, which include revenues associated with maintenance and support of our services and products. Professional services and other revenues are comprised of professional services revenues from consulting, implementation and training services related to our services and products, hardware revenues and other revenues.
Our total revenues were $168.7 million and $151.3 million for the first quarter of 2026 and 2025, respectively. The increase in revenues in the first quarter of 2026 compared to the same period of 2025 was primarily due to a full period of contribution from the acquisitions completed in 2025 (OCR Services, Inc ("OCR"), Aerospace Software Developments ("ASD"), BoxTop Technologies Limited ("BoxTop"), Assure Assist, Inc., doing business as MyCarrierPortal ("MCP"), and Sellercloud LLC and certain assets of Sellercloud Europe Ltd. (collectively referred to as "Sellercloud"), collectively, the "2025 Acquisitions"), which contributed an incremental $12.6 million in revenue. Revenues were also positively impacted by growth from new and existing customers, which contributed an incremental $2.4 million in revenue in the first quarter of 2026. While we saw growth across many lines of our business, revenue growth in the first
quarter of 2026 from new and existing customers was driven by sales of our global trade intelligence and transportation management solutions. The principal contributor to the balance of the increase in revenues in the first quarter of 2026 compared to the same period of 2025 was the partial period of contribution from the acquisition of 3GTMS completed in 2026 (the "2026 Acquisition").
The following table provides additional analysis of our revenues by type (in millions of dollars and as a percentage of total revenues) generated over each of the periods indicated:
First Quarter of 2026 2025
License revenues 0.3 0.5
Percentage of total revenues - -
Services revenues 156.6 137.8
Percentage of total revenues 93% 91%
Professional services and other revenues 11.8 13.0
Percentage of total revenues 7% 9%
Total revenues 168.7 151.3
Our license revenues were $0.3 million and $0.5 million for the first quarter of 2026 and 2025, respectively, representing less than 1% of total revenues for both the first quarter of 2026 and 2025. While our sales focus has been on generating services revenues in our SaaS business model, we continue to see a market for licensing the products in our omni-channel retailing and home delivery logistics solutions. The amount of license revenues in a period is dependent on our customers' preference to license our solutions instead of purchasing our solutions as a service and we anticipate variances from period to period.
Our services revenues were $156.6 million and $137.8 million for the first quarter of 2026 and 2025, respectively, representing 93% and 91% of total revenues for the first quarter of 2026 and 2025, respectively. The increase in services revenues in the first quarter of 2026 compared to the same period of 2025 was primarily due to a full period of contribution from the 2025 Acquisitions, which contributed an incremental $12.3 million in services revenue. Services revenues were also positively impacted by growth from new and existing customers, which contributed an incremental $4.4 million in services revenue in the first quarter of 2026. The growth in services revenues in the first quarter of 2026 from new and existing customers was driven by sales of our global trade intelligence and transportation management solutions. The principal contributor to the balance of the increase in services revenues in the first quarter of 2026 as compared to the same period of 2025 was the partial period of contribution from the 2026 Acquisition.
Our professional services and other revenues were $11.8 million and $13.0 million for the first quarter of 2026 and 2025, respectively, representing 7% and 9% of total revenues for the first quarter of 2026 and 2025, respectively. The decrease in the first quarter of 2026 compared to the same period of 2025 was primarily due to lower professional services and other revenues from new and existing customers in the United States, partially offset by a partial period of contribution from the 2026 Acquisition and a full period of contribution from the 2025 Acquisitions.
We operate in one business segment providing logistics technology solutions. The following table provides additional analysis of our revenues by geographic location of customers (in millions of dollars and as a percentage of total revenues):
First Quarter of
2026
2025
United States
113.4
101.5
Percentage of total revenues
67%
67%
Europe, Middle-East and Africa ("EMEA")
40.4
35.1
Percentage of total revenues
24%
23%
Canada
9.9
10.0
Percentage of total revenues
6%
7%
Asia Pacific
5.0
4.7
Percentage of total revenues
3%
3%
Total revenues
168.7
151.3
$2.9 million in revenue. Revenues were also positively impacted by growth in revenues from new and existing customers which contributed an incremental $2.4 million in revenue in the first quarter of 2026.
The following table provides analysis of cost of revenues (in millions of dollars) and the related gross margins for the periods indicated:
First Quarter of
2026
2025
License
License revenues
0.3
0.5
Cost of license revenues
0.2
0.1
Gross margin
0.1
0.4
Gross margin percentage
33%
80%
Services
Services revenues
156.6
137.8
Cost of services revenues
33.1
28.4
Gross margin
123.5
109.4
Gross margin percentage
79%
79%
Professional services and other Professional services and other revenues
11.8
13.0
Cost of professional services and other revenues
6.4
6.9
Gross margin
5.4
6.1
Gross margin percentage
46%
47%
Total Revenues
168.7
151.3
Cost of revenues
39.7
35.4
Gross margin
129.0
115.9
Gross margin percentage
76%
77%
The following table provides analysis of operating expenses (in millions of dollars and as a percentage of total revenues) for the periods indicated:
First Quarter of
2026
2025
Total revenues
168.7
151.3
Sales and marketing expenses
18.9
17.5
Percentage of total revenues
11%
12%
Research and development expenses
25.1
22.2
Percentage of total revenues
15%
15%
General and administrative expenses
16.3
14.9
Percentage of total revenues
10%
10%
Total operating expenses
60.3
54.6
Percentage of total revenues 36% 36%
$3.9 million for the first quarter of 2026 and 2025, respectively. The decrease in other charges in the first quarter of 2026 compared to the same period of 2025 was primarily a result of a decrease in contingent consideration adjustments. Contingent consideration adjustments relate to changes in anticipated acquisition earnout payment accruals primarily as a result of increases or decreases to revenue performance and forecasts. Revenue forecasts are updated on a quarterly basis and the related earnout payment accruals are updated accordingly.
We test the carrying value of our finite life intangible assets for recoverability when events or changes in circumstances indicate that there may be evidence of impairment. We write down intangible assets or asset groups with a finite life to fair value when the related undiscounted cash flows are not expected to allow for recovery of the carrying value. Fair value of intangible assets or asset groups is determined by discounting the expected related cash flows. No finite life intangible asset or asset group impairment has been identified or recorded for any of the fiscal periods reported.
The following table provides an analysis of our unaudited operating results (in millions of dollars, except per share and weighted average number of share amounts) for each of the quarters indicated:
Fiscal 2026
Fiscal 2025
Fiscal 2024
First
Fourth
Third
Second
First
Fourth Third
Second
Quarter
Quarter
Quarter
Quarter
Quarter Quarter Quarter
Quarter
Revenues
168.7
167.5
168.8
163.4
151.3
148.2
144.7
143.4
Gross margin
129.0
128.0
125.6
122.9
115.9
112.1
110.4
108.4
Operating expenses
60.3
59.9
60.5
59.4
54.6
52.4
53.0
53.6
Net income
36.2
37.4
36.6
34.7
34.7
31.8
26.6
28.1
Basic earnings per share
0.42
0.44
0.43
0.41
0.41
0.37
0.31
0.33
Diluted earnings per share
0.41
0.43
0.42
0.40
0.40
0.37
0.31
0.32
Weighted average shares outstanding (thousands):
Basic
85,677
85,564
85,501
85,430
85,274
85,136
85,101
85,083
Diluted
87,577
87,579
87,342
87,241
87,116
85,953
86,791
86,783
Revenues over the comparative periods have been positively impacted by the eight acquisitions that we have completed since the beginning of fiscal 2024 through the end of the first quarter of fiscal 2026. In addition, we have seen increased revenues as a result of an increase in transactions processed over our GLN business document exchange as well as an increase in subscriptions for our software solutions and data content.
Our services revenues continue to have minor seasonal trends. In the first fiscal quarter of each year, we historically have seen slightly lower shipment volumes by air and truck which impact the aggregate number of transactions flowing through our GLN business document exchange. In the second fiscal quarter of each year, we historically have seen a slight increase in ocean services revenues as ocean carriers are in the midst of their customer contract negotiation period. In the third fiscal quarter of each year, we have historically seen shipment and transactional volumes at their highest. In the fourth fiscal quarter of each year, the various international holidays impact the aggregate number of shipping days in the quarter, and historically we have seen this adversely impact the number of transactions our network processes and, consequently, the amount of services revenues we receive during that period. In the second and fourth fiscal quarters of each year, we historically have seen a slight decrease in professional services revenues due to various international holidays and vacation seasons. Overall, the impact of seasonal trends has a relatively minor impact on our revenues quarter to quarter.
Revenues increased in the first quarter of 2026 compared to the fourth quarter of 2025 primarily due to the partial period of contribution from the 2026 Acquisition, which contributed an incremental $2.4 million in revenue, partially offset by a decrease in revenues from the 2025 Acquisitions primarily due to seasonal fluctuations. Net income was negatively impacted in the first quarter of 2026 compared to the fourth quarter of 2025 due to an increase of $1.8 million in other charges resulting primarily from higher acquisition-related costs.
As at April 30, 2025, $350.0 million of the revolving operating credit facility remained available for use. We were in compliance with the covenants of the credit facility as at April 30, 2025 and remain in compliance as of the date of this MD&A.
Historically, we've financed our operations and met our capital expenditure requirements primarily through cash flows provided from operations, issuances of common shares and proceeds from debt. We anticipate that, considering the above, we have sufficient liquidity to fund our current cash requirements for working capital, contractual commitments, capital expenditures and other operating needs. We also believe that we have the ability to generate sufficient amounts of cash in the long term to meet planned growth targets and to fund strategic transactions. Should additional future financing be undertaken, the proceeds from any such transaction could be utilized to fund strategic transactions or for general corporate purposes, including the repayment of outstanding debt. We expect, from time to time, to continue to consider select strategic transactions to create value and improve performance, which may include acquisitions, dispositions, restructurings, joint ventures and partnerships, and we may undertake further financing transactions, including draws on our credit facility, other debt instruments or equity offerings, in connection with any such potential strategic transaction.
With respect to earnings of our non-Canadian subsidiaries, our intention is that these earnings will be reinvested in each subsidiary indefinitely. Of the $176.4 million of cash as at April 30, 2025, $79.3 million was held by our foreign subsidiaries, most significantly in the United States with lesser amounts held in other countries in the EMEA and Asia Pacific regions. To date, we have not encountered significant legal or practical restrictions on the abilities of our subsidiaries to repatriate money to Canada, even if such restrictions may exist in respect of certain foreign jurisdictions where we have subsidiaries. In the future, if we elect to repatriate the unremitted earnings of our foreign subsidiaries in the form of dividends, or if the shares of the foreign subsidiaries are sold or transferred, then we could be subject to additional Canadian or foreign income taxes, net of the impact of any available foreign tax credits, which would result in a higher effective tax rate. We have not provided for foreign withholding taxes or deferred income tax liabilities related to unremitted earnings of our non-Canadian subsidiaries, since such earnings are considered permanently invested in those subsidiaries or are not subject to withholding taxes.
The table set forth below provides a summary of cash flows for the periods indicated in millions of dollars:
Three Months Ended
April 30, April 30,
2025 2024
Cash provided by operating activities
53.6
63.7
Additions to property and equipment
(1.9)
(1.8)
Acquisition of subsidiaries, net of cash acquired
(112.3)
(140.0)
Issuance of common shares, net of issuance costs
3.6
4.2
Payment of withholding taxes on net share settlements
(6.5)
(6.7)
Effect of foreign exchange rate on cash
3.8 (1.5)
Net change in cash
(59.7) (82.1)
Cash, beginning of period
236.1 321.0
Cash, end of period
176.4 238.9
issuances by 66,922 and 73,588 common shares, respectively, to satisfy employee tax withholding requirements for net share settlements of PSUs and RSUs.
To facilitate a better understanding of our commitments, the following information is provided (in millions of dollars) in respect of our operating obligations as of April 30, 2025:
Less than
1 year
1-3 years 4-5 years More than
5 years
Total
Operating lease obligations 3.8 4.1 0.7 - 8.6
Lease Obligations
We are committed under non-cancelable operating leases for buildings, vehicles and computer equipment with terms expiring at various dates through 2030. The undiscounted future minimum amounts payable under these lease agreements are presented in the table above.
Other Obligations
Deferred Share Unit ("DSU") and Cash-settled Restricted Share Unit ("CRSU") Plans
As discussed in Note 2 to the audited consolidated financial statements for 2025 included in our 2025 Annual Report, we maintain DSU and CRSU plans for our directors and employees. Any payments made pursuant to these plans are settled in cash. For DSUs and CRSUs, the units vest over time and the liability recognized at any given consolidated balance sheet date reflects only those units vested at that date that have not yet been settled in cash. As such, we had an unrecognized aggregate amount for the unvested DSUs and CRSUs of nil and $1.8 million, respectively, at April 30, 2025. The ultimate liability for any payment of DSUs and CRSUs is dependent on the trading price of our common shares. To substantially offset our exposure to fluctuations in our stock price, we have entered into equity derivative contracts, including floating-rate equity forwards. As at April 30, 2025, we had equity derivatives for 333,466 Descartes common shares and a DSU liability for 333,466 Descartes common shares, resulting in no net exposure arising from changes to our share price.
We are subject to a variety of other claims and suits that arise from time to time in the ordinary course of our business. The consequences of these matters are not presently determinable but, in the opinion of management after consulting with legal counsel, the ultimate aggregate liability is not currently expected to have a material effect on our results of operations or financial position.
Product Warranties
In the normal course of operations, we provide our customers with product warranties relating to the performance of our hardware, software and services. To date, we have not encountered material costs as a result of such obligations and have not accrued any liabilities related to such obligations in our condensed consolidated financial statements.
Business combination agreements
In respect of our acquisitions of Trans-Soft, LLC, doing business as Supply Vision, Windigo Logistics, Inc., doing business as GroundCloud, MCP and Sellercloud, up to $67.5 million in cash may become payable if certain revenue performance targets are met in the remaining earn-out period, up to a maximum period of two years following the acquisition. A balance of $8.5 million is accrued related to the fair value of this contingent consideration as at April 30, 2025.
In the normal course of business, we enter into a variety of agreements that may contain features that meet the definition of a guarantee under ASC Topic 460, "Guarantees". The following lists our significant guarantees:
Intellectual property indemnification obligations
We provide indemnifications of varying scope to our customers against claims of intellectual property infringement made by third parties arising from the use of our products. In the event of such a claim, we are generally obligated to defend our customers against the claim and we are liable to pay damages and costs assessed against our customers that are payable as part of a final judgment or settlement. These intellectual property infringement indemnification clauses are not generally subject to any dollar limits and remain in force for the term of our license agreement with our customer, which license terms are typically perpetual. Historically, we have not encountered material costs as a result of such indemnification obligations.
Other indemnification agreements
In the normal course of operations, we enter into various agreements that provide general indemnities. These indemnities typically arise in connection with purchases and sales of assets, securities offerings or buy-backs, service contracts, administration of employee benefit plans, retention of officers and directors, membership agreements, customer financing transactions, and leasing transactions. In addition, our corporate by-laws provide for the indemnification of our directors and officers. Each of these indemnities requires us, in certain circumstances, to compensate the counterparties for various costs resulting from breaches of representations or obligations under such arrangements, or as a result of third party claims that may be suffered by the counterparty as a consequence of the transaction. We believe that the likelihood that we could incur significant liability under these obligations is remote. Historically, we have not made any significant payments under such indemnities.
In evaluating estimated losses for the guarantees or indemnities described above, we consider such factors as the degree of probability of an unfavorable outcome and the ability to make a reasonable estimate of the amount of loss. We are unable to make a reasonable estimate of the maximum potential amount payable under such guarantees or indemnities as many of these arrangements do not specify a maximum potential dollar exposure or time limitation. The amount also depends on the outcome of future events and conditions, which cannot be predicted. Given the foregoing, to date, we have not accrued any liability in our condensed consolidated financial statements for the guarantees or indemnities described above.
We have an unlimited number of common shares authorized for issuance. As of June 4, 2025, we had 85,782,830 common shares issued and outstanding.
As of June 4, 2025, there were 1,717,992 options issued and outstanding, and 1,858,222 options remaining available for grant under all stock option plans.
As of June 4, 2025, there were 1,079,737 performance share units ("PSUs") and 506,657 restricted share units ("RSUs") issued and outstanding, with a potential of up to a further 288,235 PSUs being earned if maximum performance is achieved in respect of the outstanding PSU awards. Also, as of June 4, 2025, there were 1,711,918 units remaining available for grant under all performance and restricted share unit plans.
Our board of directors has adopted a shareholder rights plan (the "Rights Plan") to ensure the fair treatment of shareholders in connection with any take-over offer, and to provide our board of directors and shareholders with additional time to fully consider any unsolicited take-over bid. We did not adopt the Rights Plan in response to any specific proposal to acquire control of the Company. The Rights Plan was
approved by the TSX and was originally approved by our shareholders on May 18, 2005 and took effect as of November 29, 2004. An amended and restated Rights Plan was ratified by shareholders at our annual shareholders' meeting held on June 15, 2023. The Rights Plan requires re-approval by the shareholders every three years. We understand that the Rights Plan is similar to plans adopted by other Canadian companies and approved by their shareholders.
Our consolidated financial statements and accompanying notes are prepared in accordance with GAAP. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. These estimates and assumptions are affected by management's application of accounting policies. Estimates are deemed critical when a different estimate could have reasonably been used or where changes in the estimates are reasonably likely to occur from period to period and would materially impact our financial condition or results of operations. Our accounting policies are discussed in Note 2 to the audited consolidated financial statements for 2025 included in our 2025 Annual Report.
Our management has discussed the development, selection and application of our critical accounting policies with the audit committee of the board of directors.
The following reflect our more significant estimates, judgments and assumptions which we believe are the most critical to aid in fully understanding and evaluating our reported financial results for the period ended April 30, 2025:
Revenue recognition;
Impairment of long-lived assets;
Goodwill;
Stock-based compensation;
Income taxes; and
Business combinations.
The significant accounting policies are unchanged from those disclosed in the Company's 2025 Annual Report.
In December 2023, the FASB issued Accounting Standards Update 2023-09, "Income Taxes (Topic 740): Improvements to Income Tax Disclosures" ("ASU 2023-09"). The amendments in ASU 2023-09 enhance transparency about income tax information through improvements to income tax disclosures primarily related to the rate reconciliation and income taxes paid information. ASU 2023-09 is effective for annual periods beginning after December 15, 2024, which is our fiscal year beginning February 1, 2025 (fiscal 2026). Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance. The Company will adopt this guidance in the fourth quarter of fiscal 2026. The adoption of this guidance is not expected to have a material impact on our results of operations or disclosures.
In November 2024, the FASB issued Accounting Standards Update 2024-03, "Income Statement- Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses" and issued a subsequent amendment to the initial guidance in January 2025, collectively referred to as "ASU 2024-03". The amendments in ASU 2024-03
require disaggregation of certain expense captions into specified categories in disclosures within the notes to financial statements, which is expected to enhance cost transparency and improve comparability. ASU 2024-03 is effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods within annual reporting periods beginning after December 15, 2027. Early adoption is permitted. The Company expects to adopt this guidance in the fourth quarter of fiscal 2028. The adoption of this guidance is not expected to have a material impact on our results of operations or disclosures.
During the period beginning on February 1, 2025 and ended on April 30, 2025, no changes were made to the Company's internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
This section discusses our outlook for fiscal 2026 and in general as of the date of this MD&A and contains forward-looking statements.
Since the change in administration of the government of the United States of America on January 20, 2025, various executive orders have been discussed, communicated and/or issued. These have included the US's imposition of various tariffs on many imports into the United States. The US has also eliminated duty-free de minimis treatment for low-value imports from China with tariffs extending to these imports. Many countries (including China) have implemented or indicated their intention to implement a series of retaliatory measures against the United States, including counter-tariffs. The US is engaged in trade negotiations with various countries, with tariffs as an important negotiation point. Changes in trade policies can have material impacts on our customers and the economy, including trade volumes, and where and how goods are manufactured, distributed and shipped. The imposition of tariffs and retaliatory tariffs may also risk increasing inflation to the extent those additional charges are passed on to end consumers.
As economies adapt to ongoing uncertainty, global growth has slowed and the outlook for the shipping industry, in particular, is uncertain. Geopolitical tensions, trade wars, protectionist policies, industrial action, volatile fuel prices, climate change, and increased operational costs may present challenges to freedom of navigation and/or result in disruptions to global trade. These factors could adversely impact our business or the businesses of our customers and suppliers, which in turn could impact the level of usage and/or demand for our products and services and our resulting revenues. The impact of any potential changes on the global economy in general and on our customers and our business specifically is uncertain at this time and the extent to which our business will be affected will depend on a variety of factors, many of which are outside of our control.
In light of the economic uncertainty in the global trade environment, we are undertaking a restructuring plan to reduce our cost base and further strengthen the Company's financial position. The plan will reduce our global workforce by approximately 7% and will also result in a reduction of other operating expenditures. We expect the total cost of this plan to be approximately $4.0 million and that the plan will be implemented over the next 6 months.
More generally, our business may be impacted from time to time by the cyclical and seasonal nature of particular modes of transportation and the freight market, as well as the cyclical and seasonal nature of the industries that such markets serve. Factors which may create cyclical fluctuations in such modes of transportation or the freight market in general include legal and regulatory requirements, timing of contract renewals between our customers and their own customers, seasonal-based tariffs, tariffs and
retaliatory tariffs imposed as parts of trade disputes, vacation periods applicable to particular shipping or receiving nations, weather-related or global health events that impact shipping in particular geographies and amendments to international trade reshipments being processed, labor uncertainty or stoppages, adverse fluctuations in the volume of global shipments, or shipments in any particular mode of transportation, may adversely affect our revenues. Significant declines in shipment volumes could likely have a material adverse effect on our business.
Industry consolidation, rapid technological change, growth of ecommerce and frequent new product introductions and enhancements continue to characterize the software and services industries -particularly for logistics management technology companies. Organizations are increasingly requiring greater levels of functionality and more sophisticated product offerings from their software and services providers.
Increased importance is being placed on leveraging cloud-based technology to better manage logistics processes and to connect and collaborate with trading partners on a global basis, as well as to reuse and share supply chain data in order to accelerate time-to-value. Cloud-based technology also enables business networks to more easily unite and integrate services provided by a broad range of partners and technology alliances to extend functionality and further enhance collaboration between business communities. As a result, we believe there is a trend away from using manual and paper-based supply chain and logistics processes towards electronic processes powered by the exchange of electronic information between logistics and supply chain participants.
Accordingly, we expect that our future success will be dependent upon our ability to enhance current products or develop and introduce new products offering enhanced performance and new functionality at competitive prices. In particular, we believe customers are looking for end-to-end solutions that combine a multi-modal, multi-process network with business document exchange and wireless mobile resource management applications with end-to-end global trade compliance, trade content and collaborative supply chain execution applications. These applications include freight bookings, contract and rate management, classification of goods for tariff and duty purposes, sanctioned party screening, customs filings and electronic shipment manifest processes, transportation management, routing and scheduling, purchase order to dock door processes, and inventory visibility.
We believe there is a continued acceptance of subscription pricing and SaaS business models in the markets we serve that provide lower up-front cost and easier-to-maintain alternatives than may be available through traditional perpetual license pricing models. In the first quarter of fiscal 2026, our services revenues comprised 93% of our total revenues, with the balance being license, professional services and other revenues. We expect that our focus in fiscal 2026 will remain on generating services revenues, primarily by promoting the use of our GLN (including customs compliance services) and the migration of customers using our legacy license-based products to our services-based architecture. We anticipate maintaining the flexibility to license our products to those customers who prefer to buy the products in that fashion and the composition of our revenues in any one quarter will be impacted by the buying preferences of our customers.
We have significant contracts with our license customers for ongoing support and maintenance, as well as significant service contracts which provide us with recurring services revenues. After their initial term, our service contracts are generally renewable at a customer's option, and there are generally no mandatory payment obligations or obligations to license additional software or subscribe for additional services. In a typical year, based on our historic experience, we anticipate that over a one-year period we may lose approximately 4% to 7% of our aggregate annualized recurring revenues from the previous year in the ordinary course, excluding consideration of new customers. For fiscal 2026, given the uncertainty of the impact of ongoing trade wars on our customers' businesses, we anticipate that the amount of recurring revenues lost from the previous year could be higher than that, however, we can't reliably provide a range of how much higher.
We internally measure and manage our "baseline calibration", which we define as the difference between our "baseline revenues" and "baseline operating expenses". Each of these measures constitutes a
"supplementary financial measure" under Canadian Securities Administrators' National Instrument 52-112 and does not have a directly comparable financial measure disclosed in our financial statements. We define our "baseline revenues" as our visible, recurring and contracted revenues. Baseline revenues are not a projection of anticipated total revenues for a period as they exclude any anticipated or expected new sales for a period beyond the date that the baseline revenues are measured. We define our "baseline operating expenses" as our total expenses less interest, investment and other income, taxes, depreciation and amortization, stock-based compensation (for which we include related costs and taxes), acquisition-related costs, contingent consideration and restructuring charges. Baseline operating expenses are not a projection of anticipated total expenses for a period as they exclude any expenses associated with anticipated or expected new sales for a period beyond the date that the baseline expenses are measured. Our baseline calibration is not a projection of net income for a period or adjusted earnings before interest, taxes, depreciation and amortization for a period as it excludes anticipated or expected new sales for a period beyond the date that the baseline calibration is measured, excludes any costs of goods sold or other expenses associated with such new sales, and excludes the expenses identified as excluded in the definition of "baseline operating expenses," above. We calculate and disclose "baseline revenues," "baseline operating expenses" and "baseline calibration" because management uses these metrics in determining its planned levels of expenditures for a period and we believe this information is useful to our investors. These metrics are estimated operating metrics and not projections, nor actual financial results, and are not indicative of current or future performance. As noted above, these metrics do not have any directly comparable financial measures disclosed in our financial statements. At May 26, 2025, using foreign exchange rates of $0.73 to CAD $1.00, $1.14 to EUR 1.00 and $1.36 to £1.00, we estimated that our baseline revenues for the second quarter of 2026 are approximately $150.5 million and our baseline operating expenses are approximately $92.5 million. We consider this to be our baseline calibration of approximately $58.0 million for the second quarter of 2026, or approximately 39% of our baseline revenues as at May 26, 2025.
We estimate that aggregate amortization expense for existing intangible assets will be $59.4 million for the remainder of fiscal 2026, $65.4 million for 2027, $58.0 million for 2028, $49.4 million for 2029, $37.5 million for 2030 and $98.4 million thereafter. Expected future amortization expense is based on the level of existing intangible assets at April 30, 2025, is subject to fluctuations in foreign exchange rates and assumes no future adjustments or impairment of existing intangible assets.
We anticipate that stock-based compensation expense for the remainder of fiscal 2026 for grants outstanding as at April 30, 2025 will be approximately $20.2 million, subject to any necessary adjustments resulting from actual stock-based compensation forfeitures and fluctuations in foreign exchange rates. We anticipate that we'll make additional grants of stock options in the remainder of fiscal 2026 as part of our regular compensation practices.
We performed our annual goodwill impairment tests in accordance with ASC Topic 350, "Intangibles -Goodwill and Other" ("ASC Topic 350") as at October 31, 2024 and determined that there was no evidence of impairment. We are currently scheduled to perform our next annual impairment test during the third quarter of fiscal 2026. We will continue to perform quarterly analyses of whether any event has occurred that would more likely than not reduce our enterprise value below our carrying amounts and, if so, we will perform a goodwill impairment test between the annual dates. The likelihood of any future impairment increases if our public market capitalization is adversely impacted by global economic, capital market or other conditions for a sustained period of time. Any future impairment adjustment will be recognized as an expense in the period that such adjustment is identified.
In the first quarter of 2026, capital expenditures were $1.9 million or 1% of revenues, as we continue to invest in computer equipment and software to support our network and build out our infrastructure. We anticipate that we will incur approximately $4.0 to $5.0 million in capital expenditures in the remainder of fiscal 2026 primarily related to investments in our network and security infrastructure.
In the remainder of fiscal 2026, we estimate that payments of contingent consideration for earn-out arrangements accrued as at April 30, 2025 will be approximately $2.3 million, subject to any necessary adjustments resulting from the final earn-out calculations. Of the $2.3 million estimated to be paid, $2.2
million relates to the portion of the earn-out arrangements accrued for at the time of acquisition and will be reflected in cash flow from financing activities with the remaining balance reflected in cash flow from operating activities. We update our estimates for the payment of contingent consideration on an ongoing basis as we gather further information about the performance of acquired companies.
We conduct business in a variety of foreign currencies and, as a result, our foreign operations are subject to foreign exchange fluctuations. Our businesses operate in their local currency environment and use their local currency as their functional currency. Assets, including cash, and liabilities of foreign operations are translated into US dollars at the exchange rate in effect at the balance sheet date. Revenues and expenses of foreign operations are translated using daily exchange rates. Translation adjustments resulting from this process are accumulated in other comprehensive income (loss) as a separate component of shareholders' equity.
Transactions incurred in currencies other than the functional currency are converted to the functional currency at the transaction date. All foreign currency transaction gains and losses are included in net income. We currently have no specific hedging program in place to address fluctuations in international currency exchange rates. In addition, we can make no accurate prediction of what will happen with international currency exchange rates going forward.
There can be varied impacts on our results of operations as a consequence of movements in international currency exchange rates. In the first quarter of fiscal 2026, approximately 72% of our revenues were in US dollars, 11% in euro, 6% in Canadian dollars, 7% in British pound sterling, and the balance in mixed currencies. For that same period, approximately 55% of our operating expenses were in US dollars, 12% in euro, 18% in Canadian dollars, 4% in British pound sterling, and the balance in mixed currencies. With this distribution, we generally expect that our revenues will be negatively impacted when the US dollar strengthens compared to these foreign currencies.
However, the impact from movements in foreign exchange rates on our other aspects of our results of operations are more varied. Generally, if the US dollar strengthens against the Canadian dollar, the decrease in our expenses will be greater than the decrease in our revenue, resulting in an improvement in our results of operations. However, if the US dollar were to strengthen against the British pound or euro, the decrease in expenses would not be as large as the decrease in revenue, resulting in a weakening of our results of operations. We will continue to monitor the impact of foreign exchange on our operating results as changes in foreign exchange rates may have a significant negative impact on our revenue and results of operations.
Our tax expense for a period is difficult to predict as it depends on many factors, including the actual jurisdictions in which income is earned, the tax rates in those jurisdictions, the amount of deferred tax assets relating to the jurisdictions and the valuation allowances relating to those tax assets. We can provide no assurance as to the timing or amounts of any income tax expense or recovery, nor can we provide any assurance that our current valuation allowance for deferred tax assets will not need to be adjusted further.
We experienced an effective tax rate of approximately 24% in the first quarter of fiscal 2026, which is within our expected range of 25% to 30%. For the remainder of fiscal 2026, we anticipate an effective tax rate of between 24% to 28%.
We intend to continue to actively explore business combinations to add complementary services, products and customers to our existing businesses. We also intend to continue to focus our acquisition activities on companies that are targeting the same customers as us and processing similar data and, to that end, we listen to our customers' suggestions as they relate to acquisition opportunities. Depending on the size and scope of any business combination, or series of business combinations, we may choose or need to use our existing credit facility or need to raise additional debt or equity capital. However, there can be no assurance that we will be able to undertake such a financing transaction. If we use debt in connection with acquisition activity, we will incur additional interest expense from the date of the draw under such facility. Considering the balance of the credit facility as at April 30, 2025, and subject to any further draws or repayments on
the credit facility, we anticipate that interest expense will be approximately $0.7 million in the remainder of fiscal 2026, which includes debt standby charges as well as the amortization of deferred financing charges.
Certain future commitments are set out above in the section of this MD&A called "Commitments, Contingencies and Guarantees". We believe that we have sufficient liquidity to fund our current operating and working capital requirements, including the payment of these commitments.
Any investment in us will be subject to risks inherent to our business. Before making an investment decision, you should carefully consider the risks described below together with all other information included in this report. The risks and uncertainties described below are not the only ones facing us. Additional risks and uncertainties that we are not aware of or have not focused on, or that we currently deem immaterial, may also impair our business operations. This report is qualified in its entirety by these risk factors.
If any of the risks actually occur, they could materially adversely affect our business, financial condition, liquidity or results of operations. In that case, the trading price of our securities could decline and you may lose all or part of your investment.
We rely on information technology networks and systems to process, transmit and store electronic information. Any disruption to our business, services and/or products, our own information systems or communications networks or those of third-party providers on which we rely as part of our own product offerings could result in the inability of our customers to receive our products for an indeterminate period of time. Our ability to deliver our products and services depends on the development and maintenance of hardware and communications infrastructure (including internet) by third parties. This includes maintenance of reliable networks with the necessary security, speed, data capacity and bandwidth. While our services are designed to operate without interruption, we have experienced, and may in the future experience, interruptions and delays in services and availability from time to time. In the event of a catastrophic event with respect to one or more of our systems, we may experience an extended period of system unavailability, which could negatively impact our relationship with customers. Our services and products may not function properly for reasons which may include, but are not limited to, the following:
System or network failure;
Software errors, failures and crashes;
Interruption in the supply of power;
Virus proliferation or malware;
Communications failures;
Information or infrastructure security breaches;
Insufficient investment in infrastructure;
Earthquakes, fires, floods, natural disasters, or other force majeure events outside our control; and
Acts of war, sabotage, cyber-attacks, denial-of-service attacks and/or terrorism.
In addition, any disruption to the availability of customer information, or any compromise to the integrity or confidentiality of customer information in our systems or networks, or the systems or networks of third parties on which we rely (including those third parties' solutions that are used to detect and protect against such disruption and compromise), could result in our customers being unable to effectively use our products or services or being forced to take mitigating actions to protect their information. Back-up and
redundant systems may be insufficient or may fail and result in a disruption of availability of our products or services to our customers or the integrity or availability of our customers' information.
Some jurisdictions have enacted laws requiring companies to notify individuals of data security breaches involving certain types of personal data and in some cases our agreements with certain customers require us to notify them in the event of a security incident. Such mandatory disclosures could lead to negative publicity and may cause our current and prospective customers to lose confidence in the effectiveness of our data security measures. Moreover, if a high-profile security breach occurs with respect to another SaaS provider, customers may lose trust in the security of the SaaS business model generally, which could adversely impact our ability to retain existing customers or attract new ones.
Any actual or perceived threat of disruption to our services or any compromise of customer information could impair our reputation and cause us to lose customers or revenue, or face litigation, necessitate customer service or repair work that would involve substantial costs and distract management from operating our business. Despite the implementation of advanced threat protection, information and network security measures and disaster recovery plans, our systems and those of third parties on which we rely may be subjected to deficiencies, vulnerabilities and security risks of increasing frequency, scope and potential harm. The continued use and/or development of emerging technologies, such as artificial intelligence, could increase our exposure to information security breaches or other cyber-security threats by potentially enhancing the capabilities of third parties to breach our network or the networks of our third-party providers, and disrupt our services. If we are unable (or are perceived as being unable) to prevent, or promptly identify and remedy, such outages and breaches, our operations may be disrupted, our business reputation could be adversely affected, and there could be a negative impact on our financial condition and results of operations.
Our business may be negatively impacted to varying degrees by a number of events which are beyond our control, including acts of war, armed conflicts, energy blackouts, pandemics (or other public health crises), terrorist attacks, earthquakes, climate change and its effects, including hurricanes, tornados, fires, floods, ice storms or other natural or manmade catastrophes. We cannot be sure that our emergency preparedness or the preparedness of our customers, including business continuity planning, to mitigate risks will be effective since such events can evolve very rapidly, and their impacts can be difficult to predict. As such, there can be no assurance that in the event of such a catastrophe that the operations and ability to carry on business of us or our customers will not be disrupted. The occurrence of such events
may not release us from performing our obligations to third parties. A catastrophic event, including an outbreak of infectious disease, or a similar health threat, or fear of any of the foregoing, could adversely impact us, our customers and our investments. In addition, liquidity and volatility, credit availability and market and financial conditions, generally could change at any time as a result of any of these events. Any of these events in isolation or in combination, could have a material negative impact on our performance, financial condition, results of operations and cash flows.
Businesses that we acquire may sell products or services that we have limited experience operating or managing. We may experience unanticipated challenges or difficulties identifying suitable acquisition candidates, integrating their businesses into our company, maintaining these businesses at their current levels or growing these businesses. Factors that may impair our ability to identify, successfully integrate, maintain or grow acquired businesses may include, but are not limited to:
Challenges identifying suitable businesses to buy and negotiating the acquisition of those businesses on acceptable terms;
Challenges completing the acquisitions within our expected time frames and budgets;
Challenges in integrating acquired businesses with our business;
Loss of customers of the acquired business;
Loss of key personnel from the acquired business, such as former executive officers or key technical personnel;
Non-compatible business cultures;
For regulatory compliance businesses, changes in government regulations impacting electronic regulatory filings or import/export compliance, including changes in which government agencies are responsible for gathering import and export information;
Difficulties in gaining necessary approvals in international markets to expand acquired businesses as contemplated;
Our inability to obtain or maintain necessary security clearances to provide international shipment management services;
Our failure to make appropriate capital investments in infrastructure to facilitate growth; and
Other risk factors identified in this report.
We may fail to properly respond to any of these risks, which may have a material adverse effect on our business results.
We have in the past acquired, and in the future, expect to seek to acquire, additional products, services, customers, technologies and businesses that we believe are complementary to ours. We are unable to predict whether or when we will be able to identify any appropriate products, technologies or businesses for acquisition, or the likelihood that any potential acquisition will be available on terms acceptable to us or will be completed. We also, from time to time, take on investments in other business initiatives, such as the implementation of new systems.
Acquisitions and other business initiatives involve a number of risks, including: substantial investment of funds, diversion of management's attention from current operations; additional demands on resources, systems, procedures and controls; and disruption of our ongoing business. Acquisitions specifically involve risks, including: difficulties in integrating and retaining all or part of the acquired business, its customers and its personnel; assumption of disclosed and undisclosed liabilities; dealing with unfamiliar laws, customs and practices in foreign jurisdictions; and the effectiveness of the acquired company's internal controls and procedures. In addition, we may not identify all risks or fully assess risks identified in connection with an investment. As well, by investing in such initiatives, we may deplete our cash resources or dilute our shareholder base by issuing additional shares. Furthermore, for acquisitions, there is a risk that our valuation assumptions, customer retention expectations and our models for an acquired product or business may be erroneous or inappropriate due to foreseen or unforeseen circumstances and thereby
cause us to overvalue an acquisition target. There is also a risk that the contemplated benefits of an acquisition or other investment may not materialize as planned or may not materialize within the time period or to the extent anticipated. The individual or combined effect of these risks could have a material adverse effect on our business.
Our performance is substantially dependent on the performance of our highly qualified management, technical expertise, and sales and marketing personnel, which we regard as key individuals to our business. Significant competition exists for management and skilled personnel and as a result of that competition we are seeing wage and labor cost escalation in various areas and levels within our workforce. Our success is highly dependent on our ability to identify, hire, train, motivate, promote, and retain key individuals. In responding to inflationary wage pressure to retain or attract key individuals, we could see increases in our operating costs that outpace our ability to grow revenues. If we fail to cross train key employees, particularly those with specialized knowledge it could impair our ability to provide consistent and uninterrupted service to our customers. If we are not able to attract, retain or establish an effective succession planning program for key individuals it could have a material adverse effect on our business, results of operations, financial condition and the price of our common shares.
We have in the past, and may in the future, make changes to our executive management team or board of directors. There can be no assurance that any such changes and the resulting transition will not have a material adverse effect on our business, results of operations, financial condition and the price of our common shares.
Our regulatory compliance services help our customers comply with government filing and screening requirements relating to global trade. The services that we offer may be impacted, from time to time, by changes in these requirements, including potential future changes as a consequence of changes in cross-border trade agreements, such as the United States-Mexico-Canada Agreement, or from changes in government, such as the recent change in the administration of the United States government. In addition, and more generally, changes in requirements that impact electronic regulatory filings or import/export compliance, including changes adding or reducing filing requirements, changes in enforcement practices or changes in the government agency responsible for such requirements could adversely impact our business, results of operations and financial condition.
Our business is highly dependent on the movement of freight from one point to another since we generate transaction revenues as freight is moved by, to or from our customers. If there are disruptions in the movement of freight, proper reporting or the overall volume of international shipments, whether as a result of labor disputes, weather or natural disasters, acts of war, terrorist events, political instability, changes in cross border trade agreements, contagious illness outbreaks, or otherwise, then the traffic volume on our Global Logistics Network will be impacted and our revenues will be adversely affected. As these types of freight disruptions are generally unpredictable, there can be no assurance that our business, results of operations and financial condition will not be adversely affected by such events.
We depend on our installed customer base for a significant portion of our revenues. We have significant contracts with our license customers for ongoing support and maintenance, as well as significant service contracts that provide recurring services revenues to us. In addition, our installed customer base has historically generated additional new license and services revenues for us. Service contracts are generally renewable at a customer's option and/or subject to cancellation rights, and there are generally no
mandatory payment obligations or obligations to license additional software or subscribe for additional services.
If our customers fail to renew their service contracts, fail to purchase additional services or products, or we are unable to attract new customers, then our revenues could decrease and our operating results could be adversely affected. Factors influencing such contract terminations could include changes in the financial circumstances of our customers, dissatisfaction with our products or services, our retirement or lack of support for our legacy products and services, our customers selecting or building alternate technologies to replace us, the cost of our products and services as compared to the cost of products and services offered by our competitors, acceptance of future price increases, our ability to attract, hire and maintain qualified personnel to meet customer needs, consolidating activities in the market, and changes in our customers' business or in regulation impacting our customers' business that may no longer necessitate the use of our products or services, general economic or market conditions, or other reasons. Further, our customers could delay or terminate implementations or use of our services and products or be reluctant to migrate to new products. Such customers will not generate the revenues we may have anticipated within the timelines anticipated, if at all, and may be less likely to invest in additional services or products from us in the future. We may not be able to adjust our expense levels quickly enough to account for any such revenue losses. In addition, loss of one or more of our key customers could adversely impact our competitive position in the marketplace and hurt our credibility and ability to attract new customers.
We may not be able to develop and introduce new solutions and enhancements to our existing products that respond to new technologies or shipment regulations on a timely basis. If we are unable to develop and sell new products and new features for our existing products that keep pace with rapid technological and regulatory change, such as within the emerging area of artificial intelligence, as well as developments in the transportation logistics industry, our business, results of operations and financial condition could be adversely affected. We intend to continue to invest significant resources in research and development to enhance our existing products and services and introduce new high-quality products that customers will want. If we are unable to predict or quickly react to user preferences or changes in the transportation logistics industry, or its regulatory requirements, or if we are unable to modify our products and services on a timely basis or to effectively bring new products to market, our sales may suffer.
In addition, we may experience difficulties with software or hardware development, design, integration with third-party software or hardware, or marketing that could delay or prevent our introduction, deployment or implementation of new solutions and enhancements. The introduction of new solutions by competitors, the emergence of new industry standards or the development of entirely new technologies to replace existing offerings could render our existing or future solutions obsolete.
We may not have sufficient resources to make the necessary investments in software development and our technical infrastructure, and we may experience difficulties that could delay or prevent the successful development, introduction or marketing of new products or enhancements. In addition, our products or enhancements may not meet increasingly complex customer requirements or achieve market acceptance at the rate we expect, or at all. Any failure by us to anticipate or respond adequately to technological advancements, customer requirements and changing industry standards, or any significant delays in the development, introduction or availability of new products or enhancements, could undermine our current market position and negatively impact our business, results of operations or financial condition.
Current and potential competitors include supply chain application software vendors, customers that undertake internal software development efforts, value-added networks and business document exchanges, enterprise resource planning software vendors, regulatory filing companies, trade data vendors and general business application software vendors. Many of our current and potential competitors may have one or more of the following relative advantages:
Established relationships with existing customers or prospects that we are targeting;
Superior product functionality and industry-specific expertise;
Broader range of products to offer and better product life cycle management;
Larger installed base of customers;
Greater financial, technical, marketing, sales, distribution and other resources;
Better performance;
Lower cost structure and more profitable operations;
Greater investment in infrastructure;
Greater worldwide presence;
Early adoption of, or adaptation to changes in, technology, including artificial intelligence; or
Longer operating history; and/or greater name recognition.
Further, current and potential competitors have established, or may establish, cooperative relationships and business combinations among themselves or with third parties to enhance their products, which may result in increased competition. In addition, we expect to experience increasing price competition and competition surrounding other commercial terms as we compete for market share. In particular, larger competitors or competitors with a broader range of services and products may bundle their products, rendering our products more expensive and/or less functional. As a result of these and other factors, we may be unable to compete successfully with our existing or new competitors.
With recent acquisitions in the area of supplying trade data and content, an increasing portion of our business relates to the supply of trade data and content that is often used by our customers in other systems, such as enterprise resource planning systems. Emergence or increased adoption of alternative sources of this data and content could have an adverse impact on our customers' needs to obtain this data and content from us and/or the need for certain of the third-party system vendors in this field to refer customers to us for this data and content, each of which could adversely impact upon the revenues and income we generate from these areas of our business.
Historically, we have financed our operations primarily through cash flows from our operations, the sale of our equity securities and borrowings under our credit facility. In addition to our current cash and available debt facilities, we may need to raise additional debt or equity capital to repay existing debt, fund expansion of our operations, to enhance our services and products, or to acquire or invest in complementary products, services, businesses or technologies. However, there can be no assurance that we will be able to undertake incremental financing transactions. If we raise additional funds through further issuances of convertible debt or equity securities, our existing shareholders could suffer significant dilution and any new equity securities we issue could have rights, preferences and privileges superior to those attaching to our common shares. Our current credit facility contains, and any debt financing secured by us in the future could contain restrictive covenants relating to our capital-raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions. In addition, we may not be able to obtain additional financing on terms favorable to us, if at all. If adequate funds are not available on terms favorable or at all, our operations and growth strategy may be adversely affected and the market price for our common shares could decline.
Disclaimer
The Descartes Systems Group Inc. published this content on June 04, 2025, and is solely responsible for the information contained herein. Distributed via Public Technologies (PUBT), unedited and unaltered, on June 04, 2025 at 21:10 UTC.