The Descartes Systems Group Inc.

The Descartes Systems Group Inc.

March 03, 2005 07:00 ET

Descartes Announces Fourth Quarter Financial Results


NEWS RELEASE TRANSMITTED BY CCNMatthews

FOR: THE DESCARTES SYSTEMS GROUP INC.

TSX SYMBOL: DSG
NASDAQ SYMBOL: DSGX

MARCH 3, 2005 - 07:00 ET

Descartes Announces Fourth Quarter Financial Results

WATERLOO, ONTARIO--(CCNMatthews - March 3, 2005) - The Descartes Systems
Group Inc. (TSX:DSG)(Nasdaq:DSGX), a leading provider of on-demand
technology and services that help distribution and logistics sensitive
organizations deliver, today announced its financial results for the
fourth quarter (Q4FY05) and fiscal year ended January 31, 2005 (FY05).
All financial results referenced are determined in accordance with
United States Generally Accepted Accounting Principles (GAAP) and are in
United States currency.

As described in more detail below, key financial highlights for Q4FY05
include:

- Total expenses $1.8 million lower than the previous quarter (Q3FY05)
and significantly lower than total expenses of $33.8 million two
quarters ago (Q2FY05);

- Loss reduced by $1.8 million from Q3FY05 and reduced by $21.7 million
from Q2FY05;

- Generated positive EBITDA of $1.2 million. EBITDA is a non-GAAP
financial measure described in more detail below;

- Significant reduction in days-sales-outstanding (DSOs) to 58 days,
down from 68 days in Q3FY05 and down from 82 days in Q2FY05; and

- A $2.4 million increase in cash, cash equivalents and marketable
securities since the end of Q3FY05.

Q4FY05 and FY05 Financial Results

Total revenues for Q4FY05 were $11.0 million, unchanged from Q3FY05 and
compared to $11.1 million in Q2FY05 and $14.4 million in the fourth
quarter of the previous fiscal year (Q4FY04). Total expenses for Q4FY05
were $12.0 million, down $1.8 million from Q3FY05, and down
significantly from $33.8 million in Q2FY05 and $24.9 million in Q4FY04.
This reduction in expenses is principally a consequence of Descartes'
Q2FY05 restructuring initiative started in May 2004. The loss per share
for Q4FY05 was ($0.02), improved from ($0.07) in Q3FY05, ($0.56) in
Q2FY05 and ($0.26) in Q4FY04.

Descartes reported positive EBITDA in Q4FY05 of $1.2 million, compared
to an EBITDA loss of ($0.7) million in Q3FY05, ($20.7) million in Q2FY05
and ($8.0) million in Q4FY04. EBITDA is a non-GAAP financial measure
(described in more detail below) referenced to show Descartes' progress
in aligning its operating expenses to its visible and recurring revenues.

Descartes' aggregate cash, cash equivalents and marketable securities at
the end of Q4FY05 were $48.8 million, up $2.4 million from the position
at the end of Q3FY05. Cash generated by the business was used to pay
$0.7 million of interest on Descartes' outstanding convertible
debentures and $0.5 million for restructuring activities.

Descartes' DSOs for Q4FY05 were 58 days, down 10 days from 68 days in
Q3FY05, down 24 days compared to 82 days in Q2FY05, and down from 81
days in Q4FY04.

For FY05, total revenues were $46.4 million compared to $59.8 million in
FY04. Total expenses were $101.7 million, including $18.2 million in
goodwill impairment charges, compared to total expenses of $98.3 million
in FY04. The loss per share for FY05 was ($1.36) compared to a loss per
share of ($0.84) in FY04.

"Our success in aligning operating expenses with visible and recurring
revenues is a reflection of the support we receive from our customers,
the results our customers achieve in using our products and the hard
work of our dedicated employees," commented Brandon Nussey, Descartes'
CFO. "We will continue to manage and operate consistent with this
performance within our services business model, while maintaining the
flexibility to take advantage of appropriate growth opportunities."

"We are now operating with the results of our customers foremost in our
mind," commented Arthur Mesher, Descartes' CEO. "By integrating our
products to a common architecture, adopting a services-based
go-to-market strategy, and having our most valuable intellectual
resources interfacing with customers, we are demonstrating our
commitment to helping customers deliver."

Organizational Update

Descartes also announced the appointment of Vincent Ho as Vice-President
and General Manager for Asia Pacific. In his role, Mr. Ho, a software
industry veteran who has had senior roles for companies including Dun &
Bradstreet Software and Apropos Software, will be primarily responsible
for leading Descartes' regional sales and business operations in the
Asia-Pacific region - particularly in Korea, Japan and Australia.

Conference Call

Company management will discuss these results, business prospects, and
future expectations in a live conference call and audio Web cast with
the financial community at 8 a.m. ET today, March 3, 2005. Interested
parties may listen to the audio Web cast via the Descartes Web site at
http://www.descartes.com. Replays of the conference call will be
available in two formats immediately following the completion of the
conference call. A telephone replay will be accessible for 24 hours by
dialing 888-203-1112 or 719-457-0820 and quoting reservation number
1932043. An archived replay of the Web cast will also be available
through the Descartes Web site at http://www.descartes.com/investors.

About Descartes

The Descartes Systems Group Inc. (Nasdaq:DSGX) (TSX:DSG) is a leading
provider of on-demand technology and services that help distribution and
logistics sensitive organizations deliver. By enabling companies to
efficiently and effectively manage the delivery of goods, Descartes'
products and services help reduce costs, save time and enhance customer
satisfaction. Descartes delivers trading partner connectivity and
document exchange, route planning, wireless dispatch, inventory and
asset visibility, transportation management and warehouse optimization
solutions for industries such as retail, consumer goods, manufacturing,
transportation, distribution and third-party logistics. These solutions
help customers optimize and gain real-time control of their inventory,
logistics assets and mobile workforce. Descartes' products and services
are used by more than 2,500 customers in over 60 countries. For more
information, visit www.descartes.com.

All registered and unregistered trademarks mentioned in this release are
the property of their respective owners.

Safe Harbor Statement

This release contains forward-looking statements that relate to
financial results (including generating EBITDA) and condition and use of
cash, positioning of Descartes to deliver results, and other matters
that may constitute forward-looking statements. These forward-looking
statements involve known and unknown risks, uncertainties 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.
Such factors include, but are not limited to, the ability to continue to
align operating expenses to visible and recurring revenues; the ability
to achieve additional cost reductions on a timely basis; the ability to
attract and retain key personnel; variances in our revenues from quarter
to quarter; departures of key customers; global economic, market and
political conditions; and other factors discussed in the section
entitled, "Certain Factors That May Affect Future Results" in documents
filed with the Securities and Exchange Commission, the Ontario
Securities Commission and other securities commissions across Canada.

Reconciliation of Non-GAAP Financial Measure

EBITDA

We prepare and release quarterly unaudited and annual audited financial
statements prepared in accordance with GAAP. We also disclose and
discuss certain non-GAAP financial information, used to evaluate our
performance, in this and other earnings releases and investor conference
calls. We believe that current shareholders and potential investors in
our company use non-GAAP financial measures, such as EBITDA, in making
investment decisions about our company. One key non-GAAP financial
measure is EBITDA. The term "EBITDA" refers to a financial measure that
is defined as earnings before interest, taxes, depreciation and
amortization. However, EBITDA is not a measure determined under GAAP and
may not be comparable to similarly titled measures reported by other
companies. EBITDA should not be construed as a substitute for net income
(loss) determined in accordance with GAAP. We have presented EBITDA to
provide additional information with respect to Descartes' current
operating performance and, in particular, the Company's progress in
aligning its operating expenses with its visible and recurring revenues.
The table below reconciles EBITDA to loss reported in our unaudited
Consolidated Statements of Operations for Q4FY05, Q3FY05, Q2FY05 and
Q4FY04, which we believe is the most directly comparable GAAP measure.



(USD in millions) Quarter Quarter Quarter Quarter
ended ended ended ended
Jan. 31, Oct. 31, July 31, Jan. 31,
2005 2005 2004 2004

Loss (as reported on
Consolidated Statements
of Operations) (1.0) (2.7) (22.7) (10.6)
Adjustments to reconcile to
EBITDA:
Interest expense, net 0.3 0.3 0.4 0.3
Income tax expense 0.1 0.1 0.1 0.2
Depreciation expense 0.7 0.5 0.5 0.8
Amortization of intangible
assets and deferred
compensation 1.1 1.1 1.0 1.3
---------------------------------------------------------------------
EBITDA 1.2 (0.7) (20.7) (8.0)
---------------------------------------------------------------------
---------------------------------------------------------------------



THE DESCARTES SYSTEMS GROUP INC.
Consolidated Balance Sheets
(US dollars in thousands; US GAAP)
----------- -----------
January 31, January 31,
2005 2004
----------- -----------
ASSETS
CURRENT ASSETS
Cash and cash equivalents 17,220 13,187
Marketable securities 31,534 34,586
Accounts receivable
Trade 7,097 12,986
Other 1,008 3,501
Prepaid expenses and other 1,325 3,045
----------- -----------
58,184 67,305
MARKETABLE SECURITIES - 17,279
CAPITAL ASSETS 6,966 13,452
LONG-TERM INVESTMENT 3,300 3,300
GOODWILL - 18,038
INTANGIBLE ASSETS 4,122 8,264
DEFERRED CHARGES & OTHER ASSETS - 1,021
----------- -----------
72,572 128,659
----------- -----------
----------- -----------

LIABILITIES & SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable 1,805 4,743
Accrued liabilities 5,429 3,609
Deferred revenue 2,605 2,860
Convertible debentures 26,995 -
----------- -----------
36,834 11,212
CONVERTIBLE DEBENTURES - 26,995
----------- -----------
36,834 38,207
----------- -----------

SHAREHOLDERS' EQUITY
Common shares - unlimited shares
authorized; shares issued and
outstanding 40,705,811 and 40,705,811 364,907 364,907
Additional paid-in capital 81,658 81,667
Unearned deferred compensation (193) (339)
Accumulated other comprehensive income
(loss) 93 (387)
Accumulated deficit (410,727) (355,396)
----------- -----------
35,738 90,452
----------- -----------
----------- -----------
72,572 128,659
----------- -----------
----------- -----------



THE DESCARTES SYSTEMS GROUP INC.
Consolidated Statements of Operations
(US dollars in thousands, except per share amounts; US GAAP;
quarterly data unaudited)
-------------------------------------------
Three Months Ended Twelve Months Ended
January 31, January 31,
2005 2004 2005 2004
-------------------------------------------
REVENUES 11,029 14,353 46,395 59,785
COST OF REVENUES 4,985 5,130 21,053 19,387
-------------------------------------------
GROSS MARGIN 6,044 9,223 25,342 40,398
-------------------------------------------
EXPENSES
Sales and marketing 2,065 10,782 18,172 31,843
Research and development 1,683 2,917 10,419 9,402
General and
Administrative 1,960 3,283 14,125 12,365
Amortization of
intangible assets 1,006 1,313 4,142 5,339
Impairment of goodwill 100 - 18,238 -
Restructuring cost and
asset impairment (214) 1,018 14,050 18,784
-------------------------------------------
6,600 19,313 79,146 77,733
-------------------------------------------
LOSS FROM OPERATIONS (556) (10,090) (53,804) (37,335)
-------------------------------------------
OTHER INCOME (EXPENSE)
Interest expense (419) (415) (1,718) (3,020)
Investment income 111 171 516 1,245
Gain on purchase of
convertible debentures - - - 904
-------------------------------------------
(308) (244) (1,202) (871)
-------------------------------------------
LOSS BEFORE INCOME TAXES (864) (10,334) (55,006) (38,206)
INCOME TAX EXPENSE -
CURRENT 95 241 325 287
-------------------------------------------
LOSS (959) (10,575) (55,331) (38,493)
-------------------------------------------
-------------------------------------------
LOSS PER SHARE
Basic and diluted (0.02) (0.26) (1.36) (0.84)
-------------------------------------------
-------------------------------------------
WEIGHTED AVERAGE SHARES
OUTSTANDING
Basic and diluted
(thousands) 40,706 40,655 40,706 45,951
-------------------------------------------
-------------------------------------------



THE DESCARTES SYSTEMS GROUP INC.
Consolidated Statements of Cash Flows
(US dollars in thousands; US GAAP; quarterly data unaudited)
-------------------------------------------
Three Months Ended Twelve Months Ended
January 31, January 31,
2005 2004 2005 2004
-------------------------------------------
OPERATING ACTIVITIES
Loss (959) (10,575) (55,331) (38,493)
Adjustments to reconcile
loss to cash provided by
(used in) operating
activities:
Depreciation 666 794 2,328 2,782
Amortization of
intangible assets 1,006 1,313 4,142 5,339
Impairment of goodwill 100 - 18,238 -
Write-off of redundant
Assets - - 5,770 -
Amortization of
convertible debenture
costs 64 65 256 451
Amortization of deferred
compensation 34 35 137 171
Gain on purchase of
convertible debentures - - - (904)
Changes in operating
assets and liabilities:
Accounts receivable
Trade 1,238 341 5,889 1,050
Other 941 (838) 2,493 (682)
Prepaid expenses and
deferred charges 810 608 1,997 (616)
Accounts payable (1,231) 3,217 (2,938) 779
Accrued liabilities (445) 1,562 2,236 (2,446)
Deferred revenue 343 860 (255) (63)
-------------------------------------------
Cash provided by (used in)
operating activities 2,567 (2,618) (15,038) (32,632)
-------------------------------------------
INVESTING ACTIVITIES
Maturities of marketable
securities 4,113 - 26,365 132,029
Sale of marketable
Securities - - 8,198 -
Purchase of marketable
securities (2,095) (29,583) (14,232) (30,987)
Additions to capital
assets (68) (1,905) (1,060) (5,744)
Acquisition of
subsidiaries,net of
cash acquired (100) - (200) (335)
-------------------------------------------
Cash provided by (used in)
investing activities 1,850 (31,488) 19,071 94,963
-------------------------------------------
FINANCING ACTIVITIES
Purchase of convertible
debentures, including
purchase costs - - - (43,274)
Purchase of common
shares, including
purchase costs - - - (27,228)
Issuance of common shares
for cash - 146 - 163
-------------------------------------------
Cash provided by (used in)
financing activities - 146 - (70,339)
-------------------------------------------
Increase (decrease) in
cash and cash
equivalents 4,417 (33,960) 4,033 (8,008)
Cash and cash equivalents
at beginning of period 12,803 47,147 13,187 21,195
-------------------------------------------
Cash and cash equivalents
at end of period 17,220 13,187 17,220 13,187
-------------------------------------------
-------------------------------------------


-30-

Contact Information

  • FOR FURTHER INFORMATION PLEASE CONTACT:
    The Descartes Systems Group Inc.
    Anca Mihaila
    (519) 746-6114, ext. 2238
    pr@descartes.com