Company Notes Series (#12): Descartes Systems Group : The Good Investors %

Core Insights - Descartes Systems Group focuses on providing logistics and supply chain management software to help organizations reduce costs, improve margins, and enhance customer service in a complex global trade environment [3][6]. Company Background - Founded in 1981 and listed in 1999, Descartes is headquartered in Ontario, Canada, with over 1500 employees [3]. - The company operates primarily on a SaaS subscription model, with some clients on perpetual licenses, and has a significant portion of revenue tied to shipment volumes [6]. Market Challenges - Logistics-intensive organizations face increasing complexities due to manual processes, regulatory requirements, and the rise of e-commerce, which demands faster and more flexible fulfillment [3][6]. - The need for real-time data sharing among logistics partners is critical, as traditional fragmented solutions are inadequate [3]. Sales and Growth Strategy - Descartes has a Global Logistics Network (GLN) that facilitates real-time data flow among trading partners, serving as a competitive advantage [6]. - The company has over 25,000 customers across 160+ countries, with significant revenue contributions from the USA (63%) and EMEA (26%) [6]. - Acquisitions have been a key growth driver, with 31 acquisitions totaling $1.04 billion since 2014 [6]. Financial Performance - Revenue has compounded at 15.7% annually from FY2010 to FY2022, with free cash flow (FCF) compounding at 22% [11]. - As of Q3 FY23, revenues were $121.5 million, up 12% year-over-year, with 91% of revenue coming from service [11]. - The company is net cash positive with $229 million in cash and has access to $350 million in credit facilities [11]. Management and Compensation - The management team includes CEO Edward J. Ryan, who has been with the company since 2000, and CFO Allan Brett, who joined in 2014 [11]. - Compensation for executives is structured to align with long-term performance, with significant portions tied to company performance metrics [11]. Valuation - As of February 21, 2023, Descartes has a market cap of $6.4 billion and a trailing FCF of $182 million, resulting in a PFCF ratio of approximately 35 [13]. - The company does not currently pay dividends or buy back shares, indicating a focus on reinvesting cash flows for growth [13].