Edward J. Ryan – CEO J. Scott Pagan – President & COO Stephanie Ratza – CFO.

Gabriel Leung – Paradigm Capital Michael Urlacher – GMP Securities Richard Davis – Canaccord Genuity Scott Penner – TD Securities Pardeep Sangha – PI Financial Thanos Moschopoulos – BMO Capital Markets Ralph Garcia – Global Maxim.

Welcome to the Descartes quarterly results conference call. My name is John and I will be your operator for today’s call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session. (Operator instructions) And please note that the conference is being recorded.

And I will now turn the call over to your host, Scott Pagan. Scott, you may begin. .

Thanks and good morning everyone. And joining me on the call today are Ed Ryan, CEO; and Stephanie Ratza, CFO. I trust that everyone has received a copy of our financial results press release that was issued earlier today. In addition, our quarterly report is now filed on SEDAR in Canada.

Portions of today’s call other than historical performance include statements of forward-looking information, within the meaning of applicable securities laws. These statements are made under the safe harbor provisions of those laws.

These forward-looking statements include statements related to Descartes’ operating performance, financial results and condition, cash flow and use of cash, business outlook, baseline revenues, baseline operating expenses and baseline calibration, anticipated and potential revenue losses and gains, anticipated recognition and expensing of specific revenues and expenses, potential acquisitions and acquisition strategy, cost reduction and integration initiatives, and other matters that may constitute forward-looking statements.

These forward-looking statements involve known and unknown risks, uncertainties, assumptions and other factors that may cause the actual results, performance or achievements of Descartes to differ materially from the anticipated results, performance or achievements implied by such forward-looking statements.

These factors are outlined in the press release and in the section entitled ‘certain factors that may affect future results’ in documents filed and furnished with the SEC, the OSC, and other security commissions across Canada.

We provide forward-looking statements solely for the purpose of providing information about management’s current expectations and plans relating to the future. You are cautioned that such information may not be appropriate for other purposes.

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 is based, except as is required by law.

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

Good. Thanks Scott, and thanks to everyone who has reached out to us in the past week about the new role. On behalf of everyone here at Descartes we really appreciate your support. As most of you know, last week we announced the planned executive transition, where I became CEO, and Scott became president and chief operating officer.

At the same time we announced Art’s retirement from Descartes in part to focus on stabilizing his health issues. We know this transition will help get him healthier and wish him all the best moving forward. On behalf of everyone here at Descartes I would like to thank him for all of his help over the years.

Just to give you some background on the transition process for those we may not have been able to speak with directly, this transition has been in the works for a number of years. About 4 to 5 years ago, Art and our board of directors along with Scott and myself put in place a succession plan that was to be executed over a number of years.

At that point Scott and I kicked off that plan by informally starting to manage a large part of the organization. About 2 to 2.5 years ago, we more formally took charge in the day-to-day operations of business. Art and our board planned for this as a logical next step in the evolution of Descartes.

More recently over the past year and a half, Art and our board of directors asked us to establish better contact with a number of the analysts covering our company, as well as many of our major shareholders just so there wouldn’t be a big surprise in the day that these changes were announced.

Art played a big role in introducing us to everyone, and helping us to get comfortable talking to analysts and shareholders, and we really appreciated his support. All of this was done with an eye towards this day, so that we will be ready to lead our company and help take it to the next level.

And I shouldn’t just make this about Scott and me there is a great team behind us. But planning for this transition over a number of years, we were able to build a strong management team that supports us, and was also ready for the transition.

Across the management team we have a ton of logistics experience, most of us have been in the business, you know, for somewhere between 5 and 25 years in this industry. We have lots of technology experience. Most of us have spent a large part of our careers working for technology companies and we have lots of Descartes experience.

We have all been working together for over six years, and some of us for more like 10 to 12 years. Most of us grew up in this business together, and have become not just partners but friends. We also have broader team of 800 plus employees around the world that remain focused on servicing our customers.

Those of you who have been to our user group know that the biggest strength of our company is the fantastic people that we have, and the strong and persistent work ethics that they deliver each day to help our customers get results. It is great to know that we have a strong team behind us as we take this next step forward.

Scott and my previous roles encompassed operations, acquisitions and strategy. We are very focused on delivering results to our customers, as focused as we have been in delivering results to our shareholders.

Scott and I have run Descartes operations to generate the superior financial results that you have seen over the past several years, and the results we are reporting to you today. We are also responsible for acquisitions, for locating them, negotiating them, executing them and integrating them and that won’t change moving forward.

And finally we worked with Art in developing and testing Descartes strategy, the same strategy that we are executing on today. Both Art and I have been in this industry over 20 years and have a lot of experience and history that we drew upon as we set our strategic course. So let us talk about the strategy of the company.

I would imagine that our shareholders want to make sure we plan on operating the same company that they invested in, so let us talk about that a little bit. We will be executing the same strategy because it is the strategy we played a big part in developing and executing over the past several years.

If there is a change, is that you will see us more laser-focused on the transportation and logistics markets as we expand in the supply chain market. You will not see us try and enter completely new verticals in the short term.

These are huge markets, supply chain, logistics and transportation, and our vision can best be accomplished with intense focus on these markets.

Our vision is to be the global logistics network for communities collaborating the logistics and supply chain processes and a platform for enterprises managing their own private logistics and supply chain processes. To succeed we need to do a bunch of things.

One, we need to continue to grow our network of authenticated connected parties that are essential to logistics, and serve as both an attraction to customers and a barrier to entry to our competitors. We need to continue to be viewed as the main experts in logistics and supply chain.

We need to continue to be viewed as trusted and neutral and non-competitive to our customers. We need to continue to present customers and partners with a stable logistics and technology platform that can be relied on for the long term. And of course, we need to continue to generate cash and have access to capital to facilitate acquisitions.

And finally we need to continue to be viewed as the ideal steward for businesses and customers that join us via acquisition. We will also continue with the same financial growth strategy that is to say we will continue to be laser focused on profitable growth.

We will continue to target 10% to 15% adjusted EBITDA per share growth per year, and we will do that through organic growth and acquisitions, just as we always have. We run our operations with a focus on recurring and repeatable revenues as opposed to one-time sales.

We want customers for life, not just one-time big deal revenue, to continue to run our operations in the high 25% to 30% range of adjusted EBITDA with a focus on cash generation.

And we are going to use cash generated in our available debt and capital to buy businesses, to expand our networks geographical presence, expand our functional footprint and expand our community of network participants.

Our execution to this strategy so far has led to record financial results, and we plan to continue to do more of the same moving forward. Our business is in great shape. We have record revenues this past quarter of $38.8 million, which puts us at about $150 million run rate.

We have record adjusted EBITDA of $11.4 million, which puts us at about a $45 million run rate. We have very good cash from operations, $9.2 million this past quarter, which is just a little over 80% of adjusted EBITDA. And we have great collections. We have 47 days DSO -- 47 day DSOs, and it is a great indication that our customers are happy.

These are the things that got us here. We plan on doing more of the same moving forward each day, and try to move a little bit faster and a little bit further. That is what we have been doing for the past nine years, and that is what we plan to do moving forward.

Before I turn it over to Stephanie, I want to give thanks to the bunch of people that helped us get here, and I’m sure bunch of the people that will help us move forward in the future. First to our customers and partners, their support has been crucial to the growth of our network. They stuck with us in the bad times.

They tell us what to build next, they tell us what to buy next, and the best ones partner with us in each of our next endeavors. This is what we mean when we say customers for like. I like to thank our employees for their focus on servicing our customers, and their dedication to doing that everyday.

And finally I like to thank our board of directors for their support through this transition process. Their planning has been invaluable to us as we moved through this process over the last 4 to 5 years. With that I will turn it over to Stephanie for some comments on the financial results. Stephanie..

Great. Thanks Ed. My comments will focus on the Q3 fiscal 2014 quarter. We assume everyone has read the press release, so I will try not to repeat what is already in there. We also filed our shareholder report this morning on [Indiscernible] in Canada. Here are a few highlights for the quarter.

We had record revenues with our recent success in home delivery being a big contributor this quarter. As well, we have seen increased network volumes contributing to the growth in our service revenues. This is unusual for Q3 as it reflects the increased seasonal shipment volume as retailers around the world get ready for their holiday season.

Adjusted EBITDA was strong and increasing as a percentage of revenues from the previous quarter, as we advanced on the integration of May acquisition of KSD. Our customers are happy, and you are seeing this in both the cash flow from operation being healthy, as well as our DSOs being lower compared to previous quarters.

Cash from ops is greater than 80% of adjusted EBITDA in the quarter, and 92% on a year-to-year basis. Over the past seven years, we have 31% compounded annual growth rate in cash from ops. Here’s a few other things to note. As Ed mentioned, one of our key operating metrics we monitor is the growth in our adjusted EBITDA per share.

We target between 10% to 15% annual growth. This quarter is 13% over a year ago and we are on track for 15% annualized. Net income includes $0.8 million of acquisition and restructuring related expenses related to the KSD acquisition, and $4.6 million of amortization of intangibles acquired in part of the previous acquisition.

With the restructuring activities, we ended the quarter with 822 employees, down 8 employees from the prior quarter. From a capital perspective, as of October we had working capital greater than $60 million. We had $49.3 million in cash, $17.2 million of debt drawn with an additional $32.8 million that we can draw upon for future acquisitions.

We had 62.8 million shares issued and outstanding, and our total weighted average on a fully diluted basis was 64.3 million. Looking forward at the final quarter of the year and beyond, we note the following.

We expect to incur approximately $0.2 million in restructuring costs in the Q4 relating to KSD and other previously announced restructuring activities. We expect to incur approximately $2 million in retirement charges in connection with our recent executive transition. We may incur up to $0.3 million of incremental tax planning in Q4.

These costs are not reflected in our baseline expense calibration, as we are not certain whether they will be incurred in Q4 or in Q1. We expect to incur approximately $1 million in capital expenditures in Q4. We expect some acquisition costs in Q4, but difficult to estimate at this time. As Ed mentioned, we have got a robust pipeline.

We don’t expect any material changes to the amortization profile that we have shared with you previously, but it remains subject to FX fluctuations. Stock based compensation will be in the range of $0.5 million to $0.7 million subject to forfeitures of stock options. Thank you to all our employees for their efforts in generating these record results.

Over to you Ed..

Great, thanks Step. Let us talk about the state of the business moving forward. As you probably are aware the company is in very good shape, and we are well positioned to continue to deliver superior financial results. We have a well calibrated operation heading into Q4.

Calibration right now is at $36.5 million in visible, recurring, contracted revenues, what we would refer to as our baseline revenues. We have $27.9 million in baseline operating expenses, which leaves us $8.6 million of baseline calibration headed into Q4. To be clear, this is how much we will make if we sell nothing more this quarter.

This calibration reflects 23.6% of baseline revenues, and assumes a 0.79 Canadian dollar, and 1.33 euro. The company is well capitalized. As Stephanie mentioned, we had $49.3 million in cash at the end of Q3.

We are generating almost $10 million in cash each quarter, and we have a $50 million acquisition line of credit, of which we have used $17.2 million thus far to date. We have a very strong acquisition pipeline.

Acquisitions, if you have been following us over the years remain a core part of us continuing to grow our business, and strengthen the platform for the community that we are building. We have historically done 2 to 4 acquisitions per year.

Earlier this year we did one of the larger acquisitions we have done, KSD in Scandinavia was a $30 million plus acquisition. This has strengthened our position in the customs filing market in the European sphere. Our acquisition pipeline remained strong.

We run our operation so we can pick the acquisitions that are right for us, and we based it on a handful of things, the geographic fit and our ability to expand in the new geographies, the functional or solution fit and our ability to expand our solution footprint for our customers, the community of network participants that we add with each new acquisition, and most importantly based on sound financial metrics.

We have had a lot of anchors over the years call us cheap. We think of it more as smart, but either way we have a way of looking at businesses that has been successful for us, and we don’t deviate from those standards and we will continue to do that -- we don’t plan on continuing to do that going forward.

Most importantly, we have a number of great business opportunities in front of us. We have the retail and delivery market that we have been in for the last several years. It has been a real boost for us.

We have an ideal solution to help retailers tackle the army channel of marketing problems that they face today, and we have had some great success in this market recently.

In the last couple of months you have seen press releases on wins at Sears and Restoration Hardware, and a big expansion at [John Lewis] partners over in Europe, and there has been many others that we haven’t announced that are great news for our business. About a month and a half ago, we held our Retail & Home Delivery Summit over in the UK.

We had over 100 retailers in the room and around Europe learning how Descartes can help them take this next big step. Some massive industry attention on this, and there is tons of smart minds at Descartes thinking about how to do it better.

Today most retailers are realizing that they need to get into same day, next day delivery to compete with the Amazons and Googles of the world. And once they make that decision, they quickly realize that Descartes is someone they need to partner with to help efficiently manage this transition.

We also have a customs filing business and you heard us talk about this over the years. It has been a big part of the growth in our business.

Regulations compelled supply chain participants, basically forwarders, carriers, third-party logistics companies to generate trans management process, submit and report electronic information to governments around the world. This is a global endorsement -- government endorsement of the strategic path that Descartes is on.

We believe we are the most advanced player globally in this arena, and we continue to expand what we do for our customers. Recently we completed development for the Japanese and Israeli security filing initiatives, and delivered enhancements for the recent eManifest’s regulations in Canada.

We also worked on the latest AES enhancements in the United States. Since the KSD acquisition, we are seeing a lot more momentum in Europe as well, and the pickup in customer activity for larger importers and forwarders. They won a multicountry European solution and hopefully someday a global solution.

We are building a vision where our customers can use one supplier to manage this entire process globally, and our customers are enthusiastically following.

And finally the Descartes community, if you were down at user group, we launched the Descartes community down there and got probably 300, 400 new participants on it at the show on the first day of launch. It is a platform for Descartes customers and maybe even for non-Descartes customers to collaborate about supply chain processes.

We noticed that frequently, you know, one customer had a set of data that they need to share with another that they are working on the same shipment for a big retailer or manufacturer, and the Descartes community is the place that they can do that quickly and efficiently. It is evolving.

It is going to become a broader logistics community that our customers wanted to become, and we are paying close attention to what they want to do next as we roll out the first set of features on the network. They are coming up with bigger and better ideas, and those are the next things that we are going to be building into the community.

And finally in closing, Scott and I are both well known to our employees, our customers and partners based on the work we have done with Descartes over the last 14 years. We have also met many shareholders and analysts over the past few years.

We appreciate the opportunity to have a clear and frank dialogue with our stakeholders about the shared investment. We will be acceptable to that, and we like to start that dialogue right now by opening the call up to Q&A. So, operator if you could open the call..

Thank you. (Operator instructions) And our first question is from Gabriel Leung from Paradigm Capital..

Thanks a lot and congrats Ed and Scott on the promotion. A couple of things, just want to focus a little bit about your deployment capacity right now.

I think historically you guys have been running at, you know, full utilization in terms of your deployment teams, Ed any thoughts or Scott any thoughts around increasing your capacity just to help potentially accelerate the top line growth of the company?.

Yes, it is actually something we have been doing over the past probably 6 to 8 months. As we started to get bigger and get more products in, and bigger customers that wanted more people on the site, we have been growing our professional services group to accommodate them. You know, we like to have a backlog, but we don’t want it to be too long.

We don’t want to have to tell a customer they have to wait months to start getting a product installed. So, we have been doing that and I suspect that will continue..

And I presume that is going to potentially hold back your ability to bump up sort of the target EBITDA margin range from the current 25% to 30%, but at the same time it is going to help accelerate revenue growth, is that the way to think about it?.

Yes, I mean, we are going to probably continue to operate in that 25% to 30% range. I don’t know that the pro-services is a big enough chunk of our revenue to make a noticeable difference.

But yes -- as we I think said in the past, when we get up to that 30% range, we feel like we should be investing back in the business to build more product and help grow our revenue for the future..

All right. That is helpful. On the community platform, it is good to hear about the 300 plus signups, but how should we think about the roadmap in terms of, you know, services being deployed into that community portal. You know, I think, [Indiscernible] I think the initial thing was really more around collaboration and whatnot.

But how do you see some of the milestones we should be watching for in terms of services being dropped into this portal?.

Yes, so what we have done so far is create a platform where everyone can join and communicate with each other. And then we also took a number of the core products that our customers use primarily the back office freight forwarding systems and brokerage systems, and allowed people to communicate in those systems.

So, you know, if I’m a freight forwarder working on a big retailer or manufacturer on a shipment for them, and that manufacturer has a outport agent over in Asia that I have to work with as a 3PL to actually coordinate the shipping move.

By opening up the community platform to both participants, we put them in a situation where they can start to exchange that data. These are things that two months ago had to be phone called and faxes, they are emails and routine and a pretty inefficient process.

And our hope is in this first stages, the community is going to allow that collaboration to save our customers a whole bunch of time and money. At the same time, and if you were in the room when this happened, as soon as the customers see this ability, they start thinking of all the things they can do with it.

And they start coming up with new ideas for us to build enhancements into this system. So we are very actively looking into them right now and trying to figure out what we should do next, what new applications we should bring into the community, and should they be existing applications of ours, or should we actually build new functionality in it.

And I think, you know, in the coming months you are going to see a combination of both to start to address some of the, if I could say, cool things that customers want to do in this that hopefully save their companies time and money..

And maybe one last question just on the M&A front, if I look at sort of the pillars of the company, so I think MRM compliance, transportation management and I guess the GLN.

You know, where do you see that you need to prioritize on the M&A, is it add another pillar, or is to enhance one of the existing ones, or maybe talk about where you feel there is a deficiency where you may need to bulk up on them -- with M&A, and that is it from me, thanks?.

Thanks Gab. Yes, no, listen we are going to do more of the same with acquisitions. We are always trying -- we look at each company that comes in, whether we find them or they find us, and actually interestingly enough, more and more are finding us because they think that we are going to be a good home for their baby.

You know, we are trying to expand the geographic footprint of our network.

We are trying to expand the functional footprint, or we are looking at potential acquisition as someone, where we say, hey, we can take those customers and we told them about all the products we have, we can really help to grow this business a lot faster than it was growing on its own. And I think we will continue to do more of the same.

You know, we can’t control who is available in the market for sale. But there is a lot of people out there right now, and we’re trying to be pretty judicious about those decisions.

And if someone comes along that we think would be a great new pillar on the market or in our market, we will take a very serious look at it and make the decision when the time comes..

Our next question is from Mike Urlacher from GMP. Please go ahead..

Good morning. Thanks for hosting the call Ed and Scott.

I wonder if you could maybe just describe qualitatively what you see in terms of the retail customers, or logistics providers to retailers in terms of their interest level and what they get out of optimizing their home delivery systems?.

Sure. Yes, it has been a big boom for us in the past couple of years. A lot of the biggest deals that we are getting right now are exactly what you just mentioned, big retailers. We are the service providers that are looking to deal with the omnichannel marketing problem that they have.

You know, all these retailers were accustomed to selling things in their store only. And all of sudden Google and Amazon and eBay came along, and now -- I got to change things. People are coming into my store, and they are buying from Amazon while they are in my store looking at the product, and that is frustrating to a retailer.

When they make that decision that hey, I got to be very good at offering a website where people can order from me and my store. They need to be in a position where they can manage the same day and next day delivery process for the items that are too big to walk out of the store with. We have been doing that for years.

We were the first ones to do it, and over the years we have become the best at it. We took a big departure from our competitors about eight or nine years ago in building, you know, what we call nonstop optimization tools. Everyone else, including ourself back nine years ago was what we call daily batch of planning.

You plan once a day, somewhere between midnight and three in the morning for the next day’s deliveries. You know, if you are going stuff today on the fly and you do same-day and next day delivery, you need to be making those decisions all day long.

So when the next customer comes on to the website and says that he wants to buy, you can find the most optimal time to deliver him, and give him the tightest time window that saves you money, and is very convenient for the customer.

And Descartes has those solutions right now, and our competitors don’t and it has been great for our business, and I suspect it is going to continue for some time to come..

Thank you, and can you describe, I mean, I hate to use strong words, but is there a kind of heightened interest or a frenzy among the retailers for this, or how do you describe that?.

I hope it becomes a frenzy. I don’t know if I would quite call it that yet, but increasingly there are a number of large retailers that are realizing they had to do this.

And I don’t know that we are the first thing they think of when they have to do it, but we are probably the second or third because somewhere along the line of deciding, we got to do a good job of delivering it to customers that buy off of our website. They quickly go, how am I going to do that efficiently because there is two ways to do it.

You can buy way too many trucks, and satisfy all your customers and spend a lot of money, or you can do it efficiently using a system like ours for a fraction of the price.

And as soon as they get into that process and start thinking about it, I think they realize they need to have a solution to do this, and increasingly as we get more and more retailers, it is becoming kind of common knowledge in that business.

Just like in our business with logistics providers and transportation providers, they all know each other, they all talk about what they are doing, and eventually the word gets out.

I think the same thing is happening in the retail channel, and I don’t know if I could call it frenzy yet, but it certainly has been something that is good for our business..

Okay, thank you, and maybe just to offer a bit of context, how big a contributor to revenue would you say this is now, and could be say in two years from now?.

It is significant now. I mean it is not all of our revenue by any stretch, but it is certainly in that routing business, which is maybe a third of our business. It has been the big growth factor. And I suspect it is going to continue like that for some time..

Okay, thank you..

Our next question is from Richard Davis from Canaccord. Please go ahead..

Hi, thanks very much. So you guys deserve a lot of credit for being able to kind of grow through a tough period over the last 10 years, but we are seeing around your space, there is kind of a -- it feels like we are at the foothills of -- in my opinion, a multi-year upgrade cycle in supply chain.

So kind of three questions off of that point, would be one, are you seeing this yet, it sounds just probably to some degree.

Two, what gaps do you have to make sure you participate in this cycle and three, why would this -- why would you think this could or could not lead you to a, you know, in my opinion a 200 basis points to 300 basis points acceleration in your organic growth rate as things go, because when I look at you landing kind of periodically larger deals that over time adds to your growth rate over time.

So just kind of -- just trying to frame -- frame where we are in this cycle. Thanks..

Yes, I appreciate your support. Yes, while we do think -- I haven’t thought of it as a step of a foothill yet, but yes, something like that. We do believe it is a big opportunity for us.

As more and more retailers and manufacturers realize that there is a lot of money to be saved in operating their business more efficiently through the use of, you know, efficient logistics and supply chain products, you know, we want to be the first name that they think of when it comes to that.

You know, we do a lot of that right now and there are certain other areas where we think we can continue to expand our footprint. We want to have everything that someone wants in our logistics technology platforms someday. And we’re not all the way there yet by any stretch.

But we do a lot of the things that they want, and I do think that is a big opportunity for us, and if they look out across our competitors, you know, I like to position them, because I think, you know, we have done it the smart way, right. All of our stuff is recurring, revenue businesses.

Everything is SaaS based, and our customers pass by the transaction, and you know, when our sales rep sells something it is not, thanks for your business. I will see you later. It is thanks for your business. I will see you tomorrow.

And see you tomorrow means making sure that that product works, and finding out what they want to do next because oftentimes, you know, people buy our transportation management system. Well, it is just logical that you would buy our supply chain visibility system at some point after that.

And our guys going in, they install that transportation management system, make sure it is working, make sure they are happy with it, and then start talking about what else they could do.

And, you know, we have a lot of the products that would fall into that what else can you do category, and we hope to get a lot more of them in the future either by building them ourselves or by buying them through acquisitions..

Right, that is helpful. I appreciate it. Thanks..

Thank you, Richard..

Our next question is from Scott Penner from TD Securities..

Thanks..

Hi Scott..

First of all, maybe your -- I know your calibration was a $0.97, the Canadian dollar now is at $0.94, I’m sure you don’t want to re-calibrate the calibration, but just directionally what can you tell us about how this impacts the EBITDA?.

Yes, I think we did it at 97, because that is what it was I remember [Indiscernible], and the Canadian dollar, we have more cost than revenue in Canada, so when the Canadian dollar goes down that is helpful to us..

Okay. The normal -- you mentioned that the typical 2 to 4 acquisitions per year, I think the normal cadence has been a big one and then some smaller ones, I would think KSD would be classified as a fairly larger one.

Is that -- should we look for some smaller more tuck-in deals to be the profile for [the next profile]?.

First of all, we are constantly looking at new acquisitions, and all I can tell you is you are going to see more in the future. I probably can’t speak to the size of them because, you know, we don’t know what is going to come at us, right.

We have this joke internally that there is no $40 million acquisition tree that we can just go pick one after one. We look at companies and they are the size that they are, and if they are a good fit for our business, and we can come to an agreement with them, we buy them and if they are not, we don’t.

And you know, it is just by chance I guess is how I will tell you that it happened so far, right. And it will continue to be that way. When we find a good company, and we can reach an agreement with them on what we consider to be a fair price, then we do the deal. And if we can’t, we don’t. And that is the way we are going to continue to operate..

Okay, fair enough.

The -- just on the KSD revenue, I know it was, I think 4.2 million in the MD&A, about flat with where it was in Q2, is that still -- I mean that is annualized well above sort of the baseline recurring that you and Art had talked about originally, is that -- should we consider that there is still an element there that you are hoping or maybe not hoping, but that could be managed out over a while?.

What we see in that business, first of all when we got it, there were some things, there were a couple of things, minor things that we thought, hey, maybe we shouldn’t be doing this or that.

Revenue that they had that wasn’t very profitable, or not profitable at all, and we thought, okay, let us stop with that and just get that back to the core of the business.

In the future, you know, we are combining with the rest of our European operations that are all focused on customs filing and we think there is going to be a big opportunity for those combined businesses. I don’t know whether you call that KSD revenue or Descartes revenue, we don’t really think of it that way once the business is in here.

We think of it as we are trying to go after customers and say, hey, I used to just be able to do essentially Europe, now I can do all of Europe. And, you know, that is what we think is going to drive work in the future, and we are excited about those prospects..

Okay.

In that 4.2 million, just to put that another way, and that 4.2 million there is still likely an element of that that is lower margin stuff that you would hope to replace over time?.

As there is in every business we buy, we look around and go, oh jeez, where they doing some things that we might not do. And KSD didn’t have a lot of that, I mean, KSD was a pretty good company when we got it.

We certainly were interested in it because of the geographic and solution footprint that it had and combining that with the rest of our business over in Europe, and I suspect that we are going to continue to do that..

Okay. Just lastly from me, guys just on the strategy towards the channel partners, I think with you guys it is probably fair to say you have been focusing on a core group of channel partners rather than really opening that up wider.

Is that strategy going to change at all and then just any updated metrics on sort of the number of partners that you have right now?.

Well, we are doing two things and you know, when we about six months ago brought in a guy to actually start to run this Descartes in a bigger and better way than we had in the past is putting more people on it and putting more attention on it.

And certainly as we’re getting bigger, we are getting more attention from these big types of partners, partnerships with SAP and NetSuite are continuing to expand, and you know, we want to keep pushing that. At the same time we want to go find new ones. And I think you will see us doing both in the future..

Okay, thank you..

Thanks Scott..

Our next question is from Pardeep Sangha from PI Financial..

Thank you.

Just wanted to get some color with regards to seasonality, typically Q4, typically it has been sort of flat or down sequentially from Q3 if you looked at the normal historical seasonality, I know you are giving pretty strong contribution from the guidance in terms of your baseline guidance, so if you can just comment with regard to seasonality, what you are seeing there in terms of any changes other than what we have seen historically [Indiscernible]?.

Yes, you are right. Q4 is usually flat, maybe a little down from Q3, just same-store sales. At the same time our network is growing quite a bit. I think it is hard to see in our calibration start to move up, you know, the business is performing quite well right now, and I think that is behind some of that growth in calibration that you see.

You know, this Q3, you know October was record buyings for us, and I know that won’t continue into November and December.

Things slow down after October, because everyone moved everything for the Christmas holiday season, but you know the business is otherwise going pretty well and I think that is why you are seeing that calibration number move up more than it had in the past..

Okay.

In terms of -- I want to dive in a little bit on the Asia-Pac sort of stuff and get more sort of knowledge with regards to your revenue there, you have, you know, you have had some success with IES, I guess the acquisition contributed to some revenue in the Asia-Pac region, but largely it is still pretty small compared to the size of your company there, growth in the Asia-Pac is potentially a large growth opportunity.

Just sort of update us on your strategy with regard to Asia-Pac, whether it is partnering or acquisitions, or what are you sort of seeing there?.

Well, first of all, I mean there is a little bit of a misnomer in this. People look at our revenue distribution, I think we release it in a press release every quarter, and assume that we don’t do very much in Asia. That is not really the case.

If you think about how that -- those numbers work out, we look at the headquarters of each company that we do business with, and we put the revenue there. For example, DHL’s revenue also is up in Germany. So that shows up as European revenue for us. That is not really what is happening.

What is happening is DHL is managing -- I’m just picking on them because they are a decent example. They are doing business with us all over the world, and a good one-third or maybe even more of their shipments originate or are destined for Asia.

And so there are thousands of people at DHL and all the other 3PLs and freight forwarders like them using our systems throughout Europe to manage shipments. And the misleading part about this is most of the big 3PLs and freight forwarders are either headquartered in North America, or they are headquartered in Europe.

They all have significant operations in Asia, but we list out, you know, where the revenue comes from, it comes from where their companies are headquartered. So we do a lot more business in Asia than you may think.

At the same time, we’re trying to expand in that area as well, you know, we just announced and rolled out our [KP24] initiative, which was the work we have done with the Japanese government over the past three years to get ready for the filing process that they are mandating next spring.

And we have lots and lots of customers signing up with us right now to expand what they do with us into Japan as the Japanese government is making the same requirement that the US government and the European governments have made over the last few years. I think, you know, we will continue to look at that region.

If we could find good acquisitions there, great. If we can start to organically expand our business there, we are trying to do that everyday..

Okay, thanks and congratulations on your appointment..

Thank you very much..

Our next question is from Thanos Moschopoulos from BMO Capital Markets..

Hi, good morning.

Ed given your recent promotion and Scott’s promotion as well, are there any keyholes in the management team that you now need to fill, or have you been able to rebalance your responsibilities across the existing team?.

No, actually the management team is the same management team that will be in place tomorrow.

Because of the way this worked, we -- you know, Scott and I are really running the day-to-day operation of the business, and knowing this was coming for a little while, we really planned it and set it up so that it could continue to operate that way moving forward.

So, I don’t think there is going to be any significant changes in the management team or the structure. I think it is going to be business as usual for us moving forward..

Great, and can you provide some perspective in terms of [Indiscernible] our customers are doing quite well. I mean, they all over the last few years came out of the recession and you know, they are benefiting along with their customers from the expansion that is taking place around the world, you know, North America is going very strong right now.

So that is good for the other regions as well, especially Asia that is shipping stuff to us. And Europe, you know, was having a tough time for the last couple of years, but actually their volume is starting to pick up.

As I said, October was a record month for us on several fronts on our network, and you know, I don’t know what the future holds, but it looks very good right now..

Great, and then just a quick one for Stephanie, Stephanie would you have the forex impact on revenue for the quarter?.

I don’t have that handy, but we did file our financial statements this morning.

So if you want to have a look, we actually show the distribution as to how much US currency, how much more expenses are in US currency and Canadian quarter-over-quarter and the exchange rates having fluctuated that much, the Canadian to US that we wouldn’t have already calibrated it within our business. So, the FX rates are really negligible.

And year-over-year that is where you are really getting a bigger difference with the Canadian to US rate..

Okay..

And a bit of the Europe rate..

Okay. [Indiscernible] and basically split, thanks for that..

Thanks Thanos..

Our next question is from [Indiscernible]. Please go ahead..

Thanks. Thanks very much and congratulations again Ed and Scott..

Thank you..

Thank you..

Ed, just wanted to circle back on the retail opportunity, the delivery business, could you just fill out for us the role that partners are playing now and maybe the role you might see them playing, you know, over the next couple of years in terms of both sourcing and implementing some of these larger opportunities?.

Yes, sure.

You know, it is -- we haven’t talked about this much, but as we have gotten into these much larger projects for very big retailers, we are starting to see partners that -- and they are not partners of ours yet, but people that those big retailers are working with to implement these systems, and not just our systems, but all the other things that go around it.

We are starting to develop a reputation with those guys, and that is -- I’m starting to see leads come through, where they are calling us up, hey, we worked together on this one, do you know this other retailer is thinking about the same thing when we are talking to them. Would you like to come in with us.

Not all those partnerships are formalized yet, but you know, geez, they are already starting to work a little bit informally. And I suspect as we do, you know, two or three projects together that it does start to become more formal that is my hope..

Okay.

And the second part in this area who are you seeing competitively when you are bidding on these larger projects?.

Specific competitors to us, I mean that’s been one of the great things about it. There is not -- most of our competitors still do daily batch planning, and you know, we think we are able to go in and make a pretty strong argument to the customer that you need to have non-stop optimization to really handle this problem properly.

We have competitors in some of these deals, it is not that they don’t try to get someone to compete against us, it’s just that we look at it and go, compared to the normal situation, we think we are in a lot better shape in this particular, you know, solution set with a retailer that wants to do same day and next day delivery.

We just think we have a better mousetrap than our competitors right now, and I don’t know how long that is going to continue for. But today it’s a great opportunity for us, I can tell you how long it took us to do it, which was about eight years before we built the system, and did it for the first five or six customers and got it to work well.

And fixed all the problems that they had and eventually got to something that was pretty good, which is where we are today. And so if our competitors do end up trying to follow us down this road, I think they have got a long road to haul and it maybe over by the time they get there..

Okay, that’s great, thanks very much. .

Thank you. Have a great day..

We have a question from Ralph Garcia from Global Maxim. Please go ahead..

Hi Ralph..

Good morning everyone.

Given you have the data on your network, won’t you able to present it geographically by trade lanes instead of doing what you are doing with the Corporate Headquarters?.

It is complicated to do that. First of all, which do you consider, the outbound portion of the move or the inbound portion of the move? Which country do you account, right it actually goes from one place to the other.

So, you know, where do you account it which is probably…?.

Yes, I would do a Europe, Asia cumulative, right doing both or Europe, North America. Or just to remove some of that confusion there but….

I guess, but I would worry that it would create just as much confusion because it is not as simple as Asia but when you get down doing, it is Norway, Hong Kong, it is -- where do you account, what you not account, I don’t want to create more confusion, well, I am trying to wrap up.

I think the way we are doing it right now is a straightforward way as long as you understand the underlying facts that I stated earlier..

Okay. That’s fine.

And just on the InfoSky was there any revenue in the quarter from InfoSky, and how big do you see that opportunity as China tries to expand some of its air cargo business and some of the slowest…?.

Edward J. Ryan:.

I see this big opportunity, sorry, I see there is a big opportunity going forward. I don’t believe there was any revenue in the quarter from it but I think we went live with them in early November.

And because of the nature of both of our businesses, this is like adding another cargo community to our community, and I suspect it is already generating revenue for us. I don’t know that it is going to be supplemented with you know be noticeable for sometime to guys who are looking to deal on our numbers.

But it certainly will be important for us, we hope to get up to something that will be noticeable to the guys in the regions that are managing that account for sure..

Okay. And then just on the NetSuite opportunity, it looks like it is going to go live in your new fiscal year.

I mean how do you, how would you recognize revenue from that? Will it be all SaaS revenues as they roll out some of their larger engagements or are you going to be selling them some upfront license?.

No, it is all going to be SaaS, and they are all SaaS, we are all SaaS, that’s certainly our preference when we do any deal and that’s the way the relationship has been contemplated today. There maybe some installation charges but I don’t think it will be a major part of the revenue stream going forward.

But now the whole plan in that partnership is all recurring revenue SaaS-based..

Okay. And just the last one for Stef, you know, second quarter under 50 days for DSOs, congrats on that.

Is it a function of as you guys said earlier happy customers or now that you have got this integrated ERP system and everything running, you have got better visibility that you can collect faster?.

Yeah, I think Ralph as you pointed out it is definitely a combination of both. Our team is very focused on doing the collections and, you know, happy customers pay.

Secondly, this isn’t meant to be a plug for one of the large vendors out there, but certainly with our large ERP implementation that we have done and the integrations within our switches, it has allowed us to invoice quicker and get those invoices to our customer in their hands quicker to really expedite that turnaround for us..

And is the long term target in the low 40s or you sort of sure to maintain this 47, 49 day level?.

Yes, I would still be comfortable with anything between 45 to 50 days at this point, keep in mind the customer distribution with Europe..

Okay. Thank you..

Thank you..

Thank you..

Now we have another question from Gabriel Leung from Paradigm Capital..

Thanks. Just one follow-up, actually relating to license revenues, I know it’s a revenue line item that you guys are sort of deemphasizing, but the reality is that it has been growing on a year-over-year basis for a number of years now.

And if I look at Q3, it was about 3.2 million bucks, you know, what’s driving the year-over-year growth, is it this traditional mapping stuff or does it include some routing and maybe in some cases the same day home delivery stuff as well? And what are your thoughts around how that’s going to grow license revenues in sort of fiscal ’15? Thanks..

Yes, first of all, we would like to shrink it if we could but, you know, as our business grows and we buy other businesses that have some license revenue, we get it.

And while we try to move it to SaaS-base, not all the customers want to do that, and I don’t want to be in a position where I am saying to a customer, I will sell it to you the way you want to buy it because oftentimes that makes them look elsewhere.

You know, I don’t know how it is growing as a percentage of our revenue, but I suspect it’s not as fast as our license has actually gone up year-over-year if you just look at it as a flat baseline.

New customers come in the door, we are trying to sell them SaaS, sometimes they want to buy license and when they do, we probably take a little time to understand why they are doing that and make sure it is a good sound decision on their part.

But, you know, if a customer is doing well and have a lot of excess capital right now because they are doing well, oftentimes big companies want to spend licensed dollars so that they can capitalize it. And I don’t want to stand in the way of them doing that because I don’t want to choose somebody else.

So while it is not my favorite thing to do, it is something we will do for good customers that have a good reason behind it..

And can you confirm whether the new home delivery customers are choosing SaaS or sort of license or sort of a mix of the two?.

It’s actually a combination of both, if there is good news in this, while our license is growing almost every customer that signs up for a license these days, also signs up for a recurring SaaS-based type of deal.

And these home delivery guys or really anyone who is buying our routing solution is typically buying route planner, and they can pay monthly for that or they can buy the license upfront and just pay maintenance going forward.

But they are almost always also buying our mobile solution and that’s always a SaaS-based solution, we bill for that by the month. And so even when these guys are signing up for a big license deal we are also seeing them signup for a monthly recurring deal, which is exactly what we want them to do..

That’s great. Thanks for the clarification..

Thank you, Gabe..

And that was our final question, I will now turn it back over to you Scott for any closing remarks..

Thanks everyone. We look forward to talking you again after the end of our next quarter..

Thank you ladies and gentlemen. That concludes today’s call. Thank you for participating. You may all disconnect at this time..