Welcome to the Descartes Quarterly Results Call. My name is Adrianne, and I'll be your operator for today's call. At this time all participants are in a listen-only mode. Later, we’ll conduct a question and answer session. [Operator Instructions]. Please note, this conference is being recorded. I'll now turn the call over to Scott Pagan.

Scott Pagan, you may begin..

Thanks, and good afternoon, everyone. Joining me remotely on the call today are Ed Ryan, CEO; and Allan Brett, CFO. And I trust that everyone has received a copy of our final financial results press release that was issued earlier today.

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

These forward-looking statements include statements related to our assessment of the current and future impact of the COVID-19 pandemic on our business and financial commission, Descartes' operating performance, financial results and condition, Descartes' gross margins and any growth in those gross margins, 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 securities commissions across Canada, including our management's discussion and analysis filed today.

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

We don't undertake or accept any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements to reflect any change in our expectations or any change in events, conditions, assumptions or circumstances on which any such statement is based, except as is required by law.

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

Great. Thanks, Scott, and welcome, everyone, to the call. Similar to past calls, each of Scott, Allan and I are in remote locations. Our whole business has been operating remotely for some time. And as you'll see from today's results announcement, our whole team is doing a pretty good job of it.

Similar to past calls, here's a roadmap for the rest of this call. I'll start with some opening comments, primarily focused on what happened over the last quarter and some of the opportunities and uncertainty we've seen. I'll then hand it over to Allan, who will go over the Q3 financial results in detail.

I'll then come back and provide some perspective on how we're calibrated and looking at the current quarter, and we'll then open it up to the operator to coordinate the Q&A portion of the call. So let's get to it. We had a great quarter due in large part to the continued hard work of our Descartes team members.

We're a business that focuses on making our customers successful. We hope that by doing that, it will benefit our own business, despite working -- unique working circumstances, our team has continued to keep our customers' needs front and center.

We pride ourselves on being part of the essential service of the logistics and the role we played in helping our customers rise to the distribution and business challenges they faced this year. For our own business, we've been able to post record financial results.

We had record revenues of $87.5 million, record adjusted EBITDA of $36.4 million, ahead of our expectations and plan and up 16% over the same period last year. We had an adjusted EBITDA margin of 42%, and we had very high cash conversion with cash from operations at 91% of adjusted EBITDA.

We believe that our ability to deliver quality financial results in these tough market conditions is also a testament to how we calibrate our business. Those who have followed our business for some time know that we put a lot of emphasis on calibration.

For us, this means ensuring that we set our cost base at a level that considers what we're confident is going to happen with our business. In this way, when there's uncertainty, we're not crossing our fingers and hoping that something is going to happen. Our planning approach is to plan for what we're confident in and execute to deliver more.

We believe this has served us well and that this is illustrated through our steady, predictable historical growth.

We also believe that now more than ever, it positions us well for the market ahead of us, a market that has tremendous opportunities for logistics and supply chain and lots of uncertainty as to how and when those opportunities will resolve themselves. In short, right now, logistics and supply chain markets have tremendous opportunity and uncertainty.

We believe our well calibrated business, with a history of superior execution and ample capital, is in a great position to succeed. Let me touch on 5 areas of opportunity and related uncertainty that we're seeing in our market, and how we're positioning ourselves therein. First is e-commerce. As we've just come off the U.S.

Thanksgiving and Black Friday, you've probably seen the news that online sales rose 22% over last year in the United States, with many people not spending money on travel and related experiences, people may even have -- may have even more money to spend than in past years, especially with large parts of the world in various stages of lockdown, being able to shop remotely is no longer a convenience, it is now a customer expectation and necessity.

We believe that this is a permanent shift and that COVID-related lockdowns have been a catalyst to accelerate this move. But this shift is not without uncertainty, especially as it relates to logistics and supply chain.

There are ongoing questions around how to best distribute and warehouse goods, how much to in-source versus outsource for distribution, governmental intervention and oversight for the security and taxation of international shipments, and the balance retailers will have in their own businesses between traditional selling methods and e-commerce.

For Descartes, we've been deliberate in our approach to e-commerce. We're focused on domestic and international e-commerce, warehousing and distribution. We structured our business with an international e-commerce focus and aligned our solutions in a new e-commerce pillar.

We've made e-commerce a priority for investment with businesses serving e-commerce distribution like ShipRush, Velocity Mail and Scancode and e-commerce enablement and warehousing like pixi and Peoplevox. And recently, we've invested even further when we combine with ShipTrack. ShipTrack provides e-commerce final mile solutions.

When we look at the big beneficiaries of further moves to small parcel being shipped, we believe that carrier companies are leading the way.

ShipTrack has sophisticated tracking and mobile research management solutions that are ideal to help carrier and other businesses involve the high volume, small parcel shipping and delivery, particularly for the last mile of home delivery.

They make e-commerce delivery easier and more transparent for everyone involved in delivery from the shipper to final mile carriers and the consumers. This is a fast-growing business with ShipTrack recently having been recognized as a company to watch in Deloitte's fast 50 technology companies.

We're excited to have them join our team, and we're already seeing traction with some joint customers. So I'll welcome to the entire ShipTrack team. Second is U.S. policy changes. With the scheduled changes in the White House, we expect that there will be some shifts in the U.S. approach to foreign policy.

Typically, the logistics and supply chain industries sees those shifts through new trade agreements, changes in tariffs and duties by countries and commodities, changes in sanctioned foreign parties and controls on specified exports and financial support to particular industries. But like many things with the U.S.

election, there's a bunch of uncertainty about how, when and with what countries those changes will show up. For Descartes, we don't set up our business to count on any particular change happening. In general, there are changes, and it's good for our business.

This is because our customers rely on us when they need to adapt their logistics and supply chains.

They come to us for tariff and duty information, to understand and leverage trade agreements, to establish automated relationships with new trading partners and to monitor their training and shipping relationships for continued compliance with applicable sanctions.

Our job is to react quickly to these changes to minimize disruption and maximize opportunity for our customers. So in short, we expect the new administration will usher in some foreign policy changes. Change has generally been good for us and our business.

While we don't know, we'll predict what the changes will be, we'll be ready, as we have been in the past. Third big issue is vaccine distribution. I'm sure we've all been eagerly monitoring the development and approvals of COVID vaccines that could help us get out of the various stages of worldwide lockdown and restrictions.

Over the past month, we've seen several announcements from vaccine manufacturers about positive trial results. Final stages of regulatory approval and a preparation for distribution. There are huge uncertainties around dates of distribution, what amounts to which countries and distribution requirements.

In particular, for the logistics industry, different vaccines have different temperature distribution requirements was at least one vaccine requiring cold chain distribution, maintaining temperatures at lower than negative 70 degrees Celsius.

In general, anytime someone says they need to distribute 5 billion of something that hasn't been shipped before, that's going to be a tailwind to the logistics industry. Our customers will play a critical role in distribution and considering the life-saving potential of the vaccine are taking their roles very seriously.

We anticipate our customers will be leveraging our solutions as part of this distribution, whether it will be using the global logistics network for communication, managing and attracting shipment, using our technology or monitoring the temperature of shipments in transit.

In particular, the time-sensitive nature of vaccine shipments, we anticipate that air and truck modes of transportation will benefit from the tailwinds that some customers may leverage our air cargo temperature monitoring solutions from a recent acquisition of ours core. The fourth is Brexit. Beginning on January 1, 2021, the U.K.

and EU enter a new customs regime with the U.K. leaving the EU. As of now, there is no new EU-U.K. free trade agreement, and there is uncertainty as to whether or not there ever will be. There's also a separate Northern Ireland protocol, which will have Northern Ireland following EU customs rules. There's also a new U.K.

customs system replacing the historical cheap system. If you're in the logistics and supply chain industries, it's like a brand new country has been established for the purposes of import and export filings with a bunch of uncertainty about how it will all work, whether even more changes are forthcoming and new systems to deal with.

For Descartes, this is something we've been busy getting ready for, for a while. We've historically been one of the more influential U.K. customs preparation and filing providers. We were then the first solutions provider to be able to file to the new U.K. CDS, customs declaration service.

We've been hosting numerous webinars and information sessions for our customers on the new regime, and how we can help them. We anticipate that our customers will use our U.K. e-custom solutions, look for us -- look to us for updated tariff and duty information and use us for U.K. import control system security founds.

We, like everyone else, are uncertain about the timeline and volumes that will be seen in this new regime as well as the adjustments that will be made or needed on an ongoing basis.

But we know that our customers are looking to us, to help them deal with something new, something that the supply chain and logistics industry didn't need to deal with until very recently. The fifth is the pandemic working conditions. Pandemic has caused businesses to change how they work. Employees are working from home.

Meetings have shifted to online video conferences. Business travel has all been eliminated and marketing spends have shifted from physical trade show events to maximizing online presence. As every day goes by, I think more and more people are wondering whether those are temporary or more permanent changes.

There's uncertainty about what real estate footprints, travel and marketing will look like in the corporate world going forward. Descartes' business has been no exception to this.

As part of our restructuring efforts earlier in the year, we closed certain offices, where employees could permanently work from home and will undoubtedly have a critical eye on our physical office footprint going forward. Our own physical user conference was canceled, and we held an online event instead.

Our marketing dollars have been shifted from trade show events to more emphasis on search engine optimization. Our travel spend is almost nothing at this point. Over the longer term, we believe this is an opportunity for us to operate our business more efficiently.

While there's uncertainty about how and when travel and other business practices could turn back towards pre-pandemic normal, we believe the lessons learned during the pandemic, and how we performed as a business through it, will open avenues for us to use our resources even more effectively to serve our customers and deliver results to stakeholders.

Before I turn the call over to Allan, I just wanted to, again, express my thanks to the many people going above and beyond during the pandemic. These have not been easy times for businesses, communities or our own team members.

Countless people, including Descartes' own team members have made tremendous sacrifice and effort to help preserve the health and wellness of our families and communities. We owe them a tremendous debt of gratitude.

Our Descartes contribution has been to help our customers keep food, medicine and other supplies moving, while vaccines and treatments were developed. We're hopeful we're all on the cusp of making a meaningful dent in the spread of the virus that will allow us to all feel that things are a bit more normal.

Until then, as we all deal with this period of uncertainty, Descartes will focus on what it does best, helping our customers, calibrating our business appropriately, making targeted investments, looking for opportunities and most important, delivering to our plan.

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

Allan?.

Sure. Thanks, Ed. As indicated, I'm going to walk you through our financial highlights for the third quarter, ended October 31. We are pleased to report record quarterly revenues of $87.5 million this quarter, up 5% from revenues of $83 million in Q3 of last year and also up just over 4% sequentially from the second quarter of this current year.

Our revenue mix continues to be very strong, with service revenue increasing 7% to a record $77.6 million or 89% of total revenue in the third quarter, and again, up nicely, approximately 3%, sequentially, from the second quarter of this year as various parts of our business continue to steadily improve.

Professional services and other revenue came in at $9.3 million or 10% of revenue in the third quarter this year, and that's an increase of around 4% from the third quarter last year. License revenue continues to be quite small, coming in at $600,000 or less than 1% of our total revenue in Q3.

And although it will remain a small percentage of our overall revenue, we do expect it will fluctuate quarter-to-quarter. Gross margin was once again strong at 74% of revenue in the third quarter, which is up slightly from gross margin of 73% in the third quarter last year.

Similar to the past number of quarters, we continue to have strong cost control for our operating expenses.

As reductions across many expense categories, including travel and marketing costs, result in a slight decrease in operating expenses in the quarter when compared to the third quarter last year, despite the impact of an increased headcount and costs that have come with the acquisitions we have recently completed.

So with some solid growth in revenue and continued cost control, we are pleased to see strong adjusted EBITDA growth of approximately 16% to a record $36.4 million, or 41.6% of revenue in the third quarter when compared to $31.5 million or 38.0% of revenue in the same quarter last year.

As a result of these strong operating results, cash flow generated from operations came in at $33.1 million or approximately 91% of adjusted EBITDA in the quarter, up 20% compared to operating cash flow in Q3 last year.

Operating cash flow this quarter was aided by strong collections from customers as well as a decrease in cash taxes paid during the quarter. And as we've said in the past, operating cash flow will be subject to quarterly fluctuations.

And while we've operated above 90% conversion rate in the past 2 quarters, for the most part, we expect to see operating cash flow conversion to continue in our more typical range of 80% to 90% of adjusted EBITDA in the quarters ahead.

From a GAAP earnings perspective, net income came in at $13.3 million or $0.15 per diluted common share in the third quarter, up sharply from net income of $9.7 million or $0.11 per diluted common share in the same period last year.

Overall, we're certainly pleased with the way the business has performed as we've managed through the current pandemic and the resulting economic decline. If we look at the balance sheet, our cash balances totaled $114.4 million at the end of the third quarter.

That was an increase of $32.5 million over the cash balance at the end of the second quarter. As previously announced, just after the end of the third quarter, we completed the acquisition of ShipTrack, using approximately $19 million of our cash balances to complete this acquisition.

With our remaining cash balances, a $1 billion shelf prospectus in place, and our unused $350 million line of credit, we continue to have plenty of capital capacity to allow us to consider all acquisition opportunities in our market, consistent with our business plan.

So as we look to the fourth quarter of this year, we should note the following, as outlined in the outlook section of our MD&A.

After incurring approximately $2.9 million in capital additions in the first 9 months of the year, we expect to incur an additional $500,000 to $1 million in further capital additions for the balance of this year as our capital equipment needs remain very modest.

We expect the amortization expense will be approximately $13.6 million for the balance of FY '21, with this figure being subject to the adjustment for FX changes and future acquisitions. Our income tax rate came in at approximately 28.4% for the first 3 quarters of this year.

For the fourth quarter, we'd expect our income tax rate to be in the range of 25% to 30% of our pretax income, although, as always, we should add that our tax rate may fluctuate from onetime items that may arise as we operate internationally across multiple countries.

And finally, we expect that stock-based compensation will be approximately $1.5 million to $1.7 million for the fourth quarter, and this will be subject to any additional grants or forfeitures with stock options or share units that happened in the quarter.

And with that, I'll turn it back over to Ed, who will wrap up with some comments on the coming quarter, including our baseline calibration. .

Hey. Thanks, Allan. I mentioned earlier that our focus is on delivering to our plan. As we enter Q4, we also start turning our mind to our planning process for the next fiscal year. So let me recap some of the principles we use in planning and executing in our business. We plan for our business to grow adjusted EBITDA 10% to 15% annually.

We plan to grow through a combination of organic growth and acquisitions. When we overperform, we expect to reinvest that overperformance back into our business. We focus on recurring revenues and establishing relationships with customers for like.

We thrive on operating and predictable business that allows us forward visibility to our revenues and our investment paybacks. We establish our plans with a view of being able to pursue opportunities without placing the undue risk on our business. We believe that the way we've grown historically is the right pace for our business.

We see other shoot for the moon and blow up on the way there. We plan on getting there with steady, sustainable, profitable growth. This doesn't mean we won't look at larger investment opportunities as we continue on our journey because we have and we do.

Our job is to put our company in a position where it has the capital structure to do these deals if it makes sense. At October 31, we had more than $110 million in cash, an undrawn $350 million line of credit and the ability to upsize it by a further $150 million to $500 million.

We also have a shelf prospectus that enables us to raise up to $1 billion over the next 2 years. We have a stable platform and over 15 years of acquisition execution and integration experience. If it makes sense for us to get it done for our business and stakeholders, we can and we will. Turning to calibration.

We've provided comprehensive description of baseline revenues, baseline calibration and their limitations in our quarterly report that we filed today.

But to summarize how we saw things at November 6, 2020, once we've combined with ShipTrack, we are using foreign exchange rates of $0.77 to the Canadian dollar, $1.19 to the euro and $1.31 to the pound.

We estimate that our baseline revenues for the fourth quarter of 2021 are approximately $83 million and our baseline operating expenses are approximately $53.5 million. We consider this to be our baseline calibration of approximately $29.5 million for the fourth quarter of 2021 or approximately 36% of our baseline revenues as at November 6, 2020.

We've indicated previously that the targeted adjusted EBITDA operating margin range for our business is 35% to 40%. As mentioned, our actual results for Q3 had us at about 42%.

It's possible that we exceed the 35% to 40% operating range again in Q4, as we continue on our commitment to 10% to 15% adjusted EBITDA growth, but we don't yet see this as a permanent change in our preferred operating range. We'll look at this again at year end.

And if we have a more stable environment that provides better revenue predictability, we'll provide it. It's an uncertain environment out there, but there's lots of opportunity, particularly for logistics and supply chain technologies.

We believe that a well calibrated, well capitalized, experienced and acquisitive business like ours is in a great position to meet these challenges and build an even stronger business. Thanks to everyone for joining us on the call today.

As always, we're available to talk to you about our business by phone or virtual meeting, and we hope sometime sooner rather than later in person. And with that, I'll turn the call back to the operator for Q&A. .

[Operator Instructions]. And our first question comes from the line of from Raimo Lenschow from Barclays. .

This is Frank [ph] on for Raimo. So this is the second quarter in a row that you beat on the top line. Just wondering what drove that specifically this quarter? I know earlier in the quarter, there were some positive data points around a potential rebound in some of the areas that were harder hit from the pandemic.

So did the performance this quarter come from more of a rebound in trade or continued strength in areas like digital compliance and e-commerce?.

A little bit of both. Thanks, Frank, a little bit of both. I mentioned some of the things that are driving the growth in the business right now and some of the strong results that you're seeing. But I think we had a couple of businesses like e-commerce really continuing to drive better than prior performance.

And then you had the areas of our business that were maybe impacted slightly with the pandemic start to come back, our truck, our ocean businesses are coming on strong right now, and the air business is coming back perhaps a little better than we had hoped for. .

And our next question comes from Matt Pfau from William Blair. .

Ed, just to follow-up on that last remark relative to the air, ocean and trucking volumes.

Where is the volume add on the network relative to where we were at pre-COVID?.

In the ocean and air space, I think you're -- sorry, in the ocean and truck space, I think you're back on track and maybe even with a little bit of growth, that we might have expected to see by now anyway.

In the air business, it took a pretty big hit when COVID started, not because there was a problem with air cargo, actually air cargo divisions of airlines were all doing quite well. I think the rates were up, in the beginning they were quadrupled, and they're probably still running about double because just less capacity right now.

All these passenger planes that got taken out of service, you lose the capacity when there is no -- when you know the passenger plane isn't flying. So while you see -- if you look at the news, you see a lot of airlines putting planes back into service, and I think that's part of the comeback that we're seeing right now in air.

It's still not back to normal levels. Some of that's being offset by the e-commerce growth in our business and the trade content business intelligence data that we sell is those 2 areas are both doing very well for us right now and making up for any of the losses we had in other areas. .

Got it. And then wanted to follow-up on some of the margin commentary. So obviously, some of this benefit that you're receiving right now is perhaps one-time and some of it may be permanent.

But I guess from your guys' perspective, are we -- should we sort of be thinking that next year will probably be back in that 35% to 40% margin range for EBITDA margin as things open back up? Or how are you guys thinking about your cost structure going forward?.

No, we're not commenting on next year so much. We're just telling you right now, we're not moving it up. Even though we've beaten 40 the last 2 quarters, we are not prepared to move it back up because we don't know what's going to happen. There's a little more uncertainty out there than normally is.

You're right, we're benefiting from decreased marketing expenses, decreased travel expenses. And our business starting to perform like it used to pre-pandemic with some areas that are really seeing accelerated growth. With all that uncertainty, we're reluctant to move the range just yet.

And by the way, if you look at our history, we usually burst through the number a couple of times before we actually move the -- move it up another couple of points. So stay tuned and let's see what happens, but the business is certainly performing very well right now, and we'll see what happens in the coming quarters. .

And next question comes from Paul Treiber from RBC Capital. .

Just in regards to ShipTrack, there seems to be a significant amount of contingent consideration that's disclosed in the MD&A.

Is the mix of cash upfront to contingent consideration higher than a typical acquisition? And if so, what's the reason for that?.

Yes, I'll start with this, Ed. Yes, Paul, I think you're right, it is a little bit bigger from a contingent consideration that we normally see in our deals. Obviously, we get into these deals, and we'll try to price them appropriately. We use the contingent consideration to bridge any valuation gaps. These guys have some big growth plans.

If they accomplish that, we'll be happy to pay that contingent consideration, but the price upfront reflects the business today and the contingent consideration reflects the business that it can be down the road, okay?.

I think, I will say this, Paul, we always think that, that works out for us. We're happy to pay any earn-out that we have with an acquisition because we always think that's going to be a big benefit to us if they actually hit those numbers.

So while we would have to lay out more money, if that's -- if they hit all their numbers, we'll be happy to do that. .

And shifting to another acquisition several years ago, obviously, as MacroPoint, it's been overshadowed over the last year with the pandemic, but how's the MacroPoint been tracking this year in terms of adoption and usage? And could you provide an update on the trials of capacity matching and how that's been doing?.

Yes. MacroPoint in general is doing very well. It took a little bit of hit. We actually -- right as the pandemic started, there was a whole lot of trucking going on to ship stuff around because there were shortages everywhere.

And for a couple of weeks, maybe even a month, there was a lot more trucking going on in the country as a lot of stuff was moving around. Then when the pandemic kind of set in mid-April, May, trucking took a bit of a hit.

And MacroPoint goes along with this, right? We have enough exposure to the whole trucking industry in North America that we kind of go up and down with it. Other than it's -- MacroPoint is growing quite a bit. So it's kind of sometimes it's growth overshadows those industry-wide events.

But since then, starting in about June, it started to really pickup truck market, and it's going very well right now for it's -- showing up for sure in our core visibility applications. But now also in capacity matching, I think, I was talking somewhat early this week, it was involved in this MacroPoint.

It's picking up in the last couple of months because capacity matching those people find trucks, and there's a shortage of trucks right now.

And so we're -- giving me an example of a customer that was doing in the 30, 40 loads a month with us a couple of months ago and is now up over 700 just because they're having a hard time finding drivers, and that's what capacity match helps them do. .

Interesting. And last one for me is on the mobile routing and telematics business.

With the increase in omnichannel and e-commerce and home delivery, how are you seeing a pipeline emerge for that where customers are managing their own fleet? So are you seeing more customers willing to do that? Or is it still using, I guess, small parcel carriers for that?.

Well, I mentioned this in the beginning of the call, I see it going both ways right now, I got a clear answer on emerging. And I'm not sure whether one ever will. I think there's certain companies that think I have to own that process. And there's other companies that say, I don't want to own that process, I'm going to use third-party guys to do it.

And interestingly enough, we have solutions to serve both of them. Our routing and mobile applications helped people that own their own truck fleets. And if you're using third party carriers, we can sell those applications to those third party carriers.

And also give our customer the ability to manage those shipments with our transportation management tools that would help them manage their third-party fleet. So for us, we don't really care which way it goes. But we want to make sure that we're helping them provide the solution to operate more efficiently either way..

And the next question comes from Justin Long from Stephens. .

Wanted to start with a question on organic growth. As you think about this pandemic and hopefully, we come out of it at some point next year. Kind of looking out over the next 3 to 5 years.

Is your view that the organic growth profile of the business could accelerate versus what you've historically seen? Just as COVID has become an eye-opening experience for a lot of your customers?.

Yes. And I talked about this in a little more length on the last call, but I believe the same things today. I think everyone just realized in April that it's no longer acceptable to have processes that aren't automated to have people managing shipments, that aren't able to do it online or from a phone.

And that was acceptable answer before April of this year. A lot of companies did it manual, phone calls, faxes, e-mails, stuff like that. All of a sudden in April, that became unacceptable.

And we're seeing a drive for customers to try and automate these things, and that's something that I think is going to help our business now and probably more so over the coming years. .

Okay. And secondly, I wanted to ask about acquisitions.

Could you just give an update on what you're seeing in the pipeline level of activity with kind of big deals, small deals and maybe what you're seeing from a valuation standpoint as well?.

Yes. There's lots of stuff for sale right now. Nothing's changed from -- over the last couple of quarters. It was surprising to us there was maybe a month when everything stopped selling, I'd say, April, but things started coming back up for sale. And I'd say it's a hot market for things to sell, especially if you have a high-quality business.

They're selling at multiples that are at times shocking to us, and we are very careful to still make some investment decisions when we see that.

But because people are paying up for stuff, you've seen a lot of stuff come up for sale, especially at the bigger end where there's bankers involved and private equity firms involved that are well attuned to those things. In our market, you see most of our deals are smaller tuck-ins.

These things aren't really the main drivers, they don't have bankers, they're not they're not big enough to take advantage of some of the things that maybe a larger acquisition might. And at the same time, they probably care about different things, too, right? If private equity firm owns you, you only care about the price. You don't care who buys it.

You don't care what they do afterwards, anything like that. A lot of the smaller tuck-ins that we buy, they're owned by an individual or 2 or 3 people, and they care deeply what happens to the business after we buy it.

And as a result, we become a very attractive choice to them because we're willing to pay a reasonable price, and we're going to operate the business in a way that will be satisfactory to the owners, who maybe have worked with these employees for 10 or 20 years and other friends, not only just employees, and they want to make sure the right thing happens, and we certainly position ourselves as a good choice in that circumstance.

You could see the success we've had over the years. We kind of pride ourselves in being able to go in and convince small businesses that we're the best home for their baby. .

And our next question comes from Paul Steep from Scotia. .

Ed, can you talk a little bit -- you mentioned earlier in your comments about making e-commerce a new pillar of the business. Could you just talk about any changes to the org structure, go-to-market there, obviously, closed, I think we're either on deal 5 or 6 in terms of adding to that suite.

But maybe talk about that and then I got one quick follow-up. .

Sure. From an organizational structure, it's not a big difference. We operate all -- anything we buy, we merge into our business, and it operates as one. Our operations team isn't divided up by product. They operate all of our products. Our sales team isn't divided up by product. They sell all of our products.

So I think from a go-to-market perspective and the way we operate things internally, it's not a change. It is a change in the way we describe it to our customers and to shareholders, who want to understand how our business works. It's also, as we buy more and more of these e-commerce solutions, there tended to be a lot of cross-sell opportunities.

There's also tended to be a lot of opportunity for those products to work together to provide a much broader footprint or solution to our customers, and we're trying to take advantage of those things as well, right? We started here with 1 e-commerce platform.

And now we have 6 or 7, and we're starting to put them together, so we can go to a customer with a whole suite of services to help them solve e-commerce problems. So we're looking to take advantage of that. We know from other parts of our business, when we do that effectively, we sell more stuff.

We're more attractive to the customers when we offer a more complete solution. So we're lining up to do that e-commerce, as we speak. .

Perfect. That's great.

And then the clarification is just around the compliance business, respecting the fact that you said, "Hey, this is really hard to call on Brexit." But I'm wondering if you can just give us, and clearly, the business is substantially larger, but maybe put it in context for us as to the impact of past changes, as I recall, for the last few years, some of the changes have been more incremental.

This sounds like, again, one of the larger changes we've likely seen in the last 10 or 15 years at least. .

Figures -- it's what -- yes, it is. It's like the world just added another country because you didn't have to file any paperwork to cross the borders into that country for a long time. And it's a fairly substantial trading partner for a lot of countries, right? A lot of stuff moves through the U.K.

And so we're looking forward to that coming out or we're not going to speculate yet on how big an opportunity for us it would be. But if you want to kind of put it in perspective, it's like another significant sized country coming out. It's not going to materially change or the look of our company, but it is going to show up.

And we're one of the better providers out there. Like I might say we're the best provider out there to provide these services. So we're looking to take advantage of that. .

I'm going to stretch here more, Ed. Normally, we've seen like a step function lift when those come on.

Is there anything -- I don't know how far or close we are on the requirements? Is it going to be like a straight volume lift on the GLN similar to prior deals? Or do we think it sort of layers in a little bit over early '21?.

I think it will be largely a step function. And assuming it goes live on January 1, you'll see the revenue pickup. Whatever it's going to pick up, you'll see a pickup right around that. And then maybe it'll take a little bit of time for all the volume to come on, but probably not much. .

And our next question comes from Scott Group from Wolfe Research. .

Just on that last point, Ed.

I assume there is nothing that was assumed in the calibration for that, right?.

No, there's nothing extra in the calibration for that and Q4 only has a month of it anyway. So it probably wouldn't be significant even if it were. .

Can you talk about on ShipTrack is sort of the revenue run rate and the growth rates that the business has been seeing and what you expect on that?.

I don't think we broke out the revenue, but you can probably tell by the purchase price. It's a smaller tuck-in for us. We think there's a lot of opportunity for us to sell their solutions into our customer base, and they have a bunch of mobile handheld solutions that we think our customers would benefit from.

And we're looking to take advantage of that. You can see they have a big earn-out out there. So they think they have the potential for large growth. We'll see if they get there. As I said earlier in the call, we hope to pay that earn out, and we'll see what happens.

But it's not a gigantic grower at the moment, but it certainly has the opportunity to be, especially if you layer in the cross-sell opportunities with Descartes. .

Okay.

And then can you just talk about maybe now that you've done a bunch of deals, what's the total size of the e-commerce platform? And then lastly, just any updated views on supply chain shifts that you're seeing out of your customers during COVID?.

Sure. It's around 10% e-commerce pillar of our business. So hope that gives you some sense.

As far as supply chain shifts, I mean, the same thing we've been seeing for a bunch of years with e-commerce has maybe accelerated a bit in COVID, but if you think of it at the macro level, 10 years ago, when we sort of buying stuff online, the premise used to be, get it to your store, and I'll come buy it from you and drive it home myself.

And all of a sudden, with Amazon and others like them coming out, people started going, "hey, how let you bring it right to my house?" And I'll just buy it on the computer here, and you bring it to me. And you can imagine that changes a lot about how people's supply chains work.

Probably if you listen to any of the warehouse management companies on their -- any of their public and in some of their conference calls, they have all different ways of handling that. There's the Amazon way of doing it. There's maybe like a Best Buy way of doing it, if you would call that, where we'll ship from the store.

And they use their stores as virtual warehouses all over the country. And those things all impact the supply chain and impact the software that we provided the supply chain. You see us make the investments in pixi, Peoplevox over the last couple of years.

That was directly aimed at trying to take advantage of these small and mid-sized retailers and e-tailers that are coming online and becoming fairly substantial businesses now and have a new way of managing the supply chain and pixi and Peoplevox were right in the middle of that and wanted to provide the warehouse managed solutions to a much broader set of customers.

And that's why we made those investments. .

And the next question come from Deepak Kaushal from Stifel Group. .

I've got a couple, if I may. First, Ed, given the banner year for online shopping on the Black Friday and what's expected to come from the Christmas holidays.

Is the answer ready for this, but what kind of constraints do you anticipate or are you seeing so far? And how does it impacted the business, is it increased revenue, increased cost, increased competition? How should we think about capacity to deal with all this?.

Well, you can see it in some of the missed [indiscernible] really, right? Order your stuff now if you want to buy Christmas. And I don't think that threat's been out there in -- what? Yes, exactly, exactly. Listen, the reason that is, is because there's only so many trucks to deliver the stuff, right? And there's only so much stuff out there.

And if more people are ordering in this form or fashion. That's going to put strains on logistics and supply chain. We see our customers gearing up forward to make plans for it. I'm sure you're still going to see some problems, but they're certainly all aware of it and doing their best to deal with it.

But you can only buy so many trucks right now, and you're reluctant to buy them for -- just for the Christmas holidays in a pandemic year, right? So we see it a little bit in our business that people ramping up the usage of their systems and the number of shipments on our network. That's good for us.

How bad will it get? How much stuff will people run out of? I don't really know, I don't have a crystal ball on that, but I suspect that the same kind of increases we've seen over the course of the year are going to hold up because it just -- you just saw Black Friday up 22%, which is about what we see volumes up in the last several months.

It kind of started up 40% in April and May and then kind of went back down to the mid-20s. And Black Friday was kind of consistent with that with the 22% that I kind of saw all the headlines on Saturday morning, online sales being up 22%. But that's pretty consistent with what I saw the rest of the year. So I suspect that trend will continue. .

Got it. Then on a net basis, will these constraints be positive for you guys from a business and revenue perspective or neutral or... .

No, I think so. Usually, when people have problems managing their logistics and supply chain operations, we benefit from that. They go, "hey, let's make sure that doesn't happen again." And they buy more software from us or they use our network more efficiently, to operate more efficiently. So we'll see what happens here.

But I think this is all generally good news for us, not only in the increased volumes we see today, but also in the opportunity to sell software that helps them operate more efficiently in the future to help them get over these problems and make sure they don't happen yet. .

Got it. Got it. And my second question is around COVID and the anticipation on vaccine distribution.

Given your experience in the industry and the position on the supplier, how do you expect it to evolve? Is it centralized or is it even trickle down in terms of the economics? You needed to be a little bit faster on where is the biggest dollar opportunities here. .

Well, we think our customers are going to be big beneficiaries of this. We have a lot of them coming to us talking to us about specific problems with it. You have issues in the increased volume, 5 billion more things that need to get shipped around the world that didn't need to get shipped yesterday. Those things require urgency and special handling.

That puts more challenges into the supply chain. "Hey, it's got to be kept at negative 75 degrees," That's a big deal. And puts more challenges on our customers. And when they get these types of challenges, they come in, look for solutions from us, like our tracking solutions to make sure it's -- everything is being done on time.

To our core like solutions, tags and temperature monitoring, where they need to make sure that this vaccine maintained a certain temperature, the entire route, and we have solutions to help them deal with things like this. So let's see what happens in the coming weeks and months, but we think this is going to be a big tailwind for us. .

And this concludes the question and answer session. I'll now turn the call back over to the presenters for final remarks. .

Great. Thanks, everyone. I appreciate all the time you gave us today, and look forward to talking to you again next quarter. Have a great night. .

Thank you, ladies and gentlemen. This concludes today's conference call. Thank you for participating, and you may now disconnect..