Good afternoon, ladies and gentlemen, and welcome to The Descartes Systems Group quarterly results conference call. [Operator Instructions] This call is being recorded on Wednesday, May 29, 2024. And I would now like to turn the conference over to Mr. Scott Pagan. Thank you. Please go ahead. .

Thanks, and good afternoon, everyone. Joining me remotely on the call today are Ed Ryan, CEO; and Allan Brett, CFO. I trust that everyone has received a copy of our financial results press release that we 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 geopolitical, trade, and economic uncertainty on our business and financial condition; 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 undertake 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 required by law. .

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

Thanks, John, and welcome, everyone to the call. Today, we're reporting record first quarter results, continued strong organic growth, improvement to our operating margin from a year ago, and 2 new businesses that have joined The Descartes team.

We're excited to go over these results with you and give you some perspective about the business environment we see right now. .

But first, let me give you a road map for the call. I'll start by hitting some highlights of last quarter and some aspects of how our business performed. I'll then hand it over to Allan, who will go over the Q1 financial results in more detail.

After that, I'll come back and provide an update on how we see the current business environment and how our business was calibrated as we entered our second fiscal quarter. And we'll then open up to the operator to coordinate the Q&A portion of the call. .

So let's start with the quarter that ended April 30. Key metrics we monitor include revenues, profits, cash flow from operations, operating margins, and returns on our investments. For this past quarter, we again had outstanding performance in each of those areas. Total revenues and services revenues were both up 11% from a year ago.

Adjusted EBITDA was up 16% from a year ago. Adjusted EBITDA margin was steady at 44% and up 2 points from a year ago. And we generated $63.7 million in cash from operations, representing 95% of adjusted EBITDA. .

At the end of the quarter, we had almost $270 million in cash and were debt-free with an undrawn $350 million line of credit. This is after we used about $140 million in connection with acquisitions near the end of the quarter.

We remain well capitalized, cash generating, have strong organic growth and remain ready to continue to invest in our business. .

Let me talk a bit about the $140 million that we invested in acquisitions. At the end of March, OCR Services joined our business. OCR is a great business and a natural fit with our global trade intelligence team. OCR's strengths are in a sanctioned party screening and export compliance, a great complement to our existing trade compliance business. .

As I've mentioned on past calls, sanctioned party screening is where you review your transactions, shipments, customers, and/or employees against lists published around the world to identify people and companies who are subject to sanctions.

These sanctions often result from conflicts between countries, such as the numerous new sanctions introduced over the past 2 years related to the Russia-Ukraine conflict. With the number of geopolitical conflicts going on right now, the importance of insurance compliance with the web of international sanctions is critical to many businesses. .

The consequences include massive fines and prohibitions on trading. In addition, OCR has been leveraging AI solutions in the gathering, compilation, and presentation of trade and sanctioned party information so there are potential efficiencies to be gained as we integrate the businesses together. .

OCR's expertise and export compliance also enhances our wider global trade management solution portfolio. In particular, they have great strength in export license procurement, tariff classification of goods and helping companies comply with complex trade regulations, such as the International Traffic in Arms Regulations, ITAR. .

OCR has some large multinational companies as customers that we believe are great prospects for further Descartes' solutions.

More generally, as we look at this market, we see continued opportunities with our combined solution set as the challenges with global trade and compliance increase even more, for example, with the recent tariffs and sanctions issued by the U.S. with respect to China. .

OCR is larger than some of our recent acquisitions. We believe that our team of trade professionals in the United States and India are a great complement to our business, and we're motivated to show our customers the additional value we can add as a combined team. Welcome to the entire OCR team. We're looking forward to great things working with you. .

In the later days of the first quarter, we also combined with ASD, which -- who also uses the brand name Thyme, T-H-Y-M-E. ASD has 2 principal areas in their business. First, ASD is involved in customs and regulatory services for trade with a very strong presence in Ireland.

This is a great complement to our existing customs business in Europe and allows us to provide our customers with an even more comprehensive solution for customs and security filings. .

The second area of their business is focused on helping the air community get visibility into assets. This is a very natural and exciting complement to our existing low-energy Bluetooth solutions that help air carriers and ground cargo handlers track air cargo containers at airports around the world.

We're excited that we're joined with a team that has similar mission to help the wider supply chain community of shippers, carriers, logistics service providers, and customs authorities connect and collaborate to manage the life cycle of shipments. Welcome to the whole team, and we're looking forward to getting after with you. .

As mentioned, these acquisitions represent $140 million in investment on behalf of our customers into the solutions we can offer them. This is consistent with our historical plan and what we intend to do going forward. Our business is designed to generate and have access to capital that allows us to complete acquisitions that complement our business.

In addition, we make organic investments in our business to keep growing what we already have. Both are important for us as we continue building a company that our customers can rely on to meet their supply chain and logistics technology needs over the long term. .

Our focus is on total growth, both organic and inorganic, specifically total growth and adjusted EBITDA. This focus has served us well to build the company we have today and the company we continue to build for the future. .

We've talked on past calls about the investments we've made in organic growth, and our financial results have been showing the benefits of those investments.

We invested in our customer success function to help our customers understand how they can make further use of our solutions and differentiate ourselves from other competitors that are out there.

We invested in geographic and product-specific personnel in our commercial organization to help prospects understand the value that Descartes' solutions can bring to their organization, and we invested in our service group to help customers accelerate their ability to activate and use our solutions. .

Those investments have been paying off for our customers and for Descartes. We had another solid quarter of organic growth. The 4 principal areas driving growth were our global trade intelligence business, our real-time visibility business, our routing and scheduling business, and our e-commerce business.

In past calls, I've made detailed comments about those areas of our business and the growth drivers, so I'll just make some brief comments on each here today. .

The first area of growth is global trade intelligence. This encompasses sanctioned party screening, goods classification and trade content.

Growth here has been influenced by the continuing importance of compliance with global sanctions that I spoke about earlier in connection with OCR, continued changing landscape with tariffs and duties, and changing trade routes and modes influenced by factors such as challenges with navigating through the Red Sea and Panama Canal. .

Second area of growth is in real-time visibility. These solutions help customers get visibility to shipments in motion across multiple modes of transportation.

Growth here has been influenced by the strength of our existing network of carriers and our continued investment in ways to get new carriers activated on our network quickly, whether by Descartes or by our customers using our self-activation tools.

We continue to be among the best, if not the best, providers in the industry at actually getting new visibility to your shipments, some of the highest tracking rates in the industry. We believe that we are the premier provider for real-time visibility. .

Third area of growth is routing and scheduling. This includes solutions that help customers use the vehicles and their fleet efficiently, promote driver safety, and improve the customer delivery experience.

Our GroundCloud safety solutions are really providing value to customers in the market and distinguish themselves with rapid driver feedback and coaching. Our continued strength in last-mile delivery has also made us a solution of choice for many fleet owners. .

And the final area of growth is in e-commerce, shipping and fulfillment. Our solutions help customers navigate e-commerce logistics challenges as they grow and include shipping and warehouse functionality. We saw good shipment volumes with smaller e-commerce sellers.

The wider parcel shipment market is really in flux in the United States with the United States Postal Service changing its pricing and go-to-market model, Amazon Logistics cementing itself as the second biggest player in parcel shipping behind the United States Postal Service, UPS recovering from past labor challenges, and FedEx relying more and more on third-party contracted delivery partners.

.

We work with each of the United States Postal Service, Amazon Logistics, UPS, and FedEx to help our customers get the most affordable and best service for their deliveries. We've done a good job working with these partners to help drive growth for our business. .

We're pleased our business grew as it did during the quarter where there was pressure on global shipment volumes going into the quarter. We saw caution from various logistics service provider customers about the potential for slow growth or declining volumes.

As the quarter progressed, we saw various logistics service providers increasing their forecast for shipping, in particular, in ocean, where the Red Sea challenges have created strong demand and increased pricing for shipping. .

In the past, we've seen strength in ocean subsequently translate to increases in truck shipments to move those goods that originated on the ocean. So while this quarter saw slower growth in international and U.S. domestic shipping volumes, logistics service providers have signaled increased optimism for their own businesses in the rest of the year.

Overall, our business grew well again and has shown its resiliency in the quarter with some global shipping volume challenges. In short, our business performed as designed. .

So with that, let me just summarize and hand it over to Allan to give the full financial details in the quarter and year.

We had record financial results, the business performed well, and we believe that it's a good reflection of the value that our customers continue to get from our solutions and the hard work that our team continues to put in for our customers.

We ended the quarter with almost $239 million in cash, $350 million in available credit, and a market opportunity where we can continue to grow the business for our customers, both organically and through acquisition. .

We remain focused on profitable growth so that we continue to ensure that our customers have a secure, stable, and growing technology partner that can help them with their challenges well into the future.

My thanks to all Descartes' team members for everything they've done to contribute to a great quarter and continue to have our business in an enviable position for future success. .

With that, I'll turn the call over to Allan to go through our Q1 financial results in more detail.

Allan?.

Thanks, Ed. As indicated, I'm going to walk you through our financial highlights for our first quarter, which ended on April 30. .

We are pleased to report record quarterly revenues of $153.1 million this quarter, an increase of approximately 11% from revenues of $136.6 million in Q1 of last year.

While there was some revenue in the quarter from our recent acquisitions completed late in Q1, namely the OCR and Thyme ASD acquisitions, growth in revenue from new and existing customers was again the main driver in growth this quarter when compared to last year. .

We continue to see good growth in several areas of our business, including global trade intelligence solutions as well as our MacroPoint third-party visibility solution. While the full effect of both recent acquisitions will be more fully seen in Q2.

Consistent with past quarters, our revenue mix in the quarter continued to be very strong, with services revenue increasing 11% to $137.8 million compared to $124.1 million in Q1 last year, consistent at 91% of revenue in each period. .

License revenue came in lower at only $500,000 in the first quarter, down from license revenues of $1.4 million in the first quarter last year, while professional services and other revenue came in at $13.0 million or 9% of revenue, up 17% from $11.1 million in the same period last year. .

As the revenue from past acquisitions, in particularly GroundCloud, contributed nicely to our growth in professional services revenue in the quarter. In addition, we should mention that there was also a slight decrease in revenue from FX this quarter. As the U.S.

dollar continued to strengthen slightly on the euro, Canadian dollar and British pound compared to the same period last year. .

We would estimate that our growth in services revenue without the impact of recent acquisitions or foreign exchange changes, would have been nicely north of 8% in the quarter.

Gross margins for the first quarter came in at 77% of revenue this year, up slightly from gross margin of 76% realized in Q1 last year, as operating leverage from growth in the business continued to drive a slight improvement in our gross margin ratio. .

Our operating expenses increased in the first quarter.

This was primarily related to the impact of adding 1 month of the results from the recently acquired OCR business, while labor-related costs were also up but only slightly when compared to Q1 last year, as again, we continue to experience really good operating leverage in our growth in services revenue. .

As a result, we continue to see adjusted EBIT growth of 16% to a record $67.0 million or 44.3% of revenue in the quarter, up from $57.7 million or 42.2% of revenue in the first quarter of last year.

As we indicated last year, the addition of the GroundCloud business in Q1 last year, while profitable, came to us with much lower adjusted EBITDA margins out of the gate than the rest of our business. .

Consistent with our plans with that acquisition, we have worked to integrate the GroundCloud business into our current business and in the process have improved those GroundCloud operating margins over the past year or so.

In addition, as mentioned earlier, we simply continue to benefit from operating leverage that we experienced as we grow our business organically across several different product areas. .

From a GAAP earnings perspective, net income came in at $34.7 million, up 18% from net income of $29.4 million in the first quarter of last year.

With these strong operating results, cash flow generated from operations came in at $63.7 million or approximately 95% of adjusted EBITDA in the first quarter, up a very strong 30% from operating cash flow of $48.9 million or 85% of adjusted EBITDA in Q1 last year.

Note that Q1 is typically a seasonally lower cash flow collection quarter for us, so we are extremely pleased with the strong collections that were realized in the quarter. .

So as Ed mentioned earlier, we are pleased with the strong operating results in the first quarter as continued organic growth and some contribution from our recent acquisitions resulted in 11% growth in revenue and, more importantly, a 16% growth in adjusted EBITDA for the quarter. .

If we look at the balance sheet, our cash balances totaled $239 million at the end of April, down from cash balances of $321 million at the end of January. As despite continued positive cash flow from operations, we used just under $140 million of our cash balances to complete both the OCR and ASD Thyme acquisitions.

As a result, we still have almost $240 million of cash as well as $350 million available for us to draw under our credit facility for future acquisitions. We continue to be very well capitalized to allow us to consider all acquisition opportunities in our market, consistent with our plans. .

after spending $1.8 million on capital additions in the first quarter, we expect to incur approximately $4 million to $5 million in additional capital expenditures for the balance of this year. Simply put, our business will continue to be noncapital-intensive.

After incurring amortization costs of $15.0 million in Q1, we expect amortization expense will be approximately $51 million for the balance of this year, with this figure being subject to adjustments for foreign exchange and future acquisitions. .

Our tax rate in Q1 came in at 24.9% of pretax income, slightly lower than our expected range of 25% to 30%, and this was mainly as a result of a few smaller tax benefits realized in the first quarter.

Looking at the balance of the year, we currently expect our tax rate will trend much closer to our expected range of 25% to 30% in the next few quarters, meaning that our tax rate for the year is likely to end up in a range between 23% and 28% of pretax income, so somewhere on either side of our blended statutory tax rate of 26.5%. .

However, as always, we should note, we should add that our tax rate may fluctuate from quarter to quarter from onetime tax items that may arise as we operate internationally across multiple countries.

Additionally, after incurring stock-based compensation expense of $4.3 million in the past quarter, we currently expect stock-based compensation will be approximately $16.6 million for the balance of fiscal 2025.

As well as we have mentioned in the past few quarters, we estimate the payments of contingent consideration for earn-out arrangements accrued for at the end of the quarter will be approximately $35.5 million in the balance of the year, subject to any necessary adjustments resulting from the final earn-out calculations. .

Of the estimated $35.5 million balance to be paid, $9.2 million relates to the portion of the earn-out arrangements accrued for at the time of acquisition and will be reflected in the cash flow from financing activities, while the remaining balance of just over $26 million will be reflected in cash flow from operating activities, most likely in Q2 when these balances are paid.

And finally, going forward, subject to unusual events and quarterly fluctuations, we expect to continue to see strong cash flow conversion and generally expect cash flow from operations to be between 80% and 90% of our adjusted EBITDA in the quarters ahead. .

I will now turn it back over to Ed, who will wrap up with some closing comments and our baseline calibration. .

Great. Thanks, Allan. So we're a month into Q2 and things are progressing as planned. We've got 2 new acquisitions that we're integrating and who we think will contribute more to our calibration as we become more experienced in operating them together. We're mindful of some weakness in U.S.

domestic truck and parcel volumes but also mindful of some logistics service providers expressing some optimism about international ocean and air shipments. We keep these things in mind as we set our calibration for the quarter. .

Our business is designed to be predictable and consistent. We believe the stability and reliability are valuable to our customers, employees, and our broader stakeholders. To deliver this consistency, we continue to operate from the following principles. Our long-term plan is for our business to grow adjusted EBITDA 10% to 15% annually.

We grow through a combination of organic growth and acquisitions. We take a neutral party approach to building and operating solutions on our Global Logistics Network. We don't favor any particular party. We run our business for all supply chain participants, connecting shippers, carriers, logistics service providers, and customs authorities. .

When we overperform, we try to reinvest that overperformance back into our business. We focus on recurring revenues and establishing relationships with customers for life. And we thrive on operating a predictable business that allows us forward visibility to our revenues and investment paybacks. .

In our annual report, we provided a comprehensive description of baseline revenues, baseline calibration and their limitations.

As of May 1, 2024, using foreign exchange rates of $0.73 to the Canadian dollar, $1.07 to the euro and $1.24 to the pound, we estimate that our baseline revenues for the second quarter of fiscal 2025 are approximately $136 million, and our baseline operating expenses are approximately $84 million.

We consider this to be our baseline adjusted EBITDA calibration of approximately $52 million for the second quarter of fiscal 2025 or approximately 38% of our baseline revenues as at May 1, 2024. .

We continue to expect that we'll operate in an adjusted EBITDA operating margin range of 40% to 45%. Our margin can vary in that range, given such things as foreign exchange movements and the impact of acquisitions as we integrate them into our business like we saw with GroundCloud last year. We've got lots of exciting things planned for our business.

It remains a challenging economic supply chain and compliance environment for our customers, but we believe our proven track record of execution, solid capital structure and customer focus will help us serve them well. .

Thanks to everyone for joining us on the call today. As always, we're available to talk to you about our business in whatever manner is most convenient for you. And with that, operator, I'll turn it over to you for the Q&A portion of the call. .

[Operator Instructions] Your first question comes from the line of Justin Long from Stephens. .

So Allan, you talked about the services growth being nicely north of 8% organically. That's a slight moderation from what we saw in the prior quarter. So I'm curious if you could give a little bit more color on what drove that moderation.

And then as you think about the logistics customers expressing more optimism about the trends ahead, would you expect organic growth to reaccelerate as we move into the second quarter?.

Yes. I'll just start, Justin, and then turn it over to Ed. But as far as the past quarter, so organic growth was very, very solid in that mid-8% range, 8.5%, slightly better.

There's a few little adjustments in Q1 of last year, few little extra pieces of revenue that came in, which would have impacted the growth rate slightly this quarter, pulling it down a little bit. So that's what we experienced.

As far as going forward, Ed, any comments?.

Yes, sure. Thanks, Justin. So we're hearing from and we're seeing in ocean stats that the ocean carriers are picking up and certainly processing more transactions and also charging more as they're trying to have to get their customers around some of the problems in the Red Sea and the Panama Canal.

We've typically seen that translate into domestic volume increases in the U.S. and Europe, which we think will benefit us..

You described it as moderation. We kind of see it all as in the same range right now. We're in the high 8s to low 9s and over the past several quarters, and we think that's good for our business and don't really see much difference between this quarter and last quarter.

And going forward, we think we like the environment certainly in our subscription business as we continue to sell well. And I think that's going to be a tailwind for us for a long time to come with more people putting money into solving logistics and supply chain problems..

We'll see what happens with the transaction volumes. It's looking all right, right now, but we have to see if some of these domestic truck volumes come through. That would obviously be a tailwind for us if it does happen.

And if we look back over the last 10 years, let's say, we're pretty happy to be in the high single digits in terms of organic services growth. So we'll see what happens but we like what we see right now. .

Okay, that's good to hear. That's helpful. And I guess secondly, I wanted to ask about the 2 acquisitions, OCR and ASD. It was good to see the capital deployment in the quarter.

Anything we should be mindful of in terms of the impact these acquisitions could have to margins, similar to what we saw with GroundCloud? And any high-level commentary on the impact to overall organic growth as well based on how these businesses have been trending?.

Yes. So we love these acquisitions. I mean, it's -- if you look at them, they're both in an area that we've done very well in, in the past with acquisitions. They are both coming in slightly below our margin levels at the moment.

We think we have a great opportunity to raise that over time, up to our margin levels on average or even better as we have performed in some of those areas in sanctioned party screening, online party screening and some of the other businesses we've acquired over the years.

So we're very optimistic about that, and we think they bring a lot to the table in terms of providing new solutions in those areas to our customers. So we think there's a great opportunity there with those 2 acquisitions..

We put some of them into -- some of what we see from them into calibration so far. We probably didn't put it all into the calibration yet because it's a new business for us, and we want to get comfortable with where the revenue numbers actually fall out as we're running them. But we put a bunch of it in, maybe not all of it.

And hopefully, the next quarter or 2, as we get more comfortable with the revenue production from those businesses, we'll put it all into the calibration number moving forward..

But net-net, we're happy to have them here for our customers because we think it's the stuff that they want. We've also had a lot of success running these businesses that we've bought, businesses like theirs in the past.

So we're excited about the opportunity to make these businesses make more money over time like we have with some of the past acquisitions in the sanctioned party space. .

And your next question comes from the line of Paul Treiber from RBC Capital Markets. .

A question just on the comments regarding strong ocean volumes didn't translate into domestic and, I guess, international trucking volumes.

Is that primarily timing-related or are you referring to something else that impacted that?.

No, no. What we're saying is we're just, in the last short while here, last few months, we're seeing ocean volumes pick up and over the next couple of months, we expect that to translate as it has in the past in the domestic volumes increases. .

Okay. That's helpful to understand the dynamic there.

Is that reflected into baseline or no because baseline reflects, I think?.

No, it wouldn't be reflected in baseline because baseline reflects visible and recurring revenue at the start of the quarter. .

Okay, that's helpful. Just given the acquisitions, you deployed a lot of capital in 2 fairly large acquisitions.

Has that consumed your internal teams for the time being? Are you still in the hunt for acquisitions of the capacity, internal capacity to make acquisitions here?.

No. We really like the -- what we see ahead of us in terms of the acquisition environment. I think I've mentioned maybe on the last call same thing. We see a lot of stuff for sale and a settling of the prices for things that we're taking a look at that we think we can have an opportunity to get a bunch of deals done.

Certainly is not taking up all the time of our team. We're busy but we're happy to get those 2 acquisitions done and look forward to having more in the future. .

And your next question comes from the line of Dylan Becker from William Blair. .

Maybe to continue kind of the idea of ocean recovery to a certain extent, Ed, given that you guys have been in a better position here over the last several quarters of monetizing the customers in kind of more of a challenged volume environment, how do you think about your positioning here with maybe greater wallet share for that potential impending kind of recovery from a volume perspective?.

Yes. I mean we're excited about it. The big news and what's been driving our growth rates over the past year in a lackluster transportation environment is that our subscription services are selling quite well and we see that strength continuing. We're happy to hear the ocean carriers start to say things are picking up.

We think that will not only benefit us in the ocean space, but potentially in the air space, which tends to follow along with it and the -- because they're both international. And the domestic space that eventually, when the goods land, has to move that cargo so domestically, so we see some opportunity for ourselves in that. .

Okay. Great. And then obviously, kind of the 2 acquisitions here, following a common theme on content and compliance and maybe there's certainly kind of a localization component of that.

But also, how do you think about kind of the leverageability of those resources over time, the compounding value that you can deliver, and maybe kind of deeper levels of automation throughout that intelligence network?.

Yes. So I'm glad you asked that, thanks. So specifically with OCR, they have some things that we didn't have before acquiring them. And we look forward to taking that around to the rest of our customers. They certainly have a hazardous goods capability that we picked up in the process that we didn't have before..

And maybe most significantly, they have a bunch of AI processes, artificial intelligence processes that help them collect more data and also harmonize commodities within -- or for their customers.

And we think that's a set of capabilities that we can expand with our customer base to take advantage of over the coming years as we roll all that functionality out to our customers. So we're excited about it. .

And your next question comes from the line of Daniel Chan from TD Cowen. .

In the past, when you made some of these acquisitions, you've been able to drive significant operating leverage, and I know you talked about the margin opportunity you're expanding.

But are there more cost synergies from these data acquisitions than from other business segments that you can extract out of these acquisitions to drive even more operating EBITDA margin expansion than you typically would?.

I don't know about more. There's certainly a bunch. I mean these -- we have operated a lot of these businesses well north of our average EBITDA margins. They operated -- both of these businesses operated, let's say, just south of those margin levels, so we see an opportunity over time to bring them up to our levels..

There's also the concept that they're collecting, in a lot of cases, some of the same data that we're collecting and can we consolidate some of that and create some of the opportunity that I think you're referring to. And that's a possibility in some areas.

It's probably not our primary focus in buying the company, but it's certainly something we think we might be able to take advantage of over the next several years as we look to improve operating margins in those businesses and bring them up to levels that we're accustomed to running our business in the same segments..

So we'll see, but we like what we see so far. We bought companies that are in some of the best business areas that we operate. They're both growing at a decent clip. And we see the opportunity to make them more profitable, all things we like to see in an acquisition and all of those things exist in this 1 or in these 2. .

That's helpful. And then maybe just a more general question on the sales cycles, and we're still hearing about long sales cycles from a lot of peers in the logistics space. But it seems like you guys are still not totally seeing that. The growth rate is suggesting those sales cycles are still holding in fine.

Why do you think you're not seeing some of those sales cycles making whereas a lot of your peers are?.

Well, I think I mentioned this a bunch of time for the last several years that we're in a circumstance where after the pandemic and some of the supply chain challenges that went on in the pandemic, a lot of our customers got much more focused on improving their supply chain operations.

And I'm not sure what other types of companies you're talking about, but to the extent that we're very focused on areas that they think they need to improve in, a lot of their investment dollars tend to go there, probably regardless of what they're seeing on a day-to-day basis in their business..

They're saying, hey, we need to improve our supply chain over time, and we're willing to make investments there even if we're maybe not making them in some of the other areas in our business as fast as we might when we see -- when a customer sees day-to-day challenges in their business.

And they might say, "Hey, I'm not going to do this and I'm not going to do that." But that supply chain project, we're going to keep going with, and I think that may be the answer to your question. .

And your next question comes from the line of Stephanie Price from CIBC. .

I was hoping you could talk a little bit more about what you're seeing in e-commerce. I think you added to the growth vectors commentary this quarter for the first time in a few quarters. Maybe touch on what's changed there and maybe a bit about what you're seeing with Amazon Logistics as well. .

I mean amazon and some of the larger providers there continue to kind of switch around. You've seen Amazon rise up to the #2 provider for local delivery in that e-commerce business, which is fine with us.

I mean the big growth that we have and the bulk of our customer base in that e-commerce business is in the small- and medium-sized e-tailers, and we continue to do very well there. You heard me mention it as a growth area for us, and I think it will be for some time to come as we believe that e-commerce is going to be -- continue to grow..

And when it does, we're going to continue to help those service providers with the picking, the packing, the labeling, and then the parcel manifesting so that they can actually ship the goods. They all need help with that.

The small and medium-sized e-tailers are growing not only in number but also in size once they get into the markets and we're one of their main software providers in helping them solve some of the biggest challenges they have. And we think that's created a great opportunity for us.

And you can see in the numbers in that business, and I suspect it's going to continue to be like that for some time to come. .

And then, Allan, maybe one for you. LTM adjusted EBITDA growth is above your 10% to 15% growth target. Just curious about the opportunity to raise growth targets, given the solid organic growth and your continued margin improvement. .

Yes. This has been our target for years. We're targeting 10% to 15% growth in adjusted EBITDA and I think we've overperformed that. I think our 10-year average is 18%. I think you could expect more of the same. We're going to set a target. We're going to strive to overachieve and to do better than that target.

And we see a lot of opportunity to continue to do that. Nothing is guaranteed, but with the acquisition opportunities, with solid organic growth, that's going to continue to be the target..

And we do operate at the high end of our EBITDA margin range at 44.3%, our range being 40% to 45% that Ed mentioned earlier. And same sort of theme there. We're going to continue to run our business to try to improve our EBITDA margins. Probably have to see us operate above that 45% for a number of quarters before we would entertain any increases.

But more of the same as I think what we would like to see and expect to continue to see from our business. .

And your next question comes from the line of Steven Li from Raymond James. .

I wanted to also ask about your acquisitions, OCR and ASD.

Like what were their growth rates, let's say, last year? I mean can I say teens or was it double -- low double digit or maybe single digits?.

Yes, they're both coming in high single digits, low double digits over the last couple of years, which is consistent, maybe a little lower than what we're seeing in the same areas in our business, but in the same ballpark, let's say. .

Okay.

I was going to ask you, so you said like OCR is tracking a little bit slower than, let's say, your own MK or visual compliance?.

Yes, but close enough. It's in the range. It's maybe a little smaller, but growth, but close. .

Yes. Okay. Got it. Got it. And Ed, the calibration you gave, $136 million. Last quarter was about $130.5 million.

Can I think that, that delta is the contribution from ASD and OCR?.

Yes, Steven, we've -- as Ed mentioned earlier in the call, we haven't run those businesses for a long time. And so consistent with the way we've always done calibration on new acquisitions, part of those acquisitions and a good part of them have been reflected in our calibration, that's why the numbers jumped up more than maybe you would expect..

But we do expect to fine-tune that and we do see upside as we continue -- as we operate those businesses for a longer period of time, so partially reflected in calibration. The 2 acquisitions are certainly partially reflected there. .

And your next question comes from the line of Kevin Krishnaratne from Scotiabank. .

Just a follow-up on e-commerce. So a couple of years ago, you bought NetCHB, which I think had technology on expedited shipping for small packages, the Type 86 filings. It sounds like there has been some recent changes in the U.S.

that might require more scrutiny on how quickly customs are cleared under that type of filing, and I think some brokers are seeing their ability to ship beyond pause..

So I guess my question to you is, how do you think about that business? It seems like it could be a short-term headwind. But on the other hand, maybe it's a bit of a tailwind if the change is sort of increased demand for some of your other customs services. I'm just wondering if you could comment on this, it seems relatively new. .

Yes. Thanks, Kevin. First of all, we've enjoyed some great gains in those businesses over the last couple of years. And in general, we like our long-term prospects in that business. I agree with you, the government is starting to ask for more information from those types of providers.

And we think that's going to be a good thing for our business long term as we're the guys that collect the information and give it to the government as opportunities for us to provide a more significant service to our customers..

There are also ones that have gotten in some -- had some challenges, let's say, with the government and either been asked to stop filing or do a better job of filing. We also kind of see that as an opportunity for us.

One, to the extent someone has been asked to stop filing because we have the bulk of the filers in that business, we believe we're going to pick that volume up with other providers. And to the extent the government is asking for more information, we think that's an opportunity to provide a more enhanced service to our customers in the long run..

Net-net, we see this because of the Instagrams, TikToks of the world where a lot of these products are being sold, the growth that's coming from that hasn't slowed at all. It's growing and continues to grow. And as the largest filer out there for Type 86, we think we're going to continue to benefit from that in the long run. .

And your last question comes from the line of Scott Group from Wolfe Research. .

Guys, I'm on the road. Hopefully, you can hear me okay.

So Ed, when you guys do a couple of relatively large acquisitions in the quarter, is the thought that from here, you pause for a little bit and see how they perform? Or you think that there's more to go in terms of M&A activity over the course of the year?.

Thanks, Scott. We can hear you fine. We have a pretty significant corporate development function at this point and think we have certainly the bandwidth to do more acquisitions.

We're also in a position where we see a lot coming at us right now, a lot of things for sale, a lot of things that we think are in a price range that we think is reasonable and we'd like to take advantage of that. So I don't think you're going to see us slow at all based on the last 2 acquisitions we did..

Certainly, they were significant, at least one of them was significant, and that's great, good addition for our business. But we also have the ability to get more done and the ability to get more people working on getting more acquisitions done while we integrate the ones that we just did.

So we're taking advantage of the breadth and size of our business to do that. .

Okay. Good. And then just a couple of follow-ups on some of the market color. Do you have thoughts on like this pretty dramatic increase in ocean spot rates and how sustainable it is? And then definitely, you made a comment about changes at the post office and I'm just wondering how that impacts you, good or bad. .

I mean there's the stuff. A lot of the price increases don't really impact us other than it's a sign of what's going on, right? They're increasing. Yes, it's a very capacity-focused business, right, when they're -- when they have excess capacity, their rates tend to go down.

When they have increased capacity -- sorry, when they have increased capacity, the rates tend to go down. When they have less capacity, the rates tend to go up, and we're seeing that..

And I think some of the challenges I mentioned with the Red Sea and the Panama Canal are contributing to that. You probably also just have -- they're doing all right, right now so they're taking that opportunity to raise rates. It doesn't really impact us much. We see it happening.

We charge by the transaction so we're not really impacted by their rates so much. We take it as a good general sign not only for the ocean space, but air tends to follow along with it closely. And as I mentioned earlier, domestic trucking tends to also follow along with it pretty quickly thereafter..

On U.S. Postal Service, we think we have a lot of opportunity in that e-commerce business, and some of it relates to U.S. Postal Service and several of the other providers in that business, Amazon, UPS, FedEx and a bunch of other guys that are smaller than them that we do a bunch of business with.

And as their business picks up, we expect to benefit from that as we always have. .

That concludes our question-and-answer session. I will now hand the call back to Mr. Ed Ryan for any closing remarks. .

Great. Thanks, everyone. We appreciate your time today on the call and look forward to reporting back to you on our Q2 results in September. Thanks, and have a great day. .

This concludes today's call. Thank you for participating. You may all disconnect..