One step at a time, Waterloo, Ontario-based Descartes Systems Group Inc. is coming ever closer to leaving the past behind.
In a conference call Thursday to announce its results for the fiscal third quarter that ended October 31, Descartes executives stressed the past year's significant gains and projected a healthy outlook for the quarters ahead.
Across a number of measures, the provider of on-demand delivery management software has shown continual improvement over the course of the current fiscal year. For example, Descartes' fiscal third-quarter revenues edged up to $11.5 million from $11 million in the like period last year. While Descartes' profits decreased compared to the previous quarter -- from $900,000 to $600,000 -- the total was still a welcome contrast to the year-prior period, when Descartes posted a $2.7 million loss.
Other bright spots for the company were its continued success in bettering gross margins -- 61% in quarter three versus 60% in quarter two -- and a positive EBITDA of $1.7 million, up from $1.5 million in the previous three-month period.
To put the quarter's -- and the year's -- gains in perspective, in the seven years proceeding fiscal 2006, Descartes never once posted earnings. The company's stock tells a story of paradise lost. Overinflated by the same mania that filled the tech bubble, Descartes' stock price peaked above $130 a share before eventually crashing to $1.25.
"You can see from the financial results we released today that we are a different company than we were a year ago when we restructured the business," said CEO Arthur Mescher in announcing the quarterly results. "We are a new Descartes."
Key to the company's rebound and subsequent healthy outlook has been a group of industry-leading companies that Mescher calls the "Descartes Dozen." These globally diverse companies utilizing Descartes' service-oriented model, among them the international delivery provider DHL, have helped reseed the company's customer pipeline by acting as references to other businesses considering adopting the technology.
"Without the Descartes Dozen," Mescher said, "none of these results would be possible."
Another aspect of the new corporate culture at Descartes is a fiscal prudence that had long been absent from the company. "We matched our spending levels to the amount of money we expected to receive," Mescher noted on the conference call.
The company's Chief Financial Officer Brandon Nussey echoed that stance, and noted that anticipated costs should not exceed the amount of return they generate. "We believe that our current cost structure can support increased revenues for the short-term future without having to add new expenses," he said.
"So far so good," is how industry analyst Bob Ferrari describes the company's performance since last year's turnaround. Ferrari, the program director for supply chain strategies at Manufacturing Insights (Framingham, MA), a research arm of International Data Corp., sees reason for optimism in the company's gross margins and its healthy cash position.
Where he would like to see more evidence of growth is in the company's revenue, which grew only 4.5% in the recently completed quarter compared with the like period year. Descartes' net cash position of $31 million-plus in the third quarter, he said, gives the company flexibility to focus on customer acquisition. That, along with continued enhancement of the existing product line, is the best recipe for generating substantial gains in revenue, Ferrari said.
In November, Descartes launched an updated Website that showcased the company's rebranded and enhanced product lines. In announcing the new developments, CEO Mescher cited the increasing desire of customers to have one supply-chain solution provider with a broad footprint of applications.
The company's Delivery Management suite, popular with manufacturers as well as retailers and distributors, boasts a range of improvements in its latest incarnation. Among the nine enhanced modules in the new release, the Transportation Management application now features support for RosettaNet for high-tech and electronics supply chains, while the Sales and Territory Planner uses an expanded set of algorithms that Descartes claimed can help improve route productivity by as much as 16%.
Mescher said that combining Descartes' applications and network businesses had enabled quicker global deployment of industry- and process-specific platforms.
It has also led to a greater sales effort. The company added six net new salespeople during the third quarter -- a significant boost to a sales force that had been reduced to nearly zero as part of last year's reorganization.
Along with the traditional lineup of products, they will also be selling Ocean Rate Builder, which provides visibility into ocean shipping rates, and the Automated Vehicle Locator (AVL), a mobile resource tracking application. Both emerged successfully from pilot programs this year and are expected to have a positive impact on revenues in the next quarter and beyond.
"We are starting to see the initial signs of improving pipelines in North America as a result of our investment in sales and marketing made over the past 90 days," Mescher said during the earnings call.
In a statement that sums up Descartes' redefined philosophy, Mescher told analysts during his closing remarks that the grunt work of building and deploying better software is the cornerstone for future success. "It's the pilot work that's got the revenues flowing today," he said, "and then the rest comes later."