Descartes Systems DSGX reported second-quarter fiscal 2025 non-GAAP earnings per share (EPS) of 40 cents, which missed the Zacks Consensus Estimate of 43 cents. The bottom line, however, expanded 25% year over year.

Revenues in the quarter totaled $163.4 million, beating the Zacks Consensus Estimate by 2.8%. The top line jumped 14% year over year. Synergies stemming from the acquisition of BoxTop Technologies during the quarter, along with OCR and Thyme ASD buyouts settled in the fiscal first quarter, drove the top-line performance. Also, the organic revenue growth of 9% from new and existing customers during the quarter propelled top-line expansion. 

As of Aug. 1, 2024, assuming foreign exchange rates of 72 cents to the Canadian dollar, $1.08 to the euro currency and $1.28 to the pound, DSGX forecasts baseline revenues and operating expenses for the third quarter of fiscal 2025 to be roughly $141 million and $87.5 million, respectively. Baseline adjusted EBITDA is expected at approximately $53.5 million. It continues to project an adjusted EBITDA operating margin range of 40-45%.

Following the announcement, shares were down 2.99% in the after-market trading on Sept., 4.

The Descartes Systems Group Inc. Price, Consensus and EPS Surprise

The Descartes Systems Group Inc. price-consensus-eps-surprise-chart | The Descartes Systems Group Inc. Quote

Segmental Details

Services revenues (contributed 89% to total revenues) in the reported quarter amounted to $146.2 million, up 12% year over year. The uptick was driven by an increasing customer base.

License revenues (1% of total revenues) were $1.4 million, on par with the prior-year quarter figure. 

Professional services and other revenues (10%) were up 39.8% year over year to $15.8 million, driven by unexpected low-margin hardware sales of $2.5 million in the GroundCloud business.

Other Details

The gross margin for the quarter under review was 75% compared with 76% in the prior-year period, owing to the low-margin hardware sales in the GroundCloud business.

Total operating expenses increased nearly 11% year over year due to the BoxTop and OCR buyouts.

Income from operations was up 25% year over year to $45.9 million.

Cash Flow & Liquidity

In the quarter under review, DSGX generated $34.7 million of cash from operating activities compared with $52 million in the prior-year quarter. The decline was due to the payment of $25 million in contingent acquisition consideration for previously completed deals, which was not accrued at the time of acquisition. 

As of July 31, 2024, the company had $252.6 million in cash, up from $238.9 million as of April 30, 2024, due to strong cash flow performance.