Descartes Systems Group Inc

TSX:DSG

Earnings Call Transcript 2019-Q4

[Operator]

Welcome to the quarterly results call. My name is Adrienne, and I'll be your operator for today's call. [Operator Instructions] Please note this conference is being recorded. I'll turn the call over to Scott Pagan. Scott Pagan, you may begin.

[J. Scott Pagan, President & COO]

Thanks, and good afternoon, everyone. Joining me 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 releases 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 Descartes' operating performance, financial results and conditions; 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.With that, let me turn the call over to Ed.

[Edward J. Ryan, CEO & Director]

Great. Thanks, Scott. Good afternoon, everyone, and welcome to the call. Thank you for joining us today. As you'll see from our results, we have another great quarter to finish off another great year here at Descartes. Our organic business continues to grow, fueled by the volumes on our Global Logistics Network, and we continue to supplement that organic growth with strategic acquisitions that add more content, trading partners and solutions to the Global Logistics Network.Every day we have new customers joining the community while existing customers continue to increase their use of our expanding solution set. Changes in the regulatory trade landscape and increasing customer buying expectations continue to create complexity for logistics operations and supply chains around the world. But where there's complexity, we also believe there is opportunity. We believe that in order to take advantage of these opportunities and grow through this complexity, our customers need to be connected to their trading partners and they need to collaborate and have access to timely information from a wide variety of sources.Logistics remains a multiparty, multiprocess challenge and one that we believe is best solved with the multimodal network that connects all constituents of a supply chain. To make it compelling for parties to connect to a network and share information, we continue to believe that it's critical to have all applications data content for all of the parties involved in a shipment. And we believe that our focus on having one place for all parties in the supply chain, shippers, carriers, logistics intermediaries and government agencies, to collaborate and manage the complete life cycle of shipments has been a key enabler to our growth. This is something we've been working on for a long time, so we already have a well-rounded set of solutions for these constituents. But there is more we can do. That's reflected in our continued investment strategy.In FY '19, we added 3 new businesses to the Global Logistics Network, each serving a different constituent in the logistics landscape. And we also announced the fourth acquisition, Visual Compliance, that was completed in February, enhancing our global trade data content footprint. On today's call, I'll do a quick recap of these investments, and then Allan will provide a detailed overview of our quarterly and annual financial results. I'll then finish up the call by talking about our calibration for Q1 and our operating plans for fiscal 2020.But first, let's start by going over some of the key financial highlights for the fourth quarter of fiscal 2019. We had another great quarter of operating results, and we're very happy with our key metrics, fueled by our strong organic results and our ability to successfully integrate acquisitions. Our adjusted EBITDA continues to grow nicely. For the quarter, we generated $25 million in adjusted EBITDA, an increase of 17% over Q4 of last year. Revenue for the quarter was up 12% from Q4 of last year coming in at $71 million. We continue to convert our EBITDA into cash, generating a record $21.8 million of cash in the quarter. And consistent with our long-term operating plans, we've been investing cash back into our business through focused R&D investments and by combining with complementary businesses.All in all, another great quarter here at Descartes to cap off another great year. We have a stable cash generating business, and we're well positioned to continue our growth.So with that, let's talk about some of the investments we made in fiscal '19 and how we believe those investments will help us build our network for shippers, carriers and logistics intermediaries to connect to and collaborate with each other so they can move goods efficiently and securely.Throughout the year, we continue to invest in our business organically with more than 17% of our revenues reinvested into research and development. Many of those investments will be showcased at our upcoming user group here in a few weeks, and we hope to see some of you there. But as with previous years, we've supplemented those organic investments by combining with some new businesses, 3 in total with the fourth announced at the end of the year.Our first acquisition in FY '19 was Aljex. Aljex provides back-office transportation management solutions for logistics intermediaries with a focus on the freight forwarder community in North America. Essentially, they help customers manage shipments from order creation through execution, including real-time tracking on our MacroPoint network. Since the acquisition, we continue to add new freight broker customers to the business, and we're also helping some shippers that are setting up their own internal freight brokerage operations to maximize the use of their trucks. We've also strengthened integration between Aljex and our MacroPoint solutions, resulting in many more Aljex customers tracking their shipments on the network.Furthermore, the Aljex community has been very receptive to our MacroPoint Capacity Matching Solution, and we now have a number of Aljex customers live in our capacity co-op. We've seen a lot of synergy between those 2 businesses, which is driving strong growth, and we expect that growth to continue.More generally, while we're on the topic of MacroPoint Capacity Matching, I'm happy to report that Q4 was another strong quarter of growth for the wider MacroPoint business. Some of this growth is coming from the synergies we just talked about with Aljex and the freight broker community, but we're also seeing increasing number of opportunities on the shipper side for MacroPoint. Looking ahead, we feel that the shipper opportunity and the capacity matching opportunity will continue to drive growth for the overall MacroPoint business.So let's take a look at the second acquisition of fiscal '19, a company called Velocity Mail. While Aljex was focused on the logistics intermediary segment of the market, Velocity Mail is focused on carriers. Using Velocity Mail's network, global air carriers leverage mobile devices to accurately track postal shipments and deliveries in realtime. All carriers need to have access to timely and reliable information about the movement of mail and parcel shipments to operate efficiently and meet postal authority service level agreements.Velocity Mail automates the entire shipment process from route generation to accounting reconciliation, simplifying operational processes for the air carriers, ground handlers and postal authorities. With more than 60% of cross-border e-commerce transactions shipped using portal providers -- or postal providers, the growth of e-commerce has fueled increase in the market for Velocity Mail solutions, and the business continues to grow nicely.Velocity Mail's network operates with similar fundamentals to our network. It helps parties connect and share information, while value-added business applications, which are part of the network, leverage that information to increase efficiencies and improve decision-making. When you think of this acquisition in the context of our overall strategy, it is another example of us building out our solutions for the wider community, in this case, connecting air carriers, many of which are existing customers, to postal authorities and helping them leverage and share information to move another type of good compliantly and efficiently but also investing consistent with trends in the market that our customers are increasingly dealing with. In this case, e-commerce moves by postal authorities around the world. And by combining with Velocity Mail's solutions with the Descartes Global Air Messaging Gateway, air carriers now have one platform to manage the life cycle of all shipments, both e-commerce focused mail and parcel shipments, including larger freight shipments. We're really excited about the opportunities we're seeing as we bring these things together for our air carrier customers and their partners, and we believe it will lead to larger growth opportunities as a combined business.Our third acquisition of FY '19 was PinPoint, a leading provider of fleet tracking and mobile workforce solutions based in Canada. This acquisition was focused primarily on our community of customers that operate their own fleet of vehicles and/or manage a dedicated fleet of vehicles. Typically, these would fall into the category of shippers such as retailers, manufacturers and distributors, but it can also include business service providers and trucking companies.PinPoint helps their customers collect real-time location information on trucks and mobile workers with the help of Geotab telematics solutions and Skybitz asset tracking solutions. This information can then be used by technology solutions like Descartes' [indiscernible] and telematics to drive fleet and mobile resource productivity, manage driver performance and comply with government regulations. The market for these solutions continues to grow with market demand stemming from 2 main sources: First, end customers increasingly wanted to access real-time information on the location of vehicles; and two, new government regulations around driver hours of service are coming into effect. For instance, the Electronic Logging Device or ELD mandate in the U.S. has driven increased adoption of telematics solutions in both the U.S. and Canada over the last few years, and we expect further tailwinds for this market, particularly in Canada as the Canadian government follows suit. Since the acquisition, we've seen a number of opportunities created to sell further Descartes solutions into the PinPoint customer base, and we're benefiting from having more scale and domain expertise in this area of our business.As you can see, each of the acquisitions in FY '19 was focused on a different customer segment, helping us build our solutions on the Global Logistics Network for logistics intermediaries, carriers and shippers. Toward the end of the fiscal year, we also announced another acquisition that was closed on February 12, a company called Visual Compliance. Visual Compliance is now part of our global trade content offering. The business provides software solutions, content and services to automate customs, trade and fiscal compliance processes with a focus on denied and restricted party screening processes and export licensing. Visual Compliance is based in Canada and serves over 2,000 customers with over 67,500 subscribers operating in over 100 countries. The acquisition follows our other recent investments in trade content, including Datamyne, Customs Info and MK Data, a business that was also focused on denied party screening.As we're all seeing in the news every day, global trade has become even more complex with new trade agreements, trade disagreements and ongoing geopolitical activity resulting in increased levels of sanctions and enforcement. Denied and sanctioned party screen has become a critical must have for companies for every business dealing they have, whether it be for shipment of products abroad or relationships with new and existing customers, partners, suppliers and employees. We anticipate the future may include regulatory mandates on certain businesses to conduct these types of screening activities. In the meantime, those that don't have some sort of screening solution in place put themselves at risk.We're seeing demand for more screen services from our direct customer base with businesses stepping up their compliance activities in the face of increased enforcement. Demand from our partners in the space remained strong, too, as we support our own partners in the global trade management space like SAP and Oracle. We continue to see demand for more and more detailed screening data that captures the myriad of relationships and commodity shipments multinational companies can find themselves in.Like Descartes, Visual Compliance is an existing partner of both SAP and Oracle, and we think the combination will give us more firepower to support our partner community. It's only been a few weeks since we closed the deal, but since then, I'm happy to report that we've had a great start to the integration with domain experts from both Descartes and Visual Compliance already mapping out how we can leverage each other's respective strengths to better serve our combined community. I'd like to take a minute to welcome the Visual Compliance customers, partners and employees to Descartes and our Global Logistics Network.Before handing the call over to Allan to talk a bit more about the financials, I'd like to thank some people that continue to contribute to the strength of our business. So thanks to our employees for all the hard work they put in to make sure our customers get results. Our customers continue to get results, and that's why we have a successful business. Thank you to our customers who continue to place confidence in Descartes as their network of choice, whether you're a shipper, logistics intermediary, carrier or even a government agency. Thanks for connecting and helping our community grow. Thank you to our partners for helping us to continue to expand our ecosystem, and thank you to our shareholders for continuing to have confidence in Descartes.And with that, I'll hand the call over to Allan.

[Allan J. Brett, Chief Financial Officer]

Okay, thanks, Ed. As indicated, I'm going to take you through our financial highlights for the fourth quarter and our year ended January 31, 2019. As Ed mentioned, we are pleased to report record quarterly revenue of $71.0 million this quarter, up 12% from revenue of $63.6 million in the fourth quarter of last year. Service revenue remained strong coming in at $62.9 million or 89% of revenue, up 14% from $55.0 million or 86% of revenue in the fourth quarter last year.Gross margin also continued to be very strong coming in at 73% of revenue for the fourth quarter, consistent with the fourth quarter of last year. We produced adjusted EBITDA growth of 17% to $25.0 million or 35.2% of revenue in the fourth quarter compared to $21.4 million or 33.6% of revenue in the same quarter last year. As a result, as a percentage of revenue, adjusted EBITDA has improved nicely from the same period last year as a result of the strong revenue growth as well as our continued cost control and operating efficiency. As a result of these solid operating results, cash flow from operations came in at $21.8 million or 87% of adjusted EBITDA in the fourth quarter, up 11% from $19.6 million in the fourth quarter of last year.Other charges of $1.5 million were recorded in the income statement during the fourth quarter, primarily as we incurred additional expense on increasing the initial estimate of the earn-out payment expected on a past acquisition. As a result of the previously mentioned items, GAAP net income came in at $7.9 million or $0.10 per diluted common share in the fourth quarter, which was an increase from $6.7 million or $0.09 per diluted common share in the fourth quarter last year.If we will look at the results for the -- results of operations for the year, revenue came in at $275.2 million for fiscal 2019, up 16% from revenues of $237.4 million in fiscal 2018. Gross margin was 73% for the year, consistent with the same -- with last year. Adjusted EBITDA for the year was $93.9 million or 34.1% of revenue compared to $80.8 million or 34.0% of revenue for fiscal 2018, an increase of 16%.Cash flow from operations was solid at $78.1 million or 83% of adjusted EBITDA this year compared to $72.1 million or 89% of adjusted EBITDA last year. We should note that we continue to expect cash flow from operations to come in the range between 80% and 90% of adjusted EBITDA, subject to quarterly fluctuations.Our tax rate for the year came in at 20.8%, down slightly from 22.7% last year. As a result, GAAP net income for fiscal 2019 came in at $33.3 million (sic) [ $31.3 million ] or $0.40 per diluted common share, up from $26.9 million or $0.35 per diluted common share in fiscal 2018. This represents a 16% increase. As Ed has already mentioned, we're really pleased with these continued strong operating results as we closed out our 2019 year.If we turn our attention to the balance sheet, we ended the year with cash balance of $27.3 million, while we had drawn $25.5 million on our group credit facility at the end of the year. As a result, we ended the year with a very small positive net cash position of $1.8 million.During the fourth quarter, we were able to repay approximately $25 million on our operating facility. Also, as previously mentioned, late in the fourth quarter, we amended our credit facility to increase it to USD 350 million. And then just subsequent to year-end, we drew an additional CAD 318 million or approximately USD 240 million to complete the Visual Compliance acquisition, and we did that on February 12. So as a result, as at February 12, we had approximately $265 million drawn on our credit facility, leaving us approximately $85 million of additional borrowing capacity.We continue to believe that with this undrawn balance on our credit facility, along with our current cash balances, our ability to expand the credit facility by an additional $150 million as well as the expectation of continued cash flow from operations, we remain very well capitalized and ready to execute on our business plan, which could include additional acquisitions as we continue to explore them.As we look forward to fiscal 2020, we round out our financial -- and we round out our financial picture, we should note the following. At this point, we see a small negative impact on revenue from foreign exchange in the first quarter. And as always, we continue to be fairly naturally hedged, so we don't expect any impact, any material impact on foreign exchange to our adjusted EBITDA or our operating cash flows at this time.Beginning this year, we will adopt the new lease standard ASC 842 under U.S. GAAP. We currently expect that there will be an increase in lease liabilities and a right to use lease asset of approximately $11 million on our balance sheet in the first quarter. However, we do not expect any material impact from -- on the income statement or the cash flow statements from the adoption of this new accounting standard.As I mentioned earlier, our tax rate was 20.8% for the year in fiscal 2019, and going forward, we would expect that it will be in the range of 23% to 26% of pretax income closer to our statutory tax rate of 26%. As always, our tax rate may be impacted quarter-to-quarter by any unusual or onetime adjustments in any of our international operations.After spending $5.2 million on capital assets in fiscal 2019, we expect to incur approximately $6 million to $8 million in additional capital expenditures this year. And these expenditures are expected to continue to be primarily focused on investments in our network, including in the area of cybersecurity. We currently expect amortization expense will come in approximately $39 million for fiscal 2020 with this figure being inclusive of the estimated impact of the Visual Compliance acquisition but also subject to adjustment for FX changes as well as the completion of any other additional acquisitions. And finally, we expect stock-based compensation will be in the range of $2.8 million to $3 million in the coming year.So with that, I'll turn it back over to Ed, who will provide our calibration for Q1 and to wrap up.

[Edward J. Ryan, CEO & Director]

Hey, great. Thanks, Allan. So calibration for Q1. Similar to previous quarters, we don't provide guidance, but we use our baseline calibration as a key metric relating to the ongoing health and strength of our business. Our calibration for Q1 assumes the following exchange rates of CAD 0.75, EUR 1.13 to U.S. dollar and GBP 1.34 to U.S. dollar. Our calibration for Q1 is $74 million in visible recurring contracted revenues, otherwise known as our baseline revenues. We typically see a negative seasonality impact as we transition from Q4 to Q1. On the flip side, the addition of Visual Compliance from February 12 positively impacts the calibration. Our baseline operating expenses are $51.8 million. This gives us a baseline calibration of $22.2 million for adjusted EBITDA for Q1.Some other key points related to how we're positioned for fiscal 2020. We have a solid financial footing. We have a healthy business that's well calibrated, and as Allan mentioned, following the increase in our debt facility and the borrowings for Visual Compliance acquisition, we still have very healthy balance sheet. We are profitable and cash generating. We have low capital needs within our organic business, and as you've seen from our recent historical financial results, we have solid growth in our organic business.Our primary uses of capital are for continued use in acquisitions. We've completed 42 acquisitions since 2006. And we have access to additional capital capacity should we need it. Allan mentioned that we have about $265 million drawn on our line of credit out of $350 million following the Visual Compliance acquisition, leaving $85 million in capital capacity available immediately. And we have the ability to expand that line of credit to around $500 million if needed. We also have filed our preliminary shelf prospectus for up to $750 million if capital was needed to be raised using other mechanisms.We have a strong acquisition pipeline. There continues to be a lot of industry activity right now with the consolidation continuing in our market. With our capital capacity and our execution capabilities, there are still a number of acquisition opportunities to expand the geographic reach, functional capabilities, trade data and content or community of participants on our network. We continue to see a lot of interesting opportunities out there to continue or even accelerate our pace of profitable growth. We're seeing both larger and smaller opportunities. And while we review everything as it comes our way, we're not buyers for buyers' sake, but our recent acquisition of Visual Compliance does not change our willingness to do them. The fact that we have an acquisition line of credit and a shelf filling in place doesn't change how we view acquisitions. We intend to continue to be prudent on valuations, but we're confident in our ability to deploy capital effectively.Looking ahead to fiscal 2020, we have completed our planning processes as we do every year around this time. As we've said in the past, our belief for sustainable growth in the long term is a 10% to 15% growth in adjusted EBITDA. However, given the scale of the Visual Compliance acquisition for fiscal 2020, we are planning for our growth rate of adjusted EBITDA in the mid- to high 20s.As in the past, we intend to invest any over performance back in the business. Our growth is planned to come through a combination of organic and inorganic activities. Acquisitions are not incremental to this plan. We intend to continue to focus on recurring revenue and deemphasize onetime license sales. Our planned operating margin remains at 32% to 37%. Given the current performance of the business and mindful of the FX environment, that remains our target range even as we integrate MacroPoint into our business. But please keep in mind, this could vary if we buy other businesses that need fixing up, which would impact that metric in the short run.And a quick update on our annual user conference. The time is almost upon us for Descartes Evolution 2019. Our user conference is less than 3 weeks away. If you haven't booked your tickets yet, I encourage you to do so as soon as possible. The event provides a great opportunity to see our business at work, from products to customers, to partners, to Descartes team members. You can even meet some of the new team members from the acquisitions I spoke to earlier. I know several on this call have been to the event in the past, and I hope they found it worthwhile. Registration is open on our website, and we're planning to make this the biggest one yet. So get yourself registered and come down and learn more about what we do. The conference this year will held in the Naples Grande Beach Resort in Florida, Tuesday, March 26 to Thursday, March 28.And finally, as always, we'll continue to make ourselves available to shareholders to answer any questions. We believe we've got a great business. We want to be available to help people learn about our business, we'll continue to spend time and resources to get the word out, and we hope you'll do the same.So with that, operator, let's open the call up to questions.

[Operator]

[Operator Instructions] And our first question comes from Phillip Huang from Barclays.

[Phillip Huang, Senior Equity Research Analyst]

Maybe I'll just start with MacroPoint. Was wondering if you might be able to give us an update on the size of MacroPoint. I think you guys alluded in the past, not too long ago, that you always have double the revenue since you acquired it and certainly, we've seen some very strong organic growth. Just wondering if you could provide an update on MacroPoint.

[Edward J. Ryan, CEO & Director]

Well, that -- it continues to perform very well. It's a great business. We think there's a real opportunity ahead of us in the capacity matching business as well. That's early days there, but we're very excited about the ramp that we're seeing in that business. And I hope to continue the growth rates that we've seen over the past 1.5 years since we've owned the business. It's one of the best we've ever bought.

[Phillip Huang, Senior Equity Research Analyst]

Yes, that sounds encouraging. On the backhaul opportunity, I was wondering if you might be able to elaborate a little bit on the adoption so far, especially the number of customers you have on the pilots. How has that been progressing?

[Edward J. Ryan, CEO & Director]

I think we're up at around 30 right now, and maybe the -- these are all small numbers, but the revenue in its maybe doubled since we talked about it last monthly run rate. So we're excited about it. Still early days, not a lot of money. You're not going to notice it in our financial results anytime soon, but we're very encouraged with the reports we're hearing back from customers about how it's working for them. We're encouraged that they are all signing up when they go through these pilots that we've opened up. And they get out of pilot, and they immediately sign up as a customer. And that -- in that process, they're all agreeing to share all their driver information across our entire network, which is, as I mentioned a couple of quarters ago, was one of the initial hurdles that we were concerned about. They all seem to be able to get over that. I think, furthermore, a lot of the people that think they're going to address this space are coming at it from a different perspective than we are. We're very focused on helping our freight broker customers take advantage of the ability to match capacity. I think most of the other players in the market have taken a much different approach to that, and they are going out trying to disintermediate this entire market. I don't believe in that strategy. I don't think our company believes in that strategy. You can see in our relations with our global freight forwarders and some of the people that we dealt with internationally, we've never taken that approach. We're always working in concert with the intermediaries to help them solve a broader problem here, and we believe that's the right way to do it. And I think the playing field over the years that I've been in this business is littered with a bunch of technology companies that oversimplify the problem and come in and say they're going to disintermediate everyone in this business and they all fail. And I think I'm watching that again in this freight brokerage community.

[Phillip Huang, Senior Equity Research Analyst]

No, that's very helpful. And maybe a last one for me just on the M&A side. It appears that some of the larger deals, recent larger deals like MacroPoint and Visual Compliance, revenue synergies seem to be becoming a bigger driver of the strategic rationale rather the -- relative to just sort of cost synergies. And that's certainly reflected in your stronger organic growth and also the multiples paid. So when you look at your pipeline, are you finding more attractive opportunities that offer greater revenue synergies versus just opportunities are mainly driven by cost on the cost side?

[Edward J. Ryan, CEO & Director]

We see both. Yes, thanks, Phil. We see both as we have for a long time. You probably heard us talk in the past about the last 5 or 6 years with private equity coming in what we perceive to be over aggressively coming into this space and spending money because they have a lot of money to spend. And they have to put it to use or they don't get their management fees. So they're in spending what we have perceived to be wildly. And when we look out there and see stuff for sale, we, having been in this market for most of our lives, so we kind of look and say, hey, let's -- if we're going to have to pay up for an asset, let's make sure we get a good one, right? I'm happy to pay a reasonable amount of money for something that I think is a great business, and we're happy to do that. What I'm not happy to do is pay a lot of money for something that's an average business. And when we're competing against these firms, when we see something that's great and we see something we think's going to be good a fit on our network, we do the math and say, hey, we think we can make this work out and we're willing to pay for those businesses. Same focus, though, on how we're going to get our money back, same focus we've always had on stuff, maybe a different way to get there, right? When you buy something that needs to be cleaned up quite a bit, you pay a lower amount for it, you pay a lower multiple for it, but then you have a lot of work to do to fix it up. And that can be a distraction from other things in your business. We're well aware of that having done that a bunch of times. When we see something that's great, and we see something that's growing and we think is a great fit on our network, we think we should be the buyer for this business and can best take advantage of it. As you've seen with the MacroPoint example and the Visual Compliance example, we go after it. And we think, given our experience in the market, we have a better chance of being right than a private equity firm that might have been in this market for 2 or 3 months versus 20 or 30 years.

[Operator]

And the next question comes from Paul Steep.

[Paul Steep, Analyst]

Ed, could you talk a little bit? We've seen huge change or lots of industry noise around Amazon coming in the space with ADS. I'd like to get your take on that, more importantly, how you're going to help clients, and maybe preface a little bit what'll come at the conference, deal with some of those changes in the market.

[Edward J. Ryan, CEO & Director]

Well, they're a big customer of ours, too, so we help them as well. I don't know how far they're going to go on this. I read the same reports as you do. I think there are some challenges for them ahead and that a lot of people they might compete with would never use them as a transportation provider. And I think if they really want to be a common carrier of sorts, right, that services everyone, there's going to be a large chunk of the market that's going refuse to do business with them. Now I think for their shipments or shipments that -- from sellers on their platform, I think they're a very logical choice to do that. But at the same time, seeing -- in the parcel market, you've seen a lot of people go up to try and compete with FedEx and UPS over the years. Most of them have failed. And if you think about what Amazon is doing, it's really aimed at small package and maybe a little bit of air. And I think they're probably going to be a long ways away from being able to deliver to every home in the market. But I'm watching the same way as you are to see how far do they go in this. I don't know where they stop. We do help our customers and always have helped our customers compete with whoever they're competing with, whether it's Amazon or any other transportation provider out there. I'm watching along. They're also a good customer of ours, so I'm happy for their success. And we'll see what happens.

[Paul Steep, Analyst]

That's great. Maybe the other area that relates to it, Ed, is just talking a little bit about the omnichannel and home delivery, some of the work you've done there. You bought a number of assets over the last few years. Talk about how that sort of come together and maybe even the size of that overall piece of the pie within Descartes.

[Edward J. Ryan, CEO & Director]

Thanks, Paul. Yes, it continues to be a great business for us. The Best Buys and Home Depots of the world were the tip of the iceberg for us. We continue to have name brand wins out there in our home delivery space. We think we have the best solution in the market for that. We kind of invented the process of having a customer be able to select the delivery time on the website and use that to more efficiently route trucks in the coming days. And we continue to enhance that product to meet the demands of our customers as they think of new ways that they want to make these deliveries and interact with their customers on the website or in a store and all while knowing that if they're using our solution that they're going to route their trucks more efficiently than if they weren't. So I think that's going to continue for a long time. I think more and more companies are seeing how they might take advantage of this nonstop optimization or dynamic optimization tool set that we have and integrating that into customer interaction that sits on their website, is the space we invented and we continue to enhance that with more and more capabilities that drive a customer to hopefully say, "Hey, I really like this website. It's really convenient booking with these guys." And I look forward to doing more of that for our customers.

[Operator]

Next question comes from Deepak Kaushal from GMP Securities.

[Deepak Kaushal, Director and Technology & Communications Analyst]

Ed, maybe more of a longer term, a bigger-picture question. So your strategic model for the last 10 to 15 years, if I can paraphrase, reinvest all the cash flow back into the business or into acquisitions, driven by customer needs to drive more value for them. So how could this or should this change over the next 10 to 15 years going forward as you guys get larger? Do you see -- how do you see Descartes evolving here?

[Edward J. Ryan, CEO & Director]

Well, I think we hope to do more of the same. I mean, we think the model that we have is the right one. We tell everyone 10% to 15% growth. We do our best to beat 15% every year. We've done that for 10, 12 years in a row now, and we do that through a combination of organic and inorganic activities. We keep getting better at finding and buying and integrating companies. And you can see us with the capability over the last couple of years to do bigger and bigger deals. I think you'll see more of the same from that. I like the strategy. It's one that's worked for a long time. It's a fairly generic one, right, too. I mean, there's a lot of flexibility within that strategy to buy different types of companies. You've seen us maybe change the mix of that to buy in maybe higher-quality assets in the last couple of years from time to time. So I think -- at a high level, I think you're going to see us do a lot of the same going forward. We believe in that strategy. What kind of companies are we buying in there and what they're focused on, that may change over time as we see things in the market. For example, e-commerce, over the last 5 years, has been a big focus of ours. We see that market is expanding rapidly. You see a lot of the acquisitions we've done are aimed to take advantage of that. That may not be the case forever. There'll be another e-commerce that comes along in the future. I don't have a crystal ball to know what they all are, but when they do, I want to take all the expertise that we have in understanding the supply chain and logistics technology markets and put it to use to make sure we make the best decisions. But the combination of inorganic and organic growth, trying to grow 10% to 15% a year, which I kind of perceive as growing at a healthy pace, I think that's going to continue for a long time.

[Deepak Kaushal, Director and Technology & Communications Analyst]

Okay. So it doesn't sound like, in the next 5, 10 years, you'd be limited by size. But does size necessitate managing the divisions of the business differently? And how do you think about that and how that may change?

[Edward J. Ryan, CEO & Director]

It's obviously at a detailed level going -- we already have -- without probably making it obvious on this call, we've changed the way we run this business 3 or 4 times over the last 10 years as we've grown. But I think those are all things -- lessons learned. We look at our business and go, hey, it's getting bigger. Maybe we should manage this a little differently now as we continue to get bigger. I think you'll see us continue to make those adjustments over time. But we have a management team here that's very open to doing that. And we're not stuck on our knitting too much in terms of how we operate the business. But I do think there's a lot of value. We perceive a lot of value in integrating these businesses together to make them one business. And I know there's companies out there that disagree with that, and they operate in a whole different way. But we have seen that we can operate businesses very profitably and go out to our customer base with a very complete, integrated solution, and we think that's the best way to do that. And I think you'll see us do that for a long time to come.

[Deepak Kaushal, Director and Technology & Communications Analyst]

So I appreciate the answer. I do have a follow-up for Allan. I know you mentioned amortization of intangibles. I think you said $38.8 million in 2020. That includes Visual Compliance. I would have thought Visual Compliance would have increased that versus fiscal '19. What's the other offset here? Is that goodwill or assets or tangible assets?

[Allan J. Brett, Chief Financial Officer]

No, there's other intangibles from past acquisitions that dropped over time. And keep in mind, at this point, the Visual Compliance number we're giving is very much an estimate, simply that we don't have all the purchase accounting work done. But that is our estimate for the coming year inclusive of that number -- or that acquisition.

[Operator]

And the next question is from Paul Treiber from RBC Capital Markets.

[Paul Treiber, Associate]

Just in regards to -- can we stick with international for a moment? You mentioned several of the recent acquisitions like PinPoint, Velocity Mail that you've announced over the last year. What's the international opportunity or the opportunity to take those businesses, which are predominantly North America, into other markets?

[Edward J. Ryan, CEO & Director]

Well, Velocity Mail is an international business, right? We -- that already is international. We hope to continue to expand that internationally because we do business with just about every cargo carrying air carrier in the world and Velocity Mail only had some of them. So as we go around and talk to our customers about some of the new solutions we've added to the network, that's certainly high on the list when we're talking to air carriers. PinPoint, to some extent, it's U.S., Canada primarily focused. There's different telematics issues over in Europe, so I don't know if you'll see us moving that to Europe as quickly or to Asia as quickly. But more over other parts of our business. I mean, a decent chunk of our business is focused internationally. The other one that comes to mind is MacroPoint, where we're cautiously starting to move over to Europe, focusing initially on English speaking countries and looking for opportunities to bring that MacroPoint solution over there because it's largely nonexistent in the European area at the moment.

[Paul Treiber, Associate]

And just in regards to MacroPoint in Europe, I think you mentioned it in the past. What are the constraints to ramping it up over in Europe?

[Edward J. Ryan, CEO & Director]

You have data privacy issues over there that are a big issue. We're tracking a driver based on the position of his cellphone. That's potentially a personal privacy issue, so you have to figure out ways to get around that in each of the countries to comply with their rules. You have language issues, and you have some issues with the way drivers work in different countries. They're not all set up the same way North America is. There's a high percentage of freight brokers over here. That's not necessarily the case across Europe. There's larger trucking companies. There's less independent owner/operator. So this may be a different way of doing things over there that we have to take into account as we start to bring the service over there. And I don't want to rush it over there and not do a good job of it. We have a pretty good reputation globally with a lot of the big air carriers, ocean carriers, trucking companies and rail carriers, and I don't want to put any of that at jeopardy by rushing something out over there. So we're going country by country trying to -- customer by customer and trying to find ways to bring it to Europe and do a good job of it.

[Paul Treiber, Associate]

And then just on the long-term margin outlook of 32% to 37%, the -- I would think that Visual Compliance is above that and will be accretive to your margins. With Visual Compliance, do you see the greater ability to reinvest back in your business? Or do you see margins beginning to trend up over time with that in your model now?

[Allan J. Brett, Chief Financial Officer]

Yes. I think, for -- as Ed indicated, we've maintained that operating ratio 32% to 37% for now. We've only had the Visual Compliance business for 3 weeks. So we want to take time and look at that business and see how it fully integrates. We always invest in our business. That is part of our business plan, and it drives the 10% to 15% long-term growth that we're looking for. But we'll continue to watch where the margins go to. You can see it in our calibration. We've put Visual Compliance into our calibration. You can see an improvement in the calibrated adjusted EBITDA margin. But we'll continue to update you guys as we operate this business and we get more comfortable quarter by quarter.

[Paul Treiber, Associate]

And then, Allan, just one last one just on Q1 baseline. Could you -- is that inclusive of the new lease accounting?

[Allan J. Brett, Chief Financial Officer]

Yes, it is, but as I mentioned, the lease accounting -- the new pronouncement or new accounting rules for leases, they are not expected to have a material impact at all on our income statement or our cash flow. It's really a balance sheet issue. So it is inclusive, but there's not a big impact from it.

[Operator]

And the next question comes from Stephanie Price with CIBC.

[Stephanie Doris Price]

On Visual Compliance, can you talk a bit about sales force integration with Visual Compliance and whether you're going to be keeping both sales team and the cross training of Visual Compliance sales under the GLN products?

[Edward J. Ryan, CEO & Director]

Yes, I think, for the moment, we're staying -- we're keeping that data content team focused on data content. I think it's a great addition to have our MK Data Services-focused salespeople, Customs Info-focused salespeople now have the addition of a whole bunch of other Visual Compliance salespeople that also know the space very well. We're cross training them across all of those data content products, Datamyne, Customs Info, MK Data and Visual Compliance. We're doing that across that whole sales force. We also have our mainline sales force that sells to all the big retailers and manufacturers and logistics intermediaries, trained on those products and then bringing those sales reps in that focus on Visual Compliance or Customs Info or MK Data on a case-by-case basis as they uncover opportunities in their broader market. And I think that's what we're focused on right now. The questions beyond that are probably not something we spend a lot of time on in the last 3 weeks.

[Stephanie Doris Price]

Fair enough. And when you think about Visual Compliance, how meaningful do you think that kind of that incremental additional revenue from cross-sell could be going forward?

[Edward J. Ryan, CEO & Director]

Well, it's interesting. They are in the same business as MK Data, but they have 2 different offerings. That's one of the reasons we went after them so aggressively is because we looked and said MK Data was very good at putting data content in an SAP or Oracle format. They won most of those deals. When you have SAP or Oracle, they are very logical choice. That's why we've had such a good partnership with SAP and Oracle, because we could go to their customers and give them the data content in a format they could look directly in their SAP or Oracle system. Visual Compliance, on the other hand, was very good at doing a transactional-based kind of compliance check. So you're constantly sending them names to check all day long, and they built a lot of tools that made that very convenient for the customer. And so we looked at it and said, "Hey, we have 2 great databases here that are very similar databases. Maybe there's some cost synergies there." But we now have 2 ways to provide the service that we -- where we really only had 1 before. And that opens up -- us up to a whole bunch of new customer opportunities that -- where maybe we weren't the first choice and now we are.

[Operator]

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

[Matthew Charles Pfau, Analyst]

I wanted to circle back to MacroPoint. And there's a few competitors out there that have recently received funding. So just kind of wondering what you're seeing competitively, if there's been any change there recently.

[Edward J. Ryan, CEO & Director]

We're -- we -- most of what we hear about is the funding and how they're spending their money like it's somebody else's money. In terms of seeing them in the market, there's one that we see as a competitor of ours maybe more frequently, not so much in our core market with the freight brokers, but when we go out and sell to big retailers and manufacturers, we see 1 of them been in a good portion of deals, 40%, 50% of the deal. So we're aware of them maybe running the business a lot differently than MacroPoint ran it. MacroPoint always kind of ran the business to make money. These guys are -- talk about the same 2 that you are. They raised a lot of money at very high valuations. One of them was at $0.5 billion valuation, which for a company that has pretty low revenue seems like extremely high valuation to raise money at. And we're competing with them because we think we have a better mousetrap. So we're out there every day slugging it out with them. We got a lot more sales reps than they have, so we're able to go out and touch a lot more customers more quickly than they are. And with a better product, I hope the -- I hope that all comes out in the wash at the end of the day.

[Matthew Charles Pfau, Analyst]

Got it. And then just wondering on size of acquisitions. Obviously, you're still doing a mix of both large and small deals. But the large size continue to move up over time and then with Visual Compliance took another material step-up. And one of the, I think, keys that you've done over time for your acquisitions is not getting in bidding wars and being able to purchase businesses at a reasonable valuation. Now Visual Compliance was perhaps a unique situation. But I guess, where do you think you are at in terms of the ceiling in terms of size of acquisition that you could do and still sort of execute that strategy that you've done historically to be able to pay reasonable multiples and not get into these overpaid situations where there's multiple, perhaps, private equity or other strategic acquirers out there trying to bid on an asset?

[Edward J. Ryan, CEO & Director]

Well, you don't get to see it, but we've walked away from a whole lot more deals than we've done in the last 5 years. When we look at something and say I don't know how we're going to get our money back for doing this, then we go, well, then let somebody else make that mistake. It's not going to be us. Remember, oftentimes, when these companies are selling to private equity, it's not over yet, right? They're just buying it for a couple of years. They're going to try and dress it up and put lipstick on it and sell it to the next guy for more than it's worth or more than they paid for it. We're happy to not participate in that game when we don't think we can get our money back for our shareholders. And at the same time, you see us keep doing bigger deals. I think we're probably very focused on being a consistent performer, and as a result of that, we don't take a ton of chances. And any chance we take is a very calculated decision. We place a lot of value on consistency, and as a result, we're fairly conservative. And I think you'll see that continue, albeit at perhaps bigger sizes, right? As we get bigger, our wherewithal to do bigger deals and integrate bigger deals and get the money to do bigger deals continues to expand. And I think you see that over the last 5 years in the size of deals that we're doing. I would expect that will continue.

[Operator]

And the next question comes from David Hynes with Canaccord.

[David E. Hynes, Analyst]

Ed, you obviously have a ton of modules now, and obviously, not all products fit all customers. But can you give as an update kind of where the average customer is in terms of number of products used maybe versus kind of where your best customers are? I mean, anything to help us kind of put in perspective what that same-store sales opportunity may look like with the current product set?

[Edward J. Ryan, CEO & Director]

Yes, let me answer a little more -- with a little more complicated answer than you're asking. So if I gave you an average across all the customers, it probably wouldn't be very helpful. So let me break it down. It's carriers are one component. We're probably selling 5 to 10 products, maybe 15 to carriers, but they have very high volumes in those 5 to 10 products. Logistics intermediaries, which tend to be our biggest customer base, we have more products for them than just about any other type of customer. You see the biggest guys there getting into the 30 to 40 different product lines of ours and oftentimes, with the biggest 3PLs out there, very large volumes. Most of our top customers are 3PL. Logistics intermediaries, let's call them. And then you have big retailers and manufacturers. And they're, again, like carriers 5 to 15 product sets from ours, 15 probably being our biggest retail customer. But they also have a wide range of volumes, right? Depending on how big their company is, their volumes can vary dramatically. And with now almost a little over 20,000 customers, a lot of them being retailers and manufacturers, they can go from guys that are spending $50 a month to guys that are spending $150,000 a month depending on what they're doing with us. So we continue to infiltrate all those customers, especially in the retail and manufacturing space. We're getting new names all the time. And as soon as we get them for 1 product, the sales guys' next job is to go in and tell them about the next 4 or 5 products that they think would be a great fit for them and help them save money. And we're trying to go and show them, "Hey, let me -- if you use this product along with the one you have, you can save this much more money." And we're going out and making that argument and trying to get them to turn into like a CVS or a Home Depot or a Best Buy that's using a whole bunch of our products.

[David E. Hynes, Analyst]

Got it. And then maybe a follow-up. You obviously talk to customers often, so you know where their interests lie in terms of product use. I'm just curious, how many other like trade data content categories are out there that would make sense for Descartes to own? I mean, obviously, these have been massively accretive acquisitions when you've done them. So kind of how big is the opportunity to expand that footprint?

[Edward J. Ryan, CEO & Director]

We still have more opportunities to buy data content companies. Visual Compliance was obviously one of them. They kind of fall into 2 camps. You have new types of data content that we might get our hands on in an acquisition. You also have -- like Visual Compliance, you have a dataset that we're already in the business of selling, and we've seen other company that does that and say, hey, that'd be a great fit with our business that provides, in this case, denied party screen, restricted party screening. And we are open to doing both, right? We look at the math behind them and say, oftentimes, buying another company that does same kind of thing we do in the data content space is a very lucrative proposition because now I -- 2 companies collecting the data twice. Now I have put them together and I go out and only need to collect the data once. And I can take the solutions they both offer and say, hey, they're not exactly the same solution. There was reasons customers chose one company over the other. If I have them both, now I have a more complete solution set. So I think you'll see us continue to look at the space and look for additional opportunities, and I think plenty exist.

[David E. Hynes, Analyst]

Yes. Yes, well, certainly, the benefits are reflected in that EBITDA guide for 2020, so good work.

[Operator]

And another question from Steven Li from Raymond James.

[Steven Li, Senior Vice President]

Guys, just a quick question on the margin. So you -- the target range of 32% to 37%, given the Visual synergies with MK, that probably pushes margins a little higher. Just wondering why the target range is so wide.

[Allan J. Brett, Chief Financial Officer]

Oh, that's been our target range, Steven, for a number of years now. Typically, I think maybe 3 years ago, we adjusted that range to 32% to 37%, so no real change there. As I said earlier in the call, we've had the business for 3 weeks. We'll continue to operate it. We invest in the long term, and we'll update further as we operate this business and we integrate it into our entire Descartes business.

[Steven Li, Senior Vice President]

Okay. So that 32% is very unlikely scenario there.

[Allan J. Brett, Chief Financial Officer]

Well, we just finished the quarter at 35.3%. We finished the year at 34%. We've had -- foreign exchange can take us there. We can do acquisitions that will -- that may be, as Ed will say, fixer uppers that we have to adjust. So we still feel comfortable in that range. And as I said, we'll update you guys further as we operate Visual Compliance and we see the -- how our business unfolds.

[Operator]

And that concludes the question-and-answer session. I'll now turn the call back over to speakers for closing remarks.

[Edward J. Ryan, CEO & Director]

Great. Thanks, everyone. We appreciate you taking the time to listen to our call today, and we look forward to reporting back to you next quarter. If anyone has requests for additional marketing and for shareholders, let us know, and otherwise we'll look forward to talking to you again next quarter. Thanks.

[Operator]

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