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Descartes Reports Results for Second Quarter of Fiscal 2005; Results Include Impact of Previously Announced Restructuring WATERLOO, Ontario --(Business Wire)-- Sept. 2, 2004 -- The Descartes Systems Group Inc.(NASDAQ:DSGX)(TSX:DSG), today announced unaudited financial results for the second quarter of its 2005 fiscal year (Q2FY05) which ended on July 31, 2004."We have made significant progress in aligning our operating expenses with visible and recurring revenues and anticipate that our expense reduction initiatives will positively impact our financial performance going forward," said Art Mesher, Descartes' executive vice president of corporate strategy and one of two members of Descartes' Office of the CEO. Total revenues for Q2FY05 were $11.1 million, down 27 percent when compared with total revenues in the second quarter last fiscal year of $15.2 million. The loss for Q2FY05 was $22.7 million, or $0.56 per share, compared to a loss of $14.7 million, or $0.29 per share, for the same quarter last fiscal year. The results of the second quarter were significantly impacted by specific expense reduction initiatives first announced by the Company on May 17, 2004. These initiatives, and the results achieved to date, are summarized below: Downsizing of Operations On May 17, 2004 the Company announced it was undertaking a downsizing of its global staff by approximately 130 employees. In proceeding with this initiative, the Company identified additional opportunities for cost-savings and efficiencies that impacted approximately 35 additional employees resulting in a total downsizing initiative that impacted approximately 45 per cent of the Company's pre-downsizing workforce. Following these downsizing initiatives, the Company now has 215 full-time employees. Office Closures, Lease Terminations and Cancellation of Operating Contracts On May 17, 2004, the Company announced it would close certain offices and cancel certain leases, consulting and other operating contracts. In pursuing this initiative, the Company consolidated its operations into Waterloo, Ontario and Atlanta, Georgia, and closed some regional offices in the U.S., Brazil, France, Germany, the Netherlands, Hong Kong and China. The Company has exited various leases and cancelled operating contracts relating to these regional operations. Descartes will target market opportunities in those countries it exited in Asia Pacific, Europe, the Middle East and Africa (EMEA), and Latin America indirectly through strategic partnership and reseller programs. Restructuring Charge On May 17, 2004, the Company indicated that it expected to record a restructuring charge of between $5.5 and $6.5 million related to its expense reduction initiatives, with the majority of this charge in Q2FY05. The Company subsequently undertook the additional downsizing of operations described above contributing to a restructuring charge of $7.4 million recorded in Q2FY05. The Company does not expect further significant restructuring charges related to these initiatives. Non-Cash Charge for Asset Redundancy On May 17, 2004, the Company indicated that it would record a charge for any capital asset redundancy resulting from the expense reduction initiatives and that any such charge would be in addition to the restructuring charge. The Company completed its review of assets for redundancy in Q2FY05 and determined that certain assets such as leaseholds, office furniture, and employee and network computer hardware and software were redundant. As a result, the Company recorded a non-cash charge of $5.8 million in Q2FY05 related to the write-down of these assets. Quarterly Expense Savings On May 17, 2004, the Company indicated that it expected to realize quarterly savings in expenses as a result of the expense reduction initiatives of approximately $7.0 million beginning with the Company's third fiscal quarter ending October 31, 2004. The Company continues to expect to achieve these savings beginning in the third quarter and, as a result of the additional downsizing of operations, expects to realize additional quarterly expense savings beginning in the fourth quarter of fiscal 2005 of approximately $1.0 million. Cash Usage On May 17, 2004, the Company indicated that it expected the aggregate cash expenditure related to its expense reduction initiatives to be between $5.5 and $6.5 million, with $3.5 to $4.0 million in Q2FY05. With the additional downsizing of operations, the Company's cash expenditure in Q2FY05 related to restructuring was $4.3 million. The Company expects the aggregate cash expenditure related to the expense reduction initiatives to be approximately $7.5 million. The Company's aggregate cash, cash equivalents and marketable securities at the end of Q2FY05 were $46.4 million. Cash usage in Q2FY05 related primarily to restructuring activities and operating expenses including insurance renewal premiums and interest payable on the Company's outstanding convertible unsecured subordinated debentures. At the end of Q2FY05, $27.0 million aggregate principal amount of debentures was outstanding (excluding debentures held by Descartes' subsidiary.) CONFERENCE CALL TODAY Company management will discuss the Q2FY05 financial results and expectations for the business in a live conference call and audio Web cast with the financial community at 8:00 a.m. ET today. The live audio Web cast can be accessed at www.descartes.com/investors. Replays will also be available in two formats shortly after the completion of the conference call. A telephone replay will be accessible for 24 hours by dialing (888) 203-1112 or (719) 457-0820 and quoting reservation number 323565. An archived replay of the audio Web cast will also be available through the Descartes Web site at www.descartes.com/investors. About Descartes The Descartes Systems Group Inc. (Nasdaq:DSGX) (TSX:DSG) is a trusted provider of supply chain solutions. Helping companies reduce costs, save time, and enhance customer satisfaction, Descartes' integrated suite of services provides connectivity and document exchange, route planning and wireless dispatch, inventory and asset visibility, transportation management, and warehouse optimization. Enabling distribution-sensitive companies in industries such as retail, consumer packaged goods, manufacturing, transportation, third-party logistics, and distribution to optimize and gain real-time control of their inventory and assets; Descartes services are used by more than 2,500 customers in over 60 countries. For more information, visit www.descartes.com. Dollar amounts referenced in this press release are in U.S. currency. All registered and unregistered trademarks mentioned in this release are the property of their respective owners. This release contains forward-looking statements that relate to Descartes': operating performance; financial results and condition; cash flow and use of cash; expense reduction initiatives and the timing and amount of resulting savings, related cash expenditures and restructuring charges; alignment of operating expenses and visible and recurring revenues; strategic partnership and reseller programs; and other matters that may constitute forward-looking statements. These forward-looking statements involve known and unknown risks, uncertainties 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. Such factors include, but are not limited to, the ability to align operating expenses to visible and recurring revenues, the ability to achieve cost reductions on a timely basis; the ability to attract and retain key personnel; additional impairment charges required by applicable accounting principles; global economic, market and political conditions; and the factors discussed in the section entitled, "Risk Factors" in documents filed with the Securities and Exchange Commission, the Ontario Securities Commission and other securities commissions across Canada. -0- *T The Descartes Systems Group Inc. Consolidated Balance Sheets (US dollars in thousands; US GAAP; July 31 Data Unaudited) --------------------------------------------------------------------- ------------ ------------ July 31 January 31 2004 2004 ------------ ------------ ASSETS CURRENT ASSETS Cash and cash equivalents 11,840 13,187 Marketable securities 24,583 34,586 Accounts receivable Trade 10,043 12,986 Other 2,316 3,501 Prepaid expenses and other 2,387 3,045 ------------ ------------ 51,169 67,305 MARKETABLE SECURITIES 10,000 17,279 CAPITAL ASSETS 8,083 13,452 LONG-TERM INVESTMENTS 3,300 3,300 GOODWILL - 18,038 INTANGIBLE ASSETS 6,133 8,264 DEFERRED CHARGES AND OTHER ASSETS 236 1,021 ------------ ------------ 78,921 128,659 ------------ ------------ ------------ ------------ LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable 1,860 4,743 Accrued liabilities 8,623 3,609 Deferred revenue 2,523 2,860 ------------ ------------ 13,006 11,212 CONVERTIBLE DEBENTURES 26,995 26,995 ------------ ------------ 40,001 38,207 ------------ ------------ SHAREHOLDERS' EQUITY Common shares - unlimited shares authorized; Shares issued and outstanding 40,705,811 and 40,705,811 364,907 364,907 Additional paid-in capital 81,658 81,667 Unearned deferred compensation (261) (339) Accumulated other comprehensive loss (346) (387) Accumulated deficit (407,038) (355,396) ------------ ------------ 38,920 90,452 ------------ ------------ 78,921 128,659 ------------ ------------ ------------ ------------ The Descartes Systems Group Inc. Consolidated Statements of Operations (US dollars in thousands, except per share amounts; US GAAP; Unaudited) --------------------------------------------------------------------- -------------------- ----------------- Three Months Ended Six Months Ended -------------------- ----------------- July 31 July 31 July 31 July 31 2004 2003 2004 2003 ----------- -------- -------- -------- REVENUES 11,065 15,219 24,321 29,406 COST OF REVENUES 5,892 4,690 11,357 9,470 ----------- -------- -------- -------- GROSS MARGIN 5,173 10,529 12,964 19,936 ----------- -------- -------- -------- EXPENSES Sales and marketing 5,705 6,840 13,778 13,835 Research and development 2,844 2,067 6,634 4,187 General and administrative 4,714 2,669 9,632 6,402 Amortization of intangible assets 1,005 1,355 2,131 2,713 Impairment of goodwill - - 18,038 - Restructuring costs and asset impairment 13,154 12,526 13,708 16,129 ----------- -------- -------- -------- 27,422 25,457 63,921 43,266 ----------- -------- -------- -------- LOSS FROM OPERATIONS (22,249) (14,928) (50,957) (23,330) ----------- -------- -------- -------- OTHER INCOME (EXPENSE) Interest expense (439) (1,047) (874) (2,172) Investment income 50 379 296 898 Gain on purchase of convertible debentures - 904 - 904 ----------- -------- -------- -------- (389) 236 (578) (370) ----------- -------- -------- -------- LOSS BEFORE INCOME TAXES (22,638) (14,692) (51,535) (23,700) INCOME TAX EXPENSE - CURRENT (61) (14) (107) (24) ----------- -------- -------- -------- LOSS (22,699) (14,706) (51,642) (23,724) ----------- -------- -------- -------- ----------- -------- -------- -------- LOSS PER SHARE Basic and diluted (0.56) (0.29) (1.27) (0.46) ----------- -------- -------- -------- ----------- -------- -------- -------- WEIGHTED AVERAGE SHARES OUTSTANDING Basic and diluted (thousands) 40,706 50,470 40,706 51,335 ----------- -------- -------- -------- ----------- -------- -------- -------- The Descartes Systems Group Inc. Consolidated Statements of Cash Flows (US DOLLARS IN THOUSANDS; US GAAP; UNAUDITED) --------------------------------------------------------------------- --------------------------------------------------------------------- -------------------- ----------------- Three Months Ended Six Months Ended -------------------- ----------------- July 31 July 31 July 31 July 31 2004 2003 2004 2003 ----------- -------- -------- -------- OPERATING ACTIVITIES Loss (22,699) (14,706) (51,642) (23,724) Adjustments to reconcile loss to cash provided by (used in) operating activities: Depreciation 508 578 1,118 1,153 Amortization of intangible assets 1,005 1,355 2,131 2,713 Impairment of goodwill - - 18,038 - Write-off of redundant assets 5,770 - 5,770 - Amortization of convertible debenture costs 64 154 128 323 Amortization of deferred compensation 34 36 69 101 Gain on purchase of convertible debentures - (904) - (904) Changes in operating assets and liabilities: Accounts receivable Trade 2,790 (901) 2,943 (1,059) Other 80 (386) 1,185 573 Prepaid expenses and other (253) (831) (460) (1,438) Deferred charges and other assets 299 30 721 (470) Accounts payable (1,215) (1,289) (2,883) (2,966) Accrued liabilities 4,133 2,050 5,557 1,987 Deferred revenue (613) (177) (337) (374) ----------- -------- -------- -------- Cash used in operating activities (10,097) (14,991) (17,662) (24,085) ----------- -------- -------- -------- INVESTING ACTIVITIES Short-term marketable securities 7,191 (5,195) 10,003 3,326 Long-term marketable securities 1,849 100,076 7,279 97,461 Additions to capital assets (96) (1,031) (967) (2,654) Acquisition of subsidiaries - (100) - (100) ----------- -------- -------- -------- Cash provided by investing activities 8,944 93,750 16,315 98,033 ----------- -------- -------- -------- FINANCING ACTIVITIES Purchase of convertible debentures - (43,274) - (43,274) Purchase of common shares - (27,228) - (27,228) Issuance of common shares for cash - - - 17 ----------- -------- -------- -------- Cash used in financing activities - (70,502) - (70,485) ----------- -------- -------- -------- Increase (decrease) in cash and cash equivalents (1,153) 8,257 (1,347) 3,463 ----------- -------- -------- -------- Cash and cash equivalents at beginning of period 12,993 16,401 13,187 21,195 ----------- -------- -------- -------- Cash and cash equivalents at end of period 11,840 24,658 11,840 24,658 ----------- -------- -------- -------- ----------- -------- -------- -------- *T |
