Earnings Call Transcript - DSGX Q4 2023

Operator, Operator

Good afternoon, ladies and gentlemen, and welcome to Descartes Systems Group Quarterly Results Conference Call. Please go ahead.

Scott Pagan, Moderator

Thank you, 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 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 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 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 required by law. And with that, I'm going to turn the call over to Ed.

Edward Ryan, CEO

Thanks, Scott, and welcome, everyone, to the call. Today, we're reporting record fourth quarter and annual financial results, even stronger organic growth and further improvements to our operating margins. 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 roadmap for the call. I'll start by hitting some highlights of last quarter and some aspects of how our business performed, then I'll hand it over to Allan, who will go over the Q4 and annual financial results in more detail. I'll then come back and provide an update on how we see the current business environment and how our business was calibrated as we entered the new fiscal year. And finally, we'll open it up to the operator to coordinate the Q&A portion of the call. So let's start with the quarter that ended January 31. 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 were up 18% from a year ago, with services revenues up 20%. Adjusted EBITDA was up 19% from a year ago. Adjusted EBITDA margin was at 44%. And excluding the impact of earnout payments we made on past acquisitions, which Allan will explain later, we generated $63.6 million in cash from operations, representing 96% of adjusted EBITDA. At the end of the quarter, we had almost $321 million in cash and we were debt-free, with an undrawn $350 million line of credit. We remain well-capitalized, cash-generating, have strong organic growth and remain ready to continue to invest in our business. We had a strong quarter of organic growth in our core services revenues from a year ago. Many of the key drivers are similar to past periods. The biggest growth areas were in real-time visibility, global trade intelligence and routing and scheduling solutions. So let me touch on a few of those. First, in real-time visibility. The core of our real-time visibility solutions is MacroPoint. In this market, there are three important types of logistics players. Carriers, these are companies who have vehicles, ships, planes and trucks that move goods. Two, we have shippers. These are companies that have goods to be shipped, the manufacturers, retailers and distributors. And three, intermediaries. These are companies who help manage parts of the movement of goods on behalf of shippers and carriers, including booking. These are sometimes called freight brokers, forwarders or third-party logistics providers. When freight is booked, it's not always the shipper booking it with the carrier. It's often an intermediary booking for multiple shippers with multiple carriers. So if a shipper wants to know where a particular delivery is at any specific point in time, it could be challenging because the shipper didn't make the booking and doesn't know what vehicle the goods are on. Enter real-time visibility solutions. We provide a network that sources information from carriers, shippers and intermediaries and present it in a way that makes business sense. The most common answer we're providing to shippers and intermediaries is to the question, where is my stuff? Knowing the location of a shipment and when it's going to arrive is critical to serving your customer and running your business. But even more importantly, knowing where your stuff is versus where it's meant to be when things aren't going according to plan and getting updated ETAs is critical if you want to set yourself apart from the competition. And that's exactly what we help our customers do. To get our strong growth in Q4, it comes from two things: one, we're winning more deals; and two, our existing customers are tracking more loads than they have in the past. I believe there are four key reasons for this. First, our solutions are better at attracting loads than our competitors. A key operational metric for this business is the percentage of loads submitted that are able to be successfully tracked. There can be challenges with tracking a load as you can't get tracking information from a driver. There are challenges with the carriers' data or systems or if you have incorrect information about a load. We've invested a team of dedicated professionals and systems focused on resolving any challenges with tracking a load to maximize our customers' ability to know where their goods are. We believe we have the largest network of connected carriers to get tracking information from. If carriers aren't already connected, we've got self-connect tools to help our customers get even more location coverage across their network of carriers. Ultimately, we're aligned with our customers' interest because our customers pay us by the number of successfully tracked loads. Our tracking percentage improved again in this quarter, and we believe we have opportunities to improve it further going forward. Our improvement in tracking percentages has outpaced any recent decrease in industry shipping volumes. The second is visibility that's embedded in many Descartes solutions. Our real-time visibility solutions work with a host of other Descartes solutions. A key integration area is our transportation management solutions, allowing shippers and intermediaries to manage their relationships with carriers from booking through invoicing while getting visibility to shipments in motion. We believe we offer a more comprehensive suite of solutions than our competitors. Third, we're experienced in multiple transportation modes. We have a long operating history with solutions and customers in all transportation modes: truck, rail, ocean and air. We believe we have a more comprehensive global logistics network than any other provider in the industry. And finally, we're a reliable, stable and growing partner. Our customers take a lot of comfort from working with Descartes as a large public company with a long track record of financial stability. We have a long history of operating secure cloud services across the globe. This makes us a service provider of choice in the real-time visibility market. The second area is global trade intelligence solutions. These solutions fall into three main categories: first, competitive intelligence, which is understanding trade flows and goods classifications through research and our extensive database of manifest information. Second is tariff and duty intelligence, which is researching and using our database of global tariffs and duties to help you manage your global trade and shipments. And a third is sanctioned party screening, which is reviewing customer shipments, employees, guests and otherwise against our extensive list of domestic and international sanctioned parties to help ensure you're operating your business in accordance with the law. To oversimplify, these solutions become more important to our customers when things are changing. When trade flows change, our customers need to adapt their relationships and systems. When tariffs and duties change, it may impact sourcing, manufacturing and logistics decisions. And when sanctioned parties change, businesses need to reevaluate who they're doing business with for legal compliance purposes. There's been a lot of change in the world over the past years. It's been a big driver for our global trade intelligence business, and there are some areas of change that are happening right now, which will help drive demand for our solutions. The first is the Red Sea disruption. Military conflict, terrorism, piracy have made following traditional logistics routes through the Red Sea a very perilous thing for ocean carriers. Many ocean carriers have rerouted their vessels to instead travel around the Cape of Africa. This added time and cost, and reduced available capacity. Shippers scrambled to secure space on ocean vessels for their shipments and readjust their supply chains for delays. Carriers adjusted prices, added surcharges and reallocated vessels capable of making the Cape journey. This has created demand for many Descartes solutions such as our ocean rate management, booking and tracking solutions, but has also impacted demand for competitive intelligence and compliance screening for new trading relationships. Second, additional sanctioned parties. This past quarter has once again seen additional international sanctions imposed primarily as a result of the war in Ukraine, activities in Israel and Gaza and on the specific companies using forced labor. Even after our fiscal year ended in February, the U.S. announced 500 additional sanctions against Russia as a consequence of the ongoing war in Ukraine and the death of Alexei Navalny. An expanding world of sanctions presents difficult compliance challenges for our customers, so we've had to be on top of updating lists and able to meet the increased demand for sanctioned parties list. And finally, the Panama Canal. The Panama Canal Authority has had to restrict ship transit due to low water flow levels in the canal. This has reduced the available capacity of sailings through this route and correspondingly increased the price. Many shippers have sought alternative trade routes or mechanisms, including shifting a portion of their journeys to being by rail or truck. These creative approaches have pushed demand for competitive intelligence and screening as many parties established brand-new trading and logistics relationships. And the last area is in our routing and scheduling solutions. These solutions help you manage your own fleet of vehicles rather than hiring space on other people's vehicles. We believe we have the premier routing and scheduling solutions in the market. Our customers have faced pressure to use their vehicles efficiently, whether it's due to cost pressures or limited labor or environmental concerns. This is particularly so with the current focus on climate reporting and compliance. So we've seen continued good demand. We've also made recent investments to help our customers with delivery challenges and to deliver an enhanced delivery experience to consumers. Our customers recognize that the delivery experience is a key part of the customer's purchase experience. So they're very interested in being able to provide delivery recipients with time-definite delivery windows and an Uber-like delivery visibility experience in the final miles. Our innovations in this area continue to drive customers with complex delivery challenges to Descartes for solutions. So those were some of the key areas of organic growth for us in the quarter. We also saw some growth in our customs and regulatory business, principally as a result of new custom standards in Europe gaining traction. However, overall, there have been challenges in the global freight market, challenges that were predicted earlier in the year and that we've been planning for. While aggregate transportation volumes in the industry have been negatively impacted, we focused on delivering enhanced value to our customers for shipments that they're processing, and that's contributed to the results we've reported today. Our organic growth was complemented by the contribution of previously completed acquisitions. Several previous acquisitions performed better than we had originally planned for, resulting in more earnout being accrued and paid in the quarter. Allan will get into that in more detail in his section in a few minutes. Separate from earnouts, let me touch briefly on the operational contribution of GroundCloud to our business. We've now got almost a full year of experience with GroundCloud safety and compliance solutions. GroundCloud helps identify safety incidents faced by drivers and provides responsive and targeted video training on the challenges that drivers face. They also help companies manage delivery obligations as they have subcontractors to other delivery brands such as Federal Express. When we first combined, we indicated we anticipated some impact on our overall adjusted EBITDA margin, which we saw in Q1 and Q2. We've made good progress on integration, and our aggregate adjusted EBITDA margin was back up to 44% for Q3 and slightly improved in Q4. The GroundCloud business is now less dependent on professional services revenue and continues to deliver great value to its customers. We believe driver safety is an area of continued importance and interest for the global logistics community. So let me just summarize as I hand it over to Allan to give the full financial details of the quarter and the year. We had record financial results. The business performed well, and we believe that'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 $321 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 can 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 the entire Descartes team for everything they've done to contribute to a great quarter and continuing 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 Q4 and annual financial results in more detail. Allan?

Allan Brett, CFO

Okay. Thanks, Ed. As indicated, I'm going to walk you through our financial highlights for our fourth quarter and year ended January 31, 2024. We are pleased to report record quarterly revenues of $148.2 million this quarter, an increase of just over 18% from revenues of $125.1 million in Q4 of last year. Our revenue mix in the quarter continued to be very strong, with services revenue increasing over 20% to $135.7 million from $113.4 million last year in the fourth quarter, with services revenue increasing to 92% of total revenue this quarter, up from 91% of total revenue in Q4 last year. Removing the impact of both the recent acquisitions as well as a small impact from foreign exchange rates, we would estimate that our growth in services revenue from new and existing customers would have been approximately 10% this quarter when compared to the same quarter last year, which is up slightly from the increase of approximately 9% in the past few quarters of FY '24. Professional services and other revenue, including hardware revenue, came in at $11.1 million or just over 7% of revenue, up from $10.0 million or 8% of revenue in the same quarter last year, mainly as a result of the GroundCloud acquisition early in FY '24. In addition, license revenue came in at $1.4 million compared to $1.7 million last year in the fourth quarter, pretty consistent at roughly 1% of revenue. For the year, our revenue was a record $572.9 million, up 18% from revenue of $486 million in the previous year. For the year, services revenue came in at $520.9 million, up almost 20% from $435.7 million last year, with just more than half of this growth coming from growth in revenues from new and existing customers, while the remainder of the growth can be attributed to growth from acquisitions. Gross margins came in at 76% of revenue for the fourth quarter of the year, down slightly from gross margin of 77% for the fourth quarter last year and for the entire period last year. This slight decrease in gross margin was mainly a result of the impact of lower gross margins experienced in the businesses that we acquired during the year, including GroundCloud. Operating expenses in the fourth quarter and for the year increased primarily related to the impact of recent acquisitions, including GroundCloud, but also increased slightly as a result of additional investments that we made in our business over the past year, primarily in the area of sales, marketing, product development and network security. As a result of the above, adjusted EBITDA came in at a record $65.7 million in the fourth quarter or 44.3% of revenue, up a solid 19% from adjusted EBITDA of $55.4 million, also at 44.3% of revenue in the fourth quarter last year. After having our adjusted EBITDA as a percentage of revenue weakened early in the year with the lower margins from the GroundCloud business, strong operating leverage from organic growth as well as improvements from the GroundCloud margins during the year resulted in this recovery of our adjusted EBITDA margin by the fourth quarter back to last year's Q4 ratio. Looking at the annual results. Again, as a result of strong revenue growth, we continue to see strong adjusted EBITDA growth to a record of $247.5 million or 43.2% of revenue for FY '24, up 15% from $215.2 million or 44.3% of revenue last year. With these solid operating results, cash flow generated from operations came in at $50.8 million or 77% of adjusted EBITDA in the fourth quarter. However, we should note that this cash flow figure was negatively impacted by the payment of $12.6 million in earnout payments on past acquisitions that were larger than the original estimates that we made on those acquisitions. As we've mentioned in the past, when an earnout payment is greater than the earnout amount originally estimated at the time of acquisition, the accounting rules require us to separate that earnout payment into two parts on the statement of cash flows: first, the portion of the earnout payment that was estimated at the time of the acquisition is charged against cash flow from financing activities; second, the excess amount of the earn-out payment arising from better-than-expected performance of those acquisitions is charged against cash flow from operations. So if we were to exclude this unusual accounting treatment of higher earnout payments, then our operating cash flow in the fourth quarter would have been $63.4 million or 96% of adjusted EBITDA in Q4, up 25% from operating cash flow of $50.6 million or 91% of adjusted EBITDA in the fourth quarter last year. For the year, cash flow from operations, excluding the impact of these higher earnout payments in both periods, was $220.3 million or 89% of adjusted EBITDA, up 11% from $198 million or 92% of adjusted EBITDA last year. Going forward, we expect to continue to see strong operating cash flow conversion in the range of 80% to 90% of our adjusted EBITDA in the years ahead, of course, subject to unusual events and quarterly fluctuations, including adjustments related to future earnout payments that exceed our estimates made at the time of acquisitions. From a GAAP earnings perspective, net income for the fourth quarter came in at $31.8 million, up 7% from net income of $29.8 million in the fourth quarter last year. For the year, net income was $115.9 million or $1.34 per diluted common share, up 13% from $102.2 million or $1.18 per diluted common share. Overall, as Ed mentioned earlier, we're certainly pleased with the operating results for fiscal 2024 and as our continued revenue growth has allowed us to invest in several areas of the business while still allowing us to achieve 15% growth in adjusted EBITDA, maintain a strong adjusted EBITDA margin and achieve solid growth in our cash flow from operations. If we turn our attention to the balance sheet. Our cash balances totaled $321 million at the end of January. However, for the year, our cash balances increased by approximately $45 million as we generated pro forma operating cash flow of just over $220 million, as I just mentioned. While offsetting that, we've deployed $143 million in capital towards new acquisitions and also paid an additional $31.7 million in earnout payments on past acquisitions in FY '24. So after ending the year with just over $320 million of cash and an undrawn credit facility of $350 million, we are clearly well-capitalized and positioned to consider all acquisition opportunities in our market, consistent with our business plan. As we look to the current year we are in, our fiscal 2025, we should note the following. After incurring approximately $5.6 million in capital additions this past year, we expect to incur approximately $5.5 million to $6.5 million in additional capital expenditures in this coming year. We expect that amortization expense will be approximately $57.5 million for fiscal 2025, with this figure being subject to adjustment for foreign exchange rates and any future acquisitions. After paying contingent consideration or earnout payments of $31.7 million on past acquisitions this past year, we would currently anticipate that we will make an additional earnout payment of $34 million in FY '25. Of that $34 million estimated amount to be paid, $7.7 million relates to the portion of the earnout arrangements accrued for at the time of the acquisitions and will be reflected in cash flow from financing activities, with the remaining balance estimated at $26.3 million will be reflected as a reduction in cash flow from operating activities, the majority of which is likely to be paid in Q1. Our income tax rate in the fourth quarter came in at approximately 20.6% of pretax income, resulting in a tax rate for the year of 23.3% in FY '24, which is lower than our statutory tax rate, mainly as a result of the reversal of certain uncertain tax positions during fiscal '24. Looking forward to FY '25, we are expecting the tax rate will be in the range of 23% to 28% of our pretax income, which means it will be something on either side of our blended statutory tax rate of approximately 26.5%. So as always, we should add that our tax rate may fluctuate from quarter to quarter from one-time items that may arise as we operate internationally across multiple countries. And finally, we currently expect stock compensation expense will be approximately $13.4 million for fiscal '25, subject to any future equity grants as well as any future forfeitures of stock options or share units.

Edward Ryan, CEO

Great. Thanks, Allan. We're a month into Q1 and the end of our fiscal year. Q1 is generally one of the more challenging quarters as the market recovers from the holiday rush and the shipping deals with freight disruption caused by the Chinese New Year. Recent ocean volumes have been stronger than in other non-pandemic years. However, we're monitoring to see the impact of the Red Sea and Panama Canal diversions on our volumes. 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 that 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 by 10% to 15% per year. We grow through a combination of organic and inorganic 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've provided a comprehensive description of baseline revenues based on calibration and their limitations. As of February 1, 2024, using foreign exchange rates of $0.75 to the Canadian dollar; $1.08 to the euro; and $1.27 to the British pound, we estimate that our baseline revenues for the first quarter of fiscal '25 are approximately $130.5 million and our baseline operating expenses are approximately $81 million. We consider this to be our baseline adjusted EBITDA calibration of approximately $49.5 million for the first quarter of fiscal 2025 or approximately 38% of our baseline revenues as at February 1, 2024. We continue to expect that we'll operate in an adjusted EBITDA operating margin range of 40% to 45%. Our margins can vary in that range, depending on factors such as foreign exchange movements and the impact of acquisitions as we integrate them into our business, like we saw with GroundCloud. 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.

Justin Long, Analyst

This is Justin Long from Stephens. So maybe to start, I think you gave the organic growth in services revenue for the quarter, but could you also talk about all-in organic growth? And then looking forward, if we do see signs of a better freight cycle this year, is it reasonable to expect that organic growth to accelerate? Or is there anything that you see on the horizon that could prevent that from happening?

Edward Ryan, CEO

Maybe Allan could comment at the end on the overall number. But no, I think your presumption is correct. I mean, we're expecting maybe kind of what we've seen so far in the market and if it improved from there, it would certainly help our business and probably our growth rates as well. Allan, I don't know the overall number off the top of my head. So...

Allan Brett, CFO

Yes, Justin, we're around 10% on services, which is the majority of our revenue. The professional services, excluding acquisitions, were relatively flat. Licenses decreased slightly, by about 0.5 to 1 point, but we are focusing on that 10% growth in services.

Edward Ryan, CEO

Yes, there's a lot going on right now. And first and foremost, there's kind of a little bit of a struggle over price with the number of people that are out in the market. We expect just based on what we're seeing ahead of us in a number of companies that are saying they're going to go out that we would see it start to pick up in the near future.

Willow Miller, Analyst

I'm Willow Miller for Matt Pfau. In your prepared remarks, I believe you commented aggregate freight volume is down, but you're seeing strong demand in your subscription products. Are the changes in the operating environment, such as the ongoing conflict in the Middle East, increasing more and enough adoption of subscription products to offset any decline in transaction volume and revenue?

Edward Ryan, CEO

Yes, that's certainly part of it. And I mentioned a couple of other things in the beginning of the call that are maybe even more prominent. We're picking up a bunch of business from our competitors as during tough times. I think people tend to flock to a safe and reliable source that's been a big help for us. Certainly, our MacroPoint business and our Global Trade Intelligence business that's been the case, which is great. And yes, as you mentioned, the conflicts around the world put more people on the sanctioned parties list. Tariffs and duties changes and things like that. And as we've said all along, complexity and change is a big growth driver for us in our business. And I think that's why you've kind of seen us outperform the logistics transportation market over the last year.

Paul Treiber, Analyst

Just the commentary in the prepared remarks on the drivers of organic growth are really helpful. When you look back over the years, do you see the changes that you're benefiting from? Do you feel like these drivers are structural and likely to persist for a while? Or does it seem like it's more short-term in nature and may subside at some point in the future?

Edward Ryan, CEO

No. That's certainly the latter. I mean we see a bunch of things going on. You probably heard me mention before, the biggest one, which is just that the whole world has realized supply chain and logistics is more important and that the first place they tend to make extra investments in the first place to put those investments is into technology because it gives them the fastest return on investment and it's the most visible for their customers. I think that's been helping us since the pandemic started. And I see no end in sight to that. There's other areas where there's drivers in our business, people are putting more money in the technology. And as a result, they're going with the kind of the IBM of the industry and someone who's seen as a trusted and reliable provider so we tend to move from small guys to larger guys during times like this. And then just some of the products that we have are fast-growing and like e-commerce and global trade intelligence that are fast-growing things that we kind of see that going on for a long time to come. I don't know when it ends, but I don't see any end in sight. So certainly the latter.

Paul Treiber, Analyst

That's good to hear. And then how do you see that stronger fundamentally stronger organic growth changing your business model? Or would you consider changing your business model around it? And what I mean by that is would you consider a higher level of sales and marketing investments? Are there different types of acquisition targets that you consider in light of seeing stronger organic growth than historically?

Edward Ryan, CEO

Yes. I mean, I think you've seen us and we probably described in the past couple of years, putting more money into sales and marketing. We're still pretty prudent investors, and we're cautious guys that we're running this business for the long term. We try to treat the money like our own, and that's certainly one of the things that we do is continue to make investments as we've done better in our business. And I think you're going to see us continue to do that, but it's probably not going to be fundamentally changing the business, maybe just incremental changes to try to make improvements as things get better.

Daniel Chan, Analyst

I know I asked this question last quarter, but your cash balance is now over $320 million. So any update on your thoughts on the use of cash? You've got more cash on the balance sheet than you've ever spent in any year for acquisitions. And looks like you're likely to generate more than $200 million of free cash flow next year. So will you be able to use all of that for M&A? Or are you considering returning some of it to shareholders?

Edward Ryan, CEO

No. We see a strong environment for M&A in the next couple of years. It's been a couple of years now where not much is sold and there's been a little bit of a fight about what the price should be. Companies that are not going out because I don't think it's a good environment to sell a company in. And I think that's starting to change. We're seeing that change going on in the market right now. And we're holding on to that cash. So if there's a need to deploy a larger amount, we're ready to do that.

Raimo Lenschow, Analyst

Yes, I have a quick question about how ESG and carbon footprint considerations are emerging for your clients. We've noticed increased interest in optimizing these areas. What initiatives are you undertaking on the product side to address this?

Edward Ryan, CEO

Thanks, Raimo. For a long time, even before ESG became well-known, we had many retail customers in the grocery industry who catered to environmentally conscious consumers and positioned our product as a way to help the environment. They promoted green deliveries, and now, 20 years later, ESG is a household name. While it has faced some challenges in the last 6 months to a year, the environmental aspect remains strong. Many companies are realizing they need to contribute to environmental efforts and respond to regulatory inquiries regarding their impact. Our products play a significant role in addressing these concerns. Customers choose our products primarily for cost savings, but it's an added benefit that they also help reduce carbon footprints. We offer several solutions that significantly lower emissions. When large retailers or manufacturers start routing trucks with us, we gain access to senior management. Once there, they often inquire about environmental impacts, and our solutions are effective in that regard. We have numerous products that reduce both mileage and fuel consumption for goods delivery, resulting in substantial reductions, totaling tens of millions of miles annually across our customers. As regulatory and shareholder pressures increase for our clients to address these issues, it creates higher demand for our products, which is a positive development. Great. Thanks, everyone. I appreciate your time this afternoon, and we look forward to reporting back to you on the next quarter in early June. Thanks for your time tonight, and have a great day.

Operator, Operator

Thank you. Ladies and gentlemen, the conference has now ended. Thank you all for joining. You may all disconnect.