Descartes (DSG.TO) Execution Remains Strong Despite Economic Conditions.

This morning the market is reacting positively to Descartes Systems Group results for Fiscal 2009 Fourth Quarter and Year End Financials. Despite challenging worldwide markets and currency fluctuations, which were reflected in top-line sales performance, the Company had a record quarter for EBITDA, reporting $4.5 million and a 29% EBITDA margin on Q4 sales, up from 24% reported for Q4 FY2008. Cashflow and net income from operations was also higher than expected. Descartes is demonstrating impressive leverage from its SaaS business model.

Cash and cash equivalent balances increased to $57.6 million for FY2009. The Company generated $18.7 million in cash from operations for the year, while also reporting $16.7 million in EBITDA. The TTM EV/EBITDA multiple for DSG.TO calculates to 5.4x based on yesterday's closing shareprice. If the company sustains its EBITDA growth trajectory of 21% for FY2010, the FYE EV/EBITDA multiple would be implied at 4.5x.

With its recent acquisitions, along with the potential impact on performance of the new "10+2" regulations in the U.S, EBITDA margins could range between 25% and 30% for the next 4 quarters, possibly increasing EBITDA trajectories.

Based on comments by management, Descartes Systems could have had a better month in February than most others in the supply chain. In these current brutal market conditions, this datapoint should be seen as a lead indicator for continued performance for Q1 and for the remainder of FY2010.

Investors should expect Management to continue to be acquisitive. This morning's announced C$8.5 million acquisition of Scancode is an example of the type of tuck under acquisitions that could be expected in the future. These type of acquisitions increase the customer base, while extending the capabilities of Descartes solutions within the supply chain ecosystem. The Company continues to move towards a more comprehensive end-to-end compliance and monitoring network for shippers.

Although the stock has jumped this morning, shares are trading near 52 week lows. By most indications, earnings should continue to grow during the recession and DSG should be considered among the top performing small-cap technology companies listed on the TSX.

I do not own shares of DSG.

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