EX-1 2 descartesex1.htm DESCARTES EXHIBIT 1 Descartes Exhibit 1

Descartes Reports Results for Second Quarter of Fiscal 2005

Results include impact of previously announced restructuring

WATERLOO, ONTARIO, September 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.

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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.

CONTACT INFORMATION:
Kim Emmerson
(519) 746-6114, ext. 2562
kemmerson@descartes.com
 
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
  
128,65

 

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