Solid fundamentals and high demand for its logistics software are a recipe for success for Descartes Systems Group (Descartes Systems Group Stock Quote, Charts, News, Analysts, Financials NASDAQ:DSG), according to Laurentian Bank Securities analyst Nick Agostino. Agostino delivered an update to clients on Descartes on Thursday where he reviewed the company’s latest quarterly results where DSG achieved both top and bottom line beats. Descartes, which has a SaaS-based platform for optimizing and automating a business’ logistics processes, released its second quarter fiscal 2023 results on Wednesday, showing revenue up 18 per cent year-over-year and up six per cent sequentially to $123.0 million. Adjusted EBITDA was also up 18 per cent to $54.0 million and diluted EPS was $0.27 per share, which was even with both the previous quarter and the previous fiscal year quarter. (All figures in US dollars.) “Descartes had a very successful quarter helping customers navigate the complexities of global supply chains and logistics,” said CEO Edward J. Ryan in a press release. “Geopolitical events, energy supplies and costs, and economic uncertainty have combined to present novel challenges for supply chain participants to manage. Our Global Logistics Network (GLN) is designed to help these shippers, carriers and logistics services providers connect and collaborate to plan and execute shipments in an efficient and sustainable manner. We’re pleased that we’ve been able to help so many existing and new customers improve their businesses and supply chains.” Breaking down the fiscal Q2 revenue, Descartes received $109.4 million in Services revenue, $10.3 million from Professional Services and Other and $3.3 million from Licensing. Cash from operations was $46.4 million, flat year-over-year. The quarterly revenue of $123.0 million was above Agostino’s estimate at $119.1 million and the consensus call at $116.1 million, while the adjusted EBITDA of $54.0 million was also above both Laurentian’s $53.0 million and the Street’s $52.2 million. Agostino attributed the revenue beat to stronger-than-expected organic growth of 12-13 per cent versus the analyst’s forecast at 7.5 per cent. “Sales growth of 18 per cent was actually 21 per cent year-over-year on a constant currency basis as F/X posed a ~US$4 million headwind on sales. Similarly, EBITDA growth of 18 per cent year-over-year would have been 20 per cent on a constant currency. Both figures demonstrate a current strong demand environment,” Agostino wrote. On the more macro scale, Agostino said Descartes continues to see strong shipping volumes with a pickup in ocean freight, along with improving shipping capacity and continued ongoing backlogs. In addition, he said challenging inventory turnover is driving demand for real-time visibility solutions; meanwhile, uncertainty remains in Europe and the UK, Agostino said, where Brexit, a new Prime Minister in Britain and COVID lockdowns are all contributing factors. Agostino noted that Descartes’ management supplied guidance that proved in-line with his modelling, with a potential recession figuring into the mix. “DSG continues to benefit from global supply chain challenges that are driving ongoing demand for its services, with the current geopolitical situation a further tailwind. Given this, DSG is not seeing any slowdown, however, its normalized baseline guidance is, in our opinion, on the cautionary side given the ongoing recessionary debate,” Agostino wrote. Descartes’ share price did very well over the first two years of the pandemic, rising from about $40 to as high as the mid-$80’s by this past November. Since then the stock has pulled back with the rest of the market, however, and is currently sporting a year-to-date return of about negative 18 per cent. But Agostino sees better days ahead for DSG investors. With the update, he has reiterated a “Buy” rating on the stock and a 12-month target price of $81.00, which at the time of publication represented a projected return of 17.0 per cent. “We remind investors DSG also has an unused ~$350 million credit facility available, with a further $150 million accordion credit facility. The company noted that they are seeing a lot of deals as its acquisition pipeline remains healthy, but larger deals are being stalled,” Agostino wrote. “As well, although DSG has an active NCIB, it hasn’t transacted as of Sept. 7, 2022. CFO came in at $46.4 million (incl. w/c), translating into an ~86 per cent EBITDA-to-cash conversion, within the company’s 85-95 per cent historical range, however when we add back $5.3 million in cash paid as a part of a $10.5 million earnout, cash conversion came in at ~96 per cent (above the range) while DSG continues to reinvest in its business.,” he said. Looking ahead, Agostino thinks Descartes will generate full fiscal 2023 sales of $488.3 million compared to $424.7 million for fiscal 2022 and rising to $543.9 million for fiscal 2024. On earnings, Agostino sees DSG’s EBITDA going from $185.1 million in fiscal 2022 to $214.2 million in fiscal 2023 to $248.7 million in fiscal 2024.