Descartes' 2026 Q2 Earnings Call: Highlights Key Contradictions on Tariff Uncertainty, M&A Strategy, MacroPoint Growth, Customer Engagement, and Restructuring

The above is the analysis of the conflicting points in this earnings call

Date of Call: September 03, 2025

Financials Results

• Revenue: $179.8M, up 10% YOY and up 7% sequentially
• EPS: $0.43 per diluted share, up from $0.40 in the prior year
• Gross Margin: 77%, compared to 75% in the prior year

Guidance:

• Baseline Q3 revenues estimated at ~$157.5M; baseline OpEx ~$96.5M; baseline adjusted EBITDA ~$61M (39% margin) as of 08/01/2025, incl. Finale.
• Expect adjusted EBITDA margin to operate in the 40%–45% range, subject to mix, FX and M&A.
• H2 capex expected at ~$3M–$4M.
• H2 amortization expense expected at ~$39.7M.
• H2 additional earn-out payments expected at ~$1.1M.
• Cash flow from operations expected at 80%–90% of adjusted EBITDA, absent unusual items.
• Tax rate expected at 24%–28% of pretax income in H2.
• Stock-based compensation for the balance of the year expected at ~$12.2M.

Business Commentary:

• Strong Financial Performance:
• Descartes reported record revenue of $179.8 million for Q2 ended on July 31, an increase of 10% from Q2 last year and 7% from the previous quarter.

• The growth was driven by the acquisition of three gs TMS, increased demand in global trade intelligence, customs compliance solutions, and transportation management.

• Global Trade Intelligence and Tariffs:

• Descartes' Global Trade Intelligence business experienced strong demand due to an increasingly complex tariff environment.

• The demand was driven by customers expanding access to real-time global tariff databases and research tools to manage tariff uncertainties.

• Customs and Regulatory Solutions:

• The transition to new filing mechanisms due to the elimination of Type 86 programs and increased demand for Foreign Trade Zone (FTZ) solutions led to growth in the customs filing space.

• These changes were necessitated by the U.S. eliminating de minimis programs and importers requiring Type 1 or Type 11 filings, benefiting Descartes' capabilities in managing large volumes of time-sensitive filings.

• Transportation Management and Fraud Prevention:

• Transportation management solutions contributed significantly to growth, including strong performance by MacroPoint and 3GTMS.
• The efficiency of MacroPoint's tracking solutions and the integration of MacroPoint with 3GTMS were key factors, alongside increased demand for fraud prevention solutions amidst digitized and distributed shipping mechanisms.

Sentiment Analysis:

• Management reported record revenue ($179.8M) and adjusted EBITDA (+14% YOY) with gross margin at 77%. They also cautioned: “These are challenging business conditions for our customers… uncertainty… tariffs… FX.” Baseline calibration for Q3 assumes ~$61M adjusted EBITDA (39% margin) and they reiterated a 40%–45% adjusted EBITDA margin operating range, noting variability from revenue mix, FX, and acquisitions.

Q&A:

• Question from Jackson Bogle (William Blair): How do you view recovery in transactional volumes given reduced uncertainty and the end of de minimis?
  Response: De minimis changes became a growth opportunity; network volumes improved with tariff clarity into early August, but legal challenges keep uncertainty elevated—management remains cautious.

• Question from Jackson Bogle (William Blair): How will you leverage AI and your network data; what’s the monetization path?
  Response: With shipment-of-record data plus IoT, AI can drive faster exception detection and actions; network position should enable operational efficiencies and long-term monetization.

• Question from Chris Cantero (Morgan Stanley): What drove organic services growth and what lagged, given record shipping volumes?
  Response: Strength in Global Trade Intelligence, Regulatory Compliance, and Transportation Management; other transactional services remain depressed, flattish to slightly down.

• Question from Chris Cantero (Morgan Stanley): Update on restructuring versus the 10%–15% EBITDA growth target?
  Response: Restructuring is largely complete; about $2M quarterly savings with more at full run-rate, supporting the 10%–15% adjusted EBITDA growth commitment.

• Question from Stephanie Price (CIBC): Are customers still missing transactional minimums; what are customers prioritizing?
  Response: Minimum shortfalls have eased as network volumes improved; customers are buying subscriptions (e.g., GTI, visibility) to manage tariff complexity.

• Question from Stephanie Price (CIBC): Size of fraud prevention and is it an M&A area?
  Response: Fraud prevention is <1% of revenue but growing via cross-sell; could be an M&A area over time, but no commitments.

• Question from Paul Traber (RBC Capital Markets): Biggest surprise this quarter and what would increase your confidence ahead?
  Response: Pleasant surprise was network volume rebound; sustained shipment growth and greater tariff certainty would boost confidence.

• Question from Paul Traber (RBC Capital Markets): Is GTI uplift sustainable post-tariff changes and de minimis elimination?
  Response: GTI adds (more countries/commodities) should be sticky; de minimis shift to large Type 1/11 filings drove share gains from less-scalable competitors.

• Question from Kevin Krishnaratne (Scotiabank): What drives MacroPoint strength—share gains vs. competitors?
  Response: Winning share via superior carrier connectivity; track rates approaching ~90%, materially above competitors.

• Question from Kevin Krishnaratne (Scotiabank): Any leading indicators for software demand amid uncertainty?
  Response: Subscriptions remain strong; transactional volumes hinge on tariff certainty and consumer response to higher prices.

• Question from Lachlan Brown (Rothschild & Co Redburn): Finale Inventory deal dynamics and fit with SellerCloud; changes in M&A environment?
  Response: Less PE competition enabled a sensible win; Finale complements SellerCloud in inventory/warehouse for e-commerce; doing more deals than prior years.

• Question from John Shao (National Bank): Risk of AI-native startups disrupting Descartes?
  Response: High barriers: global network connectivity, certifications, breadth across countries/modes; recurring model enforces continuous best-in-class delivery.

• Question from Robert Young (Canaccord): De minimis shift—wash or bigger business now?
  Response: Initially a wash, then larger as competitors struggled with massive Type 1/11 files; large filers switched rapidly to Descartes.

• Question from Robert Young (Canaccord): Truck volumes and seasonality—back-half outlook?
  Response: Truck market broadly flat; MacroPoint growth from share gains. Ocean volumes should clarify soon with holiday pull-forward; customers may front-load ahead of tariff moves.