Descartes Systems Group posted almost in-line second quarter results, with revenues of $42.7 million along with adj. EBITDA of $12.7 million (which is equivalent to $0.19 per share) compared to our expectations of $43.6 million revenues and $13.1 million ($0.19 per share) adj. EBITDA and consensus of $42.9 million revenues and $12.6 million adj. EBITDA ($0.19).
We think company’ second quarter results kept on highlighting the company’s ongoing increasing recurring revenues and strong free cash flow generation. In second quarter, growth of revenue was increased by 11.7%, led by growth in Services revenue (up 13.2% mainly in-line with our estimates) partly offset by reduction in Licence revenues (down 7.7%), however adj. EBITDA margins remained on track with continued betterment in operational effectiveness and degree.
We think company has the capability to follow fairly giant acquisitions (for example, Customs Info), backed up by earnings from the company’s current share offering but will stay well-disciplined in analyzing any prospective. We think the company is well-in placed to gain from the continued consolidation of software vendors within multiple logistics markets, provided the company’s strong footprints in re-investing surplus free cash flow to finance accretive bolt-on acquisitions.
We estimate (IBES) EPS to grow to $0.25 in 2015 and $0.31 in 2016. Adj. EBITDA is expected to grow at $0.74 (2015) and $0.83 (2016) while EV/Adj EBITDA is expected to be 16.2 times in 2014 while 14 times in 2016. We maintain our “Sector Outperform” stock rating, indicating the company’s solid market position, its increasing recurring revenue sources, its better FCF generation, and its capability to reinvest free cash flow in accretive acquisitions.