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Note 3 - Acquisitions | 12 Months Ended
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Jan. 31, 2021
Notes to Financial Statements |
Business Combination Disclosure [Text Block] | Note 3 – Acquisitions Fiscal 2021 Acquisitions On February 21, 2020, Descartes acquired all of the shares of Peoplevox Limited (“Peoplevox”), a UK-based provider of cloud-based ecommerce warehouse management solutions. The purchase price for the acquisition was approximately $24.1 million, net of cash acquired, which was funded from a combination of cash on hand and drawing on Descartes' existing credit facility. The gross contractual amount of trade receivables acquired was $0.4 million with a fair value of $0.4 million at the date of acquisition. Our acquisition date estimate of contractual cash flows not expected to be collected was nominal. The purchase price was finalized in the three month period ended January 31, 2021 with no adjustments. On June 10, 2020 Descartes acquired all of the shares of Cracking Logistics Limited (“Kontainers”), a UK-based provider of client-facing digital freight execution platforms. The purchase price for the acquisition was approximately $5.2 million, net of cash acquired, which was funded from cash on hand. Additional contingent consideration of up to $6.0 million in cash is payable if certain revenue performance targets are met by Kontainers in the two years following the acquisition. The fair value of the contingent consideration was valued at $1.4 million at the acquisition date. The gross contractual amount of trade receivables acquired was $0.2 million with a fair value of $0.2 million at the date of acquisition. Our acquisition date estimate of contractual cash flows not expected to be collected was nominal. The completion of the initial purchase price allocation is pending the finalization of the fair value for trade receivables, accrued liability balances as well as potential unrecorded liabilities. We expect to finalize the purchase price allocation on or before June 10, 2021. On November 6, 2020, Descartes acquired all of the shares of ShipTrack Inc. (“ShipTrack”), a provider of cloud-based mobile resource management and shipment tracking solutions. The purchase price for the acquisition was approximately $19.0 million, net of cash acquired, which was funded from cash on hand. Additional contingent consideration of up to CAD 25.0 million in cash is payable if certain revenue performance targets are met by ShipTrack in the two years following the acquisition. The fair value of the contingent consideration was valued at $2.8 million at the acquisition date. The gross contractual amount of trade receivables acquired was $1.7 million with a fair value of $1.7 million at the date of acquisition. Our acquisition date estimate of contractual cash flows not expected to be collected was nominal. The completion of the initial purchase price allocation is pending the finalization of the fair value for trade receivables, accrued liability balances, deferred revenue as well as potential unrecorded liabilities. We expect to finalize the purchase price allocation on or before November 6, 2021. For the businesses acquired during fiscal 2021, we incurred acquisition-related costs of $0.8 million for the year ended January 31, 2021. The acquisition-related costs were primarily for advisory services and are included in other charges in our consolidated statements of operations. For the year ended January 31, 2021, we have recognized aggregate revenues of $9.4 million, and net income (excluding any interest costs on financing the a cquisition) of nominal from Peoplevox, Kontainers and ShipTrack since the date of acquisition in our consolidated statements of operations. The final purchase price allocation for Peoplevox and the preliminary purchase price allocations for Kontainers and ShipTrack, which have not been finalized, are as follows:
|  |  | Peoplevox |  |  |  | Kontainers |  |  |  | ShipTrack |  |  |  | Total |
Purchase price consideration: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash, less cash acquired related to Peoplevox ($1,634), Kontainers (overdraft of $13) and ShipTrack ($529) |  |  | 24,137 |  |  |  | 5,237 |  |  |  | 19,029 |  |  |  | 48,403 |
Consideration payable |  |  | - |  |  |  | 100 |  |  |  | - |  |  |  | 100 |
Contingent consideration |  |  | - |  |  |  | 1,414 |  |  |  | 2,825 |  |  |  | 4,239 |
Net working capital adjustments (receivable) / payable |  |  | (42 | ) |  |  | (218 | ) |  |  | 82 |  |  |  | (178 | )
|  |  | 24,095 |  |  |  | 6,533 |  |  |  | 21,936 |  |  |  | 52,564 |
Allocated to: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Current assets, excluding cash acquired |  |  | 485 |  |  |  | 253 |  |  |  | 1,846 |  |  |  | 2,584 |
Right-of-use assets |  |  | - |  |  |  | - |  |  |  | 151 |  |  |  | 151 |
Current liabilities |  |  | (776 | ) |  |  | (989 | ) |  |  | (668 | ) |  |  | (2,433 | )
Deferred revenue |  |  | (748 | ) |  |  | (102 | ) |  |  | (204 | ) |  |  | (1,054 | )
Lease obligations |  |  | - |  |  |  | - |  |  |  | (151 | ) |  |  | (151 | )
Deferred income tax liability |  |  | (1,615 | ) |  |  | - |  |  |  | (4,012 | ) |  |  | (5,627 | )
Debt |  |  | - |  |  |  | - |  |  |  | (728 | ) |  |  | (728 | )
Net tangible assets (liabilities) assumed |  |  | (2,654 | ) |  |  | (838 | ) |  |  | (3,766 | ) |  |  | (7,258 | )
Finite life intangible assets acquired: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Customer agreements and relationships |  |  | 3,631 |  |  |  | 800 |  |  |  | 3,905 |  |  |  | 8,336 |
Existing technology |  |  | 7,651 |  |  |  | 3,000 |  |  |  | 11,102 |  |  |  | 21,753 |
Trade names |  |  | - |  |  |  | 30 |  |  |  | 77 |  |  |  | 107 |
Non-compete covenants |  |  | 285 |  |  |  | 80 |  |  |  | 291 |  |  |  | 656 |
Goodwill |  |  | 15,182 |  |  |  | 3,461 |  |  |  | 10,327 |  |  |  | 28,970 |
|  |  | 24,095 |  |  |  | 6,533 |  |  |  | 21,936 |  |  |  | 52,564 |
The above transactions were accounted for using the acquisition method in accordance with ASC Topic 805, “Business Combinations”. The purchase price allocations in the table above represents our estimates of the allocation of the purchase price and the fair value of net assets acquired. The preliminary purchase price allocations may differ from the final purchase price allocations, and these differences may be material. Revisions to the allocation will occur as additional information about the fair value of assets and liabilities becomes available. The final purchase price allocation will be completed within one year from the acquisition date. The acquired intangible assets are being amortized over their estimated useful lives as follows:
|  |  | Peoplevox |  |  |  | Kontainers |  |  |  | ShipTrack |
Customer agreements and relationships (years) |  |  | 10 |  |  |  | 12 |  |  |  | 13 |
Existing technology (years) |  |  | 6 |  |  |  | 5 |  |  |  | 6 |
Trade names (years) |  |  | N/A |  |  |  | 3 |  |  |  | 3 |
Non-compete covenants (years) |  |  | 5 |  |  |  | 5 |  |  |  | 5 |
The goodwill on the Peoplevox, Kontainers and ShipTrack acquisitions arose as a result of the combined strategic value to our growth plan. The goodwill arising from the Peoplevox, Kontainers and ShipTrack acquisitions are not deductible for tax purposes. Fiscal 2020 Acquisitions On February 12, 2019, Descartes acquired substantially all of the assets of the businesses run by the Management Systems Resources Inc. group of companies (collectively, “Visual Compliance”), a provider of software solutions and services to automate customs, trade and fiscal compliance processes including denied and restricted party screening processes and export licensing. The purchase price for the acquisition was approximately $248.9 million, net of cash acquired, which was funded from a combination of drawing on Descartes' existing credit facility and issuing to the sellers 0.3 million Descartes common shares from treasury. The gross contractual amount of trade receivables acquired was $6.4 million with a fair value of $5.2 million at the date of acquisition. Our acquisition date estimate of contractual cash flows not expected to be collected was $1.2 million. The purchase price was finalized in the three month period ended January 31, 2020 with no adjustments. On May 10, 2019, Descartes acquired all the shares of Core Transport Technologies NZ Limited (“CORE”), an electronic transportation network that provides global air carriers and ground handlers with shipment scanning and tracking solutions. The purchase price for the acquisition was approximately $21.8 million, net of cash acquired, which was funded from drawing on Descartes' existing credit facility. Additional contingent consideration of up to $9.0 million in cash is payable if certain revenue performance targets are met by CORE in the two years following the acquisition. The fair value of the contingent consideration was valued at $1.5 million at the acquisition date. The gross contractual amount of trade receivables acquired was $0.4 million with a fair value of $0.4 million at the date of acquisition. Our acquisition date estimate of contractual cash flows not expected to be collected was nominal. The purchase price was finalized in the three month period ended April 30, 2020 with no adjustments. On June 27, 2019, Descartes acquired all the shares of Tegmento AG and Contentis AG (collectively, “STEPcom”), a business-to-business supply chain integration network based in Switzerland. The purchase price for the acquisition was approximately $18.6 million, net of cash acquired, which was funded from drawing on Descartes' existing credit facility. The gross contractual amount of trade receivables acquired was $0.9 million with a fair value of $0.8 million at the date of acquisition. Our acquisition date estimate of contractual cash flows not expected to be collected was $0.1 million. The purchase price was finalized in the three month period ended July 31, 2020 with no adjustments. On August 20, 2019, Descartes acquired BestTransport.com, Inc. (“BestTransport”), a cloud-based transportation management system provider focused on flatbed-intensive manufacturers and distributors. The purchase price for the acquisition was approximately $11.7 million, net of cash acquired, which was funded from drawing on Descartes' existing credit facility. The gross contractual amount of trade receivables acquired was $0.6 million with a fair value of $0.6 million at the date of acquisition. Our acquisition date estimate of contractual cash flows not expected to be collected was nominal. The purchase price was finalized in the three month period ended July 31, 2020 with no adjustments. The final purchase price allocations for businesses we acquired during 2020 are as follows:
|  | Visual Compliance |  | CORE |  | STEP-com |  | Best-Transport |  | Total
Purchase price consideration: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash, less cash acquired related to Visual Compliance ($170), CORE ($213), STEPcom ($2,700) and BestTransport ($507) |  |  | 239,863 |  |  |  | 21,833 |  |  |  | 18,639 |  |  |  | 11,718 |  |  |  | 292,053 |
Common shares issued |  |  | 9,045 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 9,045 |
Contingent consideration |  |  | - |  |  |  | 1,450 |  |  |  | - |  |  |  | - |  |  |  | 1,450 |
Net working capital adjustments payable / (receivable) |  |  | 1,147 |  |  |  | 62 |  |  |  | 250 |  |  |  | - |  |  |  | 1,459 |
|  |  | 250,055 |  |  |  | 23,345 |  |  |  | 18,889 |  |  |  | 11,718 |  |  |  | 304,007 |
Allocated to: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Current assets, excluding cash acquired |  |  | 6,403 |  |  |  | 689 |  |  |  | 1,470 |  |  |  | 815 |  |  |  | 9,377 |
Property and equipment |  |  | 30 |  |  |  | 2,048 |  |  |  | 257 |  |  |  | 35 |  |  |  | 2,370 |
Deferred income tax asset |  |  | 30,924 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 30,924 |
Right-of-use assets |  |  | 1,188 |  |  |  | 68 |  |  |  | 232 |  |  |  | 194 |  |  |  | 1,682 |
Current liabilities |  |  | (840 | ) |  |  | (352 | ) |  |  | (874 | ) |  |  | (284 | ) |  |  | (2,350 | )
Deferred revenue |  |  | (10,267 | ) |  |  | (278 | ) |  |  | (813 | ) |  |  | (9 | ) |  |  | (11,367 | )
Lease obligations |  |  | (1,188 | ) |  |  | (68 | ) |  |  | (232 | ) |  |  | (194 | ) |  |  | (1,682 | )
Deferred income tax liability |  |  | (282 | ) |  |  | (3,332 | ) |  |  | (2,316 | ) |  |  | (1,352 | ) |  |  | (7,282 | )
Net tangible assets (liabilities) assumed |  |  | 25,968 |  |  |  | (1,225 | ) |  |  | (2,276 | ) |  |  | (795 | ) |  |  | 21,672 |
Finite life intangible assets acquired: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Customer agreements and relationships |  |  | 32,186 |  |  |  | 4,600 |  |  |  | 10,839 |  |  |  | 3,000 |  |  |  | 50,625 |
Existing technology |  |  | 69,422 |  |  |  | 6,800 |  |  |  | - |  |  |  | 3,800 |  |  |  | 80,022 |
Trade names |  |  | 528 |  |  |  | 200 |  |  |  | 102 |  |  |  | 50 |  |  |  | 880 |
Non-compete covenants |  |  | 3,166 |  |  |  | 300 |  |  |  | 205 |  |  |  | 150 |  |  |  | 3,821 |
Goodwill |  |  | 118,785 |  |  |  | 12,670 |  |  |  | 10,019 |  |  |  | 5,513 |  |  |  | 146,987 |
|  |  | 250,055 |  |  |  | 23,345 |  |  |  | 18,889 |  |  |  | 11,718 |  |  |  | 304,007 |
The acquired intangible assets are being amortized over their estimated useful lives as follows:
|  |  | Visual Compliance |  |  |  | CORE |  |  |  | STEPcom |  |  |  | Best Transport |
Customer agreements and relationships (years) |  |  | 14 |  |  |  | 13 |  |  |  | 9 |  |  |  | 12 |
Existing technology (years) |  |  | 7 |  |  |  | 6 |  |  |  | N/A |  |  |  | 6 |
Trade names (years) |  |  | 5 |  |  |  | 8 |  |  |  | 3 |  |  |  | 3 |
Non-compete covenants (years) |  |  | 5 |  |  |  | 5 |  |  |  | 3 |  |  |  | 2 |
The goodwill on the Visual Compliance, CORE, STEPcom and BestTransport acquisitions arose as a result of the combined strategic value to our growth plan. The goodwill arising from the CORE, STEPcom and BestTransport acquisitions is not deductible for tax purposes. The goodwill from the Visual Compliance acquisition is deductible for tax purposes. Fiscal 2019 Acquisitions On February 2, 2018, Descartes acquired Aljex Software, Inc. (“Aljex”), a cloud-based provider of back-office transportation management solutions for freight brokers and transportation providers. US-based Aljex helps customers automate business processes and create electronic documents critical for executing transportation moves through the lifecycle of a shipment. The purchase price for the acquisition was approximately $32.4 million, net of cash acquired, which was funded from drawing on Descartes' existing credit facility. The gross contractual amount of trade receivables acquired was $0.2 million with a fair value of $0.2 million at the date of acquisition. Our acquisition date estimate of contractual cash flows not expected to be collected was nominal. The purchase price was finalized in the three month period ended January 31, 2019 with no adjustments. On June 22, 2018, Descartes acquired certain assets of Velocity Mail, LLC (“Velocity Mail”), an electronic transportation network that provides global air carriers with mail and parcel shipment scanning and tracking solutions. Using US-based Velocity Mail's network, global air carriers leverage mobile devices to accurately track shipments and deliveries in real-time. The purchase price for the acquisition was approximately $26.1 million, net of cash acquired, which was funded from drawing on Descartes' existing credit facility. The gross contractual amount of trade receivables acquired was $1.0 million with a fair value of $1.0 million at the date of acquisition. Our acquisition date estimate of contractual cash flows not expected to be collected was nominal. The purchase price was finalized in the three month period ended July 31, 2019 with no adjustments. On August 21, 2018, Descartes acquired PinPoint GPS Solutions Inc. (“PinPoint”), a provider of fleet tracking and mobile workforce solutions. Canada-based PinPoint helps customers collect real-time location information on trucks and mobile workers using technology, including Geotab (telematics) and SkyBitz (trailer tracking). The purchase price for the acquisition was approximately $11.0 million (CAD $14.4 million) , net of cash acquired, which was funded from a combination of drawing on Descartes' existing credit facility and issuing to the sellers less than 0.1 million Descartes common shares from treasury. Additional contingent consideration of up to $2.3 million (CAD $3.0 million) in cash is payable if certain revenue performance targets are met by PinPoint in the two years following the acquisition. The fair value of the contingent consideration was valued at $0.7 million at the acquisition date. The gross contractual amount of trade receivables acquired was $0.5 million with a fair value of $0.5 million at the date of acquisition. Our acquisition date estimate of contractual cash flows not expected to be collected was nominal. The purchase price was finalized in the three month period ended July 31, 2019 with no adjustments. The final purchase price allocations for businesses we acquired during 2019 are as follows:
|  |  | Aljex |  |  |  | Velocity Mail |  |  |  | PinPoint |  |  |  | Total |
Purchase price consideration: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash, less cash acquired related to Aljex ($193), Velocity Mail (nil) and PinPoint ($769) |  |  | 32,382 |  |  |  | 26,107 |  |  |  | 9,443 |  |  |  | 67,932 |
Common shares issued |  |  | - |  |  |  | - |  |  |  | 1,536 |  |  |  | 1,536 |
Contingent consideration |  |  | - |  |  |  | - |  |  |  | 714 |  |  |  | 714 |
Net working capital adjustments (receivable) / payable |  |  | (152 | ) |  |  | (102 | ) |  |  | 36 |  |  |  | (218 | )
|  |  | 32,230 |  |  |  | 26,005 |  |  |  | 11,729 |  |  |  | 69,964 |
Allocated to: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Current assets, excluding cash acquired |  |  | 607 |  |  |  | 1,407 |  |  |  | 599 |  |  |  | 2,613 |
Other long-term assets |  |  | - |  |  |  | 501 |  |  |  | - |  |  |  | 501 |
Current liabilities |  |  | (266 | ) |  |  | (81 | ) |  |  | (559 | ) |  |  | (906 | )
Deferred revenue |  |  | (1,024 | ) |  |  | (70 | ) |  |  | (574 | ) |  |  | (1,668 | )
Deferred income tax liability |  |  | (4,200 | ) |  |  | - |  |  |  | (2,077 | ) |  |  | (6,277 | )
Net tangible (liabilities) assets assumed |  |  | (4,883 | ) |  |  | 1,757 |  |  |  | (2,611 | ) |  |  | (5,737 | )
Finite life intangible assets acquired: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Customer agreements and relationships |  |  | 5,300 |  |  |  | 7,800 |  |  |  | 7,758 |  |  |  | 20,858 |
Existing technology |  |  | 12,400 |  |  |  | 7,600 |  |  |  | - |  |  |  | 20,000 |
Tradenames |  |  | 280 |  |  |  | 100 |  |  |  | 207 |  |  |  | 587 |
Non-compete covenants |  |  | 230 |  |  |  | 300 |  |  |  | 69 |  |  |  | 599 |
Goodwill |  |  | 18,903 |  |  |  | 8,448 |  |  |  | 6,306 |  |  |  | 33,657 |
|  |  | 32,230 |  |  |  | 26,005 |  |  |  | 11,729 |  |  |  | 69,964 |
The acquired intangible assets are being amortized over their estimated useful lives as follows:
|  |  | Aljex |  |  |  | Velocity Mail |  |  |  | PinPoint |
Customer agreements and relationships (years) |  |  | 13 |  |  |  | 12 |  |  |  | 9 |
Existing technology (years) |  |  | 5 |  |  |  | 5 |  |  |  | N/A |
Trade names (years) |  |  | 8 |  |  |  | 4 |  |  |  | 8 |
Non-compete covenants (years) |  |  | 5 |  |  |  | 5 |  |  |  | 5 |
The goodwill on the Aljex, Velocity Mail and PinPoint acquisitions arose as a result of the combined strategic value to our growth plan. The goodwill arising from the Aljex and PinPoint acquisitions is not deductible for tax purposes. The goodwill from the Velocity Mail acquisition is deductible for tax purposes. Pro Forma Results of Operations (Unaudited) The financial information in the table below summarizes selected results of operations on a pro forma basis as if we had acquired ShipTrack, Kontainers, Peoplevox, BestTransport, STEPcom, CORE, Visual Compliance, PinPoint, Velocity Mail and Aljex as of February 1, 2018. This pro forma information is for information purposes only and does not purport to represent what our actual results of operations for the periods presented would have been had the acquisitions of ShipTrack, Kontainers, Peoplevox, BestTransport, STEPcom, CORE, Visual Compliance, PinPoint, Velocity Mail and Aljex occurred at February 1, 2018, or to project our results of operations for any future period.
Year Ended |  |  | January 31, |  |  |  | January 31, |  |  |  | January 31, |
|  |  | 2021 |  |  |  | 2020 |  |  |  | 2019 |
Revenues |  |  | 354,461 |  |  |  | 341,376 |  |  |  | 328,824 |
Net income |  |  | 51,302 |  |  |  | 33,727 |  |  |  | 25,370 |
Earnings per share |  |  |  |  |  |  |  |  |  |  |  |
Basic |  |  | 0.61 |  |  |  | 0.41 |  |  |  | 0.33 |
Diluted |  |  | 0.60 |  |  |  | 0.41 |  |  |  | 0.33 |

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