'Our network is going to us AI and it already is using AI to help our customers': Descartes CEO

Key Concepts

• Supply Chain Logistics Technology Company: Daycart Systems operates in this sector, providing software and a network to connect supply chain participants and facilitate transportation.
• Global Logistics Network: Daycart's proprietary network that connects various entities within the supply chain.
• Organic Revenue: Revenue generated from the company's core business operations, excluding acquisitions or divestitures.
• Tariffs: Taxes imposed on imported goods, which can impact shipping decisions and create complexity in international trade.
• AI (Artificial Intelligence): A technology that Daycart views as a significant tailwind and growth driver for its business, not a threat.
• Macro Point Business: A specific business segment within Daycart that is benefiting from AI tools.
• Global Trade Compliance Business: Another segment of Daycart that is seeing revenue growth due to AI.
• Back Office Efficiencies: Improvements in internal operational processes through AI.
• Incremental Features: New functionalities or services developed using AI that are expected to drive revenue growth.

Daycart Systems: Q4 Performance and Future Outlook

Company Overview and Recent Performance

Daycart Systems is a supply chain logistics technology company that provides software and operates a global logistics network. This network connects participants in the supply chain, enabling them to execute transportation moves. The company's stock experienced a significant increase of 12% in the 48 hours preceding the interview, following the release of strong quarterly results.

Year-to-Date Performance and Impact of Tariffs

Edward Ryan, CEO of Daycart Systems, described the year to date as an improving one. While the company has remained very profitable, organic revenue was flatter earlier in the year, with a notable pickup in the most recent quarter.

The CEO attributed some of the earlier flatness to the complexity introduced by tariffs. Customers were hesitant to make shipping moves due to uncertainty about future tariff rates, fearing being "stuck with goods that came in at a higher tariff rate." This "froze" the shipping process for a period, particularly in the first and second quarters. As trade deals were finalized, the shipping process began to move again, contributing to the recent organic revenue growth. Ryan stated, "that kind of started to get the shipping process moving again and that's at least a little bit behind the move in our organic revenue growth."

Global Operations and Business Segments

Daycart operates globally, doing business in 140 different countries. The subscription side of their business has been "booming since the pandemic" and continued to perform well throughout the year. The transaction processing part of their business, which accounts for approximately 30% of their revenue, was flat earlier in the year but has started to pick up.

Despite a generally flat period for transaction volumes, Daycart experienced competitive wins that drove revenue growth. This pickup accelerated in the most recent quarter, leading to 7% organic growth. The company also saw an increase in even margins, rising from over 45% to approximately 46%.

AI as a Growth Driver, Not a Threat

Contrary to potential concerns about Artificial Intelligence (AI) impacting software businesses, Daycart views AI as a significant tailwind for their operations. Ryan stated, "AI revenues you know be been a small part of our business over the last 10 years and maybe in the last year or two started to really pick up."

Daycart's network is actively utilizing AI to help customers solve increasingly complex problems. The company anticipates 50 to 60 different capabilities that AI will bring to the table in the coming years, adding substantial value for their customers. Ryan emphasized, "we don't see it as a tailwind at all. We don't see it hurting any part of our business really. We see it really actually driving it forward."

AI's Impact on Revenue and Profitability

The revenue pickup in the recent quarter was partly attributed to AI tools within Daycart's Macro Point business and their Global Trade Compliance business. These tools have already proven beneficial in growing revenue and improving customer service.

Looking ahead to next year, Daycart expects to gain efficiencies and growth from AI. While a specific dollar value for these gains is not yet quantified, improvements are anticipated in two key areas:

1. Back Office Efficiencies: AI will streamline internal operations. However, Ryan noted that these efficiencies might be offset by the development of new AI-powered features delivered to customers.
2. New AI-Powered Features: These features are expected to drive revenue growth, and importantly, this will be highly profitable revenue growth. This is because Daycart already operates its network with significant sunk costs, making the incremental revenue from new features highly margin-accretive. Ryan explained, "the incremental features when they produce revenue, transactional revenue, you know, they tend to be highly profitable for us."

Conclusion

Daycart Systems is experiencing a positive trajectory, driven by strong performance in its subscription services, a rebound in transaction processing, and significant competitive wins. The company is strategically leveraging AI not as a threat, but as a powerful engine for future growth and profitability, enhancing both internal efficiencies and customer-facing solutions. The recent strong quarterly results and the positive outlook on AI integration underscore Daycart's robust position in the logistics technology market.