DSGX Misses on Q1 Earnings & Sales, to Trim 7% Workforce, Stock Down

Descartes Systems DSGX reported first-quarter fiscal 2026 non-GAAP earnings per share (EPS) of 41 cents, which lagged the Zacks Consensus Estimate by 10.9%. The bottom line grew 2.5% year over year but fell 4.7% sequentially.

Revenues in the quarter totaled $168.7 million, up 11.5% year over year, driven by acquisition synergies and steady growth from new and existing customers, especially in global trade intelligence and MacroPoint freight visibility. However, the top line missed the consensus mark of $170 million due to a volatile macroeconomic environment and the pressures faced by shippers, carriers, and logistics service providers.

A strategic move this quarter was the acquisition of 3GTMS, a prominent provider of transportation management solutions. Announced on March 24, 2025, the deal was valued at roughly $112.7 million, net of cash acquired, and was funded entirely through Descartes' available cash reserves. 

This acquisition expands DSGX’s capabilities in the TMS space, enabling more comprehensive support for shippers and logistics providers. With 3GTMS's robust optimization and execution tools, it can better serve customers navigating the increasingly complex global logistics environment.

The Descartes Systems Group Inc. Price, Consensus and EPS Surprise

The Descartes Systems Group Inc. price-consensus-eps-surprise-chart | The Descartes Systems Group Inc. Quote

Recognizing the challenges faced by its customers, including tariff tensions, inflationary pressures, and supply chain disruptions, management has proactively initiated a cost-reduction plan. The initiative aims to reduce the global workforce by approximately 7%, cut operating expenses, and enhance long-term efficiency. 

As part of this initiative, the company expects to incur $4 million in restructuring charges during the second quarter of fiscal 2026, which will also affect cash flow. However, it anticipates annualized savings of $15 million once the plan is fully implemented.

In response to the mixed performance and potential negative impact of tariffs, DSGX’s shares tanked 8.3% in trading after the closing bell on June 4, 2025. In the past year, shares have gained 24.4% compared with the Zacks Computer - Software industry's growth of 13.8%.

Segmental Details

Services revenues (contributed 93% of total revenues) in the reported quarter amounted to $156.6 million, up 13.6% year over year, driven by a solid sales mix amid forex headwinds.

License revenues (0.2% of total revenues) were $0.3 million compared with $0.5 million in the prior-year quarter.

Professional services and other revenues (7%) fell 9% year over year to $11.8 million, mainly due to lower safety training in GroundCloud.

Other Details

The gross margin for the quarter under review was 76.4%, down from 76.6% in the prior year quarter. 

Descartes continues to manage its operations efficiently, with adjusted EBITDA rising 12% year over year to $75.1 million.

Adjusted EBITDA margin was 45%, up from 44% in the prior-year quarter.

Income from operations was up 9% year over year to $46.2 million.

Cash Flow & Liquidity

In the quarter under review, DSGX generated $53.6 million of cash from operating activities compared with $63.7 million in the prior-year quarter. Cash flow from operations was affected by one-time costs from the 3G acquisition and the payment of last year’s bonuses.

As of April 30, 2025, the company had $176.4 million in cash, down from $236.1 million as of Jan. 31, 2025, mainly due to spending $112 million on the 3G acquisition.

DSGX’s Zacks Rank

DSGX currently has a Zacks Rank #4 (Sell). 

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Companies

Blackbaud, Inc. BLKB reported first-quarter 2025 non-GAAP EPS of 96 cents, which surpassed the Zacks Consensus Estimate by 6.7%. The bottom line increased 3.2% year over year. Total revenues decreased 3.1% year over year to $270.7 million. This was due to the divestiture of EVERFI. The top line surpassed the Zacks Consensus Estimate by 0.9%.

Shares of BLKB have lost 19.6% in the past year.

Cadence Design Systems CDNS reported first-quarter 2025 non-GAAP earnings per share (EPS) of $1.57, which beat the Zacks Consensus Estimate by 5.4%. The bottom line increased 34.2% year over year, exceeding management’s guided range of $1.46-$1.52. Revenues of $1.242 billion topped the Zacks Consensus Estimate by 0.3% and increased 23% year over year. CDNS’s top line was driven by broad-based demand for its solutions amid robust design activity.

In the past year, shares of CDNS have lost 0.5%.

SAP SE SAP reported first-quarter 2025 non-IFRS EPS of €1.44 ($1.51), which increased 79% from the year-ago quarter. The Zacks Consensus Estimate was pegged at $1.39. Driven by momentum in the cloud business, SAP reported total revenues on a non-IFRS basis of €9.01 billion ($9.48 billion), which increased 12.1% year over year (up 11% at constant currency or cc). The Zacks Consensus estimate was pegged at $9.78 billion.

In the past six months, shares of SAP have soared 60.2%.

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