The Descartes Systems Group Inc. (DSG) Earnings Call Transcript & Summary

All right. So I've gone about 1 minute past. Sorry, Gary, will you go back just to that title slide real quickly just for 30 seconds? Thanks, everybody, for joining. My name is Troy Graham from Descartes. Appreciate you jumping on today. We're going to spend about 30 minutes together talking a little bit about unlocking growth with Sellercloud, our most recent acquisition. Gary, go ahead. So a couple of quick items before we get started. By default, everybody that's on the meeting today, you are muted, but there is an open Q&A chat session over to the side so you're welcome to post questions in there any time. The slides that we're using today are going to be available for you. They're actually available now in the resource center through the event. The recording will be sent to you after the fact. So feel free to grab a copy of those slides. If you do happen to post a question as we get going today and we're not able to get to it just due to timing, we will follow up with you afterwards, so please feel free to post your questions in there. Just to introduce the team that's here with us today, a couple of folks. Again, my name is Troy Graham. I've been part of the Descartes team for a little over 10 years, focused in sort of warehouse and shipping, fulfillment operations. I'm co-hosted with Mikel Richardson, our General Manager of our eCommerce team here at Descartes; and Gary Basko, who is a seasoned expert from the Sellercloud space and kind of a new member of Descartes through the recent acquisition. So just to tell you a little bit about the agenda, we'll talk about a customer journey and really the reason we purchased Sellercloud. What do -- what were we hearing from our customers as they were starting to grow and scale, and where do we see some gaps in some of the capabilities that we had. We're going to talk a little bit about some of the most common ways that Sellercloud helps product sellers grow and do a great job delivering for their customers. We will jump into the software a little bit. Gary is going to walk us through kind of a day in the life of what it looks like to use Sellercloud, and then we're really going to take a step back after that demonstration and challenge you as you finish your time with us today to ask yourself a couple of questions about what is channel and inventory management, order management, and warehouse management inside your operation? And are there some opportunities for improvement? And does something like Sellercloud feel like it makes sense to have a conversation with us? We've also got a little bit of an offer for any of those people that think about those questions and say, "Yes, I think it's worth exploring," that we will chat about in a few minutes when we get done. So Gary, if you don't mind, let's move forward. And Mikel, if you're here and can hear me okay, we're going to pass the ball over to you to help us get started, talk a little bit about the journey that we've been hearing about from our customers as they continue to grow.

Thanks a ton, Troy. So before we show you Sellercloud, we want to talk a bit about where Sellercloud fits into our product portfolio. Each of your businesses may be at different places in your growth journey as a product seller. For some of you, you may just be starting out. Maybe you're looking to open your first carrier accounts or access discounted shipping rates. Maybe you're growing. You're ready to add and integrate with more marketplaces and sales channels, or maybe you're facing issues with overselling or underselling inventory across those different sales channels. Or maybe you're scaling a warehouse operation and need to be able to do more with the same people you have on staff. Maybe you are being held back from growing because you can't do more orders per day, fill more orders per day. At Descartes, our e-commerce division specifically focuses on helping serve product sellers like you. Our vision is to provide a portfolio of e-commerce operations solutions to help sellers as they grow from single products to global brand. And until now, we've been fulfilling that vision through 2 main solution spaces, shipping and warehouse management, and this left a bit of a gap in our portfolio. Growing omnichannel brands needed to solve inventory and order management problems, problems like underselling products on sales channels where there's demand; overselling products that you don't have in stock; getting products listed quickly on various sales channels and staying compliant with each of those channels to avoid being delisted. And before now, our customers who needed inventory order and channel management solutions would have to look elsewhere. But now, with Sellercloud, we believe that we can help you solve these problems. We've been on a mission for some time now to fill this gap in our portfolio, and we cannot be more excited to bring Sellercloud to you. Today, Gary and Troy are going to share some of the challenges that we hear from product sellers as their operations get more complicated. And for this section, for this -- and we're going to specifically focus on the inventory, order management and warehouse management capabilities of Sellercloud to help you understand how product sellers can orchestrate, optimize, and take control of their e-commerce operations as they add complexity through new products, new sales channels and looking to optimize their fulfillment methods, whether using their own warehouse operations or augmenting them with 3PLs and dropshippers. With that, I want to turn it over to Gary, and we can jump into Sellercloud.

Thanks, Mikel.

Thanks, Mikel. Good afternoon, everybody. My name is Gary Basko. Thank you very much, Mikel and Troy, for the fantastic introduction. I'm an account executive with Sellercloud. I've been here now for about 3 years, working with the team and showing everybody really all the beautiful and amazing tools that we have to help grow and optimize your business. Sellercloud, though, for our customers is a much larger ecosystem than just inventory and listing management. We provide tools for things like warehouse management, shipping solutions, and even a full customer dashboard for things like managing and automating the returns process. Sellercloud, though, is that brains of the operation that we're going to be utilizing to operate and optimize, automate, really, 90% of the business things that you're going to be doing and running day to day. Sellercloud, in and of itself, though, is a number of different software applications put together in a larger product suite to make it easier to be able to manage everything all under 1 hood. Our customers, and I like to explain this as the legs of the e-commerce table, utilize these 4 main modules to run pretty much everything that they need day-to-day. Catalog is what we call a PIM software, so this is a product information management tool. This is where you're going to be able to start building your catalog, connecting to the different channels and even managing and updating listing information and pricing details all right through the Sellercloud portal. Catalog ties very closely to your inventory because this is where we're going to be tracking where all your inventory is, where it's going and where it's been. This is also where we're connecting your warehouse floor with things like receiving purchase orders so that you're not worrying about underselling or overselling. And as you have new inventory, we're making it available to all those channels and those listings you want to connect in. The orders module is the OMS or our order management software. This is the sales funnel that our customers are using to manage all of these orders, automate and generate efficient and intelligent picking plans in their warehouse. And it ties very closely with the IMS because we know where your inventory is. We have a series of rules that could be set up to really automate a lot of the business functions like routing orders to different warehouses, splitting those orders among multiple locations, and even updating order statuses right inside of the software. The last module but not the least module that our customers love, and because we're tracking everything else in there, we know your inventory, we know how fast it's selling, we have really nice forecasting tools as well to give you a better understanding on what you're going to be doing for purchasing new inventory based on your demand and restocking various fulfillment centers that you'd also like to integrate with Sellercloud like your FBA or your WFS warehouses. One main thing that makes Sellercloud very unique is the way that we help to manage all of these different channels and all these different companies that our customers bring to the table. Sellercloud provides a corporate umbrella, and with that corporate umbrella, you do have the ability to tie in as many different companies, if you have multiple brand identities. All of that's not a problem with Sellercloud. This ties into, as well, multiple, say, Amazon Seller Central instances, Shopify, eBay accounts, all that you want to better manage under a single portal. This is also nice in case you want to start selling internationally. A lot of our customers don't just sell in the U.S. They sell in U.K. they sell in Europe, so you'll be able to tie those various regional accounts, country and currency codes to also better manage the inventory and the orders process. Now the way our Sellercloud customers use everything inside of Sellercloud and the real key to everything starts with how we're managing everything with our SKUs. So we do provide a master SKU inside Sellercloud to understand and track things like your inventory information and all the content as well. These SKUs are going to tie to all the various properties pages, so to make easy listing -- easier to list on those different channels, we have things like the category fields and the attribute fields pretty mapped out for your Amazons, your Walmarts, your eBays of the world so that you can add things like listing details, manage pricing individually on those channels, and even set up custom inventory rules. And Sellercloud, when we're talking about inventory, tracks inventory very detailed. We're going to be tracking an available, a physical and quantity on order, synchronizing your available inventory to the marketplaces so you're not overselling or underselling, tracking all the physical inventory that's located across all the various warehouse locations. And we even have the ability, when you're using our purchasing tool, to track all of the incoming inventory in case you'd like to offer the ability to presell that and plan better for your warehouse when you're receiving all this new stock. Now because we know where all of the inventory is, Sellercloud has a fantastic order management system that's going to make it much easier to go ahead and aggregate orders, generate picking plans based on all the different filters and statuses that you would like to make it easier and more manageable, to free up the time and the resources from your team for actually managing and manually creating these picking plans. We also have the ability to deal with returns, create new orders inside of Sellercloud, and for our wholesale customers, you can even import orders directly into the system in bulk. Now for the purchasing side of things, the main tool that our customers like to see is our forecasting tool, where you'll be able to understand what you should be buying based on the inventory that you're selling out of your warehouses. And you can really dial into the way that this purchasing report is going to work as well. It starts with the simple calculation of days of days to, but we're also able to take into account things like your vendor lead time, your seasonality where you'll have a full time line of the last year to understand those peaks and valleys, and we're going to be able to set custom snapshots of those different time lines to understand what you should be buying based on those seasonal points in the year. Now for your warehouse team so that they have something to better be able to manage everything that's happening and to connect again your warehouse floor to the marketplaces, Sellercloud developed a full WMS called Skustack. Skustack does have a number of faces as well that our customers use, whether you're going to be going into the management page, if you are the warehouse manager, to do things like create work orders, track inventory, create new pick lists or FBA inbound shipment plans. And then your warehouse team will have a nice mobile device where they'll be able to manage everything and be tracked throughout the warehouse through all of these various movements, whether they need to find product information, they want to manage and update all the different bins, cycle counts, restocking reports, all the various picking plans that we offer, wave-based picking for our customers, order-based picking, and a pick-to-light system that allows you to sort, all while you're picking orders. On top of that, we also have tools for managing the FBA and the WFS prepping process for our customers that are going to be integrating their FBA warehouses. And for the receiving side of things, whether it's a PO, you're receiving a full shipping container, or you're managing things like returns inside of the warehouse, all this is going to be done through a nice, easy mobile application. And because we're tracking all of these amazing details inside of the Sellercloud and the Skustack portal, we're going to give you unparalleled warehouse visualization as well. Skustack Lens is a fantastic tool where you'll be able to do all the various warehouses that you have, look into those warehouses in the different regions to see a digital bubble of that warehouse and an actual floor plan, where you'll be able to click into those bins, those shelves, those levels, view all of that inventory. And if you need help setting up your warehouse, we even have the ability to go ahead and set up the mapping based on your naming convention. With all this tracking, we're providing things like live pick list tracking so that you can go ahead and see exactly what's being picked and the progress of all these orders being picked, and because we're tracking all these individual movements, you'll have great insights inside of the warehouse as well to understand how each individual employee is performing compared to the various different warehouses or the companies that you have. And if you ever needed to, you can even go ahead and track any individual movements, having a full audit of the warehouse that can be easily downloaded right from the portal. Some of the other products, too, that we have that are connected to the Sellercloud environment, if you guys are interested, we do have a payment processor for processing payments inside of Sellercloud. We have a shipping solution for managing and dealing with rate shopping and generating shipping labels, and we also, if you guys are getting on Amazon, do offer Clocklocked, which is something to help better manage your Amazon ads and give you better reporting. We connect directly into AMS for things like that. Otherwise, that's the bulk of the solution here. There's a ton of additional features and Sellercloud as a software, it's not a complex solution. It is a highly configurable solution, which we're able to help pretty much go ahead and take care of any of these different workflows that you're going to bring to our table. So feel free, if you have any questions, reach on out. I'd love to show you a product demo in person.

Awesome, Gary. That was great. I know there's so much to cover within Sellercloud. So we're kind of just scratching the surface there. But thanks for doing that. That was great. We've got a bunch of questions, but before we jump into those, I'm going to actually ask few questions of the folks on the call today. So if you don't mind, I think there's a couple of more slides in here. As Mikel had mentioned, there's kind of 3 fundamental areas where we find people looking at something like Sellercloud to help improve their business: inventory and listing management, order management, and warehouse management. And so depending on your role inside of the business, we put together a few of the most common things that we hear from our customers of what were they thinking about when they started to look for Sellercloud. And so the question I'll ask you, and we'll go through every 1 of these, but is to take a few minutes after we wrap up today and think about your business in your particular operation -- or sorry, your part of the business, whether it's in the purchasing side or maybe you're in the sales and listing inventory management side of the business or an operational role inside of the warehouse. But what are some areas that you're looking to improve? So a couple that hit close to home for me on the inventory and listing stand front are manually updating inventory levels across different sales channels. So what does that mean? A lot of companies that we talk with have a person that spends all or nearly all of their day keeping track of inventory inside of Excel spreadsheets and then updating different channels like Amazon and eBay and Walmart and their own website, but they're constantly juggling like, what did I receive into my warehouse? What did I make available for sale where? And then what have I sold and shipped out the door? And a lot of times, what we find is not only is it a labor-intensive process, but it leads to a lot of overstock. Because my fear is, I don't want to run out of things, so I save some stock. I hide some stock from my different channels so I don't accidentally oversell it. So it results in a labor-intensive process, but also one where we've got a bunch of capital tied up in goods that are sitting in the warehouse that aren't necessarily available for sale. Ultimately, the goal is to not oversell or undersell any inventory that you have. It's really a customer service complaint in a rising level of customer service complaints from customers where I'm calling them to tell them, "Oh, I don't have a product that I sold to you. Sorry. I can offer you a coupon, a discount, something like that for a future purchase." But customer service is a great place to look at the business and say, how are our customers feeling about our ability to sell them to accurately or tell them accurately what we have in stock? So from inventory listing management, think about these are some of the common challenges that customers sort of raise their hand and say, I think we should start to look for some technology to help improve the process, streamline the process and ultimately save the business a lot of money. If we think about order management, Gary, if you don't mind, push forward on to the next slide for me. Similarly to inventory listing management, a lot of times, it's a very manual process. And what I hear all the time or people say, "Yes, I come in and I spend the first 1, 2, 3, 4 hours of the day looking at all the orders that have come in and making decisions about those orders," whether they're, like Gary had mentioned, for a business with multiple warehouses. Maybe I'm making decisions on which warehouse is going to fulfill a particular order. My customer's in California, so do I want to fulfill this order from my Houston warehouse or my Nashville warehouse? Evaluating based on where the order came from. "Oh, it's an Amazon order. I need to make sure because of my commitment to my channel partner, Amazon, that, that order gets out the door in a timely manner." Or maybe my customer paid for express shipping. I recently had a really interesting experience where I went to check out on a website and one of the shipping options was skip the line, and it allowed me to get in front of other orders that were in the system and get my order shipped out the door more quickly. But behind the scenes, oftentimes, it's a person spending time figuring out how to prioritize orders, how to group orders together and ultimately, how to route those orders to the right warehouse. So if that sounds like you and there's time spent and manual intervention spent, come talk to Gary. There's so many opportunities for automating those things and reducing time, and candidly, reducing the opportunity for mistakes that often happen by manually interacting and making those decisions. And then lastly, probably most near and dear to my heart throughout my career is thinking about the actual warehouse itself. And how is my warehouse performing? And when I think about warehouse performance, again, I go back and I start with how does customer service feel about our fulfillment, our accuracy, our speed, and complaints that we have due to overselling or underselling inventory? But ask yourself, how is the warehouse doing? Are we paper-based that's slowing us down? Are we making mistakes? Are customers complaining they're getting the wrong products? And the other side of this that I'd start to look at, which is oftentimes a common question asked by a growing business is, how's my warehouse doing? If I typically get 100 orders per day and I've got 3 people in my warehouse, are they all performing well at the same pace, at the same level of accuracy? Or do I have 1 superstar and 2 people that aren't working that hard? And how did my warehouse perform today versus last week, versus last month? With Sellercloud, we get some of the analytics and a visualization to very quickly see how the team is performing, how the warehouse overall is performing. So there's some great insight into the efficiency of the business. So in summary, on those couple of slides, my ask is take a step back, think about your particular role inside of the business and see if there may be some areas for improvement. If the answer is, "Yes, I think maybe there is. I think we should talk to the Descartes team. Maybe there's some opportunity for us here." We've got an exclusive offer going on right now where if you sign up for a meeting with Gary or one of the team members, one of the experts, there's a gift card available for you, and you can use the link that's right inside of the slides that are in the resource center right inside of this meeting. With that said, Gary, through, I think, largely your demonstration, we had a number of questions that have come in. So I'm going to go through a few of those, and I'll ask you some and maybe help answer a couple myself as well.

So first question related looks like mainly to the warehouse side of the business. Does Sellercloud have the ability to track lot and serial numbers? So Gary, I'll ask that one to you.

Yes. That's actually part of the WMS. We have fantastic reports for tracking lot and serial numbers as well down to the bin location. For serialized products as well, we have some really nice grading and repair tools to even track those as you're transferring them from, say, 1 ungraded SKU to a newly refurbished SKU. You'll have a full history report of the serial numbers and the lot expiration dates and an audit of anything that's moving in the warehouse.

Perfect. Another great question came in. I don't know if I need Sellercloud. I know I need a shipping platform. My business is growing. I'm not sure if it's the right fit for me. Maybe another Descartes product from that earlier slide like XPS or ShipRush is the right fit. It's a very common question. My advice would be folks like Gary and myself and Mikel, we spend our days talking to companies that are using this technology. So if you're not sure, come talk to us. We're a pretty practical team. We will talk to you about what your objectives are for the business, and if one of our products is a great fit, we'll kind of steer you towards that. And if we're not a great fit, we'll also tell you that as well. So don't feel like you have to know, when you come knock on the door at Descartes to say, hey, I think I need Sellercloud or I think I need Peoplevox or I think I need ShipRush. Come talk to us. We'll help you figure that out together. Another question for you, Gary. There is a customer that says, "I currently use ShipRush. And I'm wondering like how long does it take typically to implement something like Sellercloud?"

Average implementation for our customers is about 4 to 6 weeks. It depends on the size and the scope of the business, and it is something that we do help and we provide a fantastic onboarding team to get you started where you'll have a dedicated rep working with you, a Sellercloud expert, that knows how to help with these integrations in these different very unique warehouse workflows that our customers bring to our table.

Yes, it's a great question. It's one of those things that I think it's really important. And I think the Sellercloud team does a really good job to understand that somebody that's going through and implementing Sellercloud, like their business is still going. It's not like we're shutting down the business to implement new technology. You're still fulfilling orders. So I think that time line is very reasonable. Are there times that it goes a little bit faster? Sure. Are there times that it goes slower? But the team will kind of understand that you're not spending your full-time day implementing new technology. So it's a great time frame to set expectations, Gary. Thank you. Great question. I also came into the business as part of an acquisition, so this was a common question. I'm an existing Sellercloud customer. Now that you're part of Descartes, does my support team change? So I'll answer that one. The answer is no. The team that was managing and working with all of the existing Sellercloud customers came over, and they're now part of Descartes. So no real changes to that team. Over some time, maybe there's a different internal system or something that we're using, but fundamentally, no, no changes to the support team. The people that you know and you have a great relationship will continue to be here. Another question. I think this might be from a Peoplevox customer, but they're in the U.K., and their question was, can I use Sellercloud in the U.K.? Short answer today is the lion's share of the customers for Sellercloud are in North America. Strategically, part of our goal in Descartes is to expand that into a more global platform. So there's some areas that we're working on to make that happen. But I would say we are systematically thinking about where are other good places to bring Sellercloud and evaluating right now what are some of the things that we might need to help with localization. So I think as we go through this year of 2025, you'll see some more international deployments. But certainly, I wouldn't sit here today and say, "Oh, yes, Sellercloud is available and a great fit around the globe." A question for you, and I'll be cautious, Gary, we're not going to get to all the questions, but a question came in about light manufacturing. Do you have an ability to support like a bill of materials or putting together, I'd call it, a kit through a light manufacturing process?

Absolutely. Yes, we have a fantastic kitting solution inside of Sellercloud, and that's exactly the naming that we call it, we call it a kit. And you can have as many different components, quantities and everything tied to that specific bill of materials. The very nice part about the Skustack WMS is we do have work orders in there for assemblies and disassemblies. So whether you are buying these preassembled kits and you're disassembling them into individual components, or you're buying the loose components and then you're assembling them into new SKUs that you'll be selling, that's not a problem. I've got a customer who they sell essential oil, so they track the bottle, the cap and the label, the 3 ounces of oil that they put all separately as different components and do the assemblies to better understand where that inventory is located. And then for those assemblies, you can even assign lot expiration dates to those newly full finished products, if you need.

Perfect, Gary. I'm going to try to squeeze in 1 more question really quickly. You mentioned preselling inventory. I think I know what it means, but can you spend -- I'll tell you, 30 seconds to tell people what that means if they want to presell inventory that's inbound to them.