The Canadian Investor - Is Adobe Finally Turning a Corner? Dollarama Stays Expensive & Oracle Doubles Down on AI

Episode Date: September 17, 2026

In this episode of The Canadian Investor Podcast, Simon and Dan break down the latest earnings and developments from several Canadian and U.S. companies. They look at whether Adobe is finally starting to turn a corner, why Dollarama continues to deliver strong results despite its premium valuation, and Oracle’s massive AI infrastructure bet as spending surges and free cash flow comes under pressure. They also discuss Descartes Systems and a major deal in the Canadian energy sector. Stocks discussed: ADBE, DOL.TO, ORCL, DSG.TO, TVE.TO, HWX.TO   Subscribe to Our New Youtube Channel! Check out our portfolio by going to Jointci.com Our Website Canadian Investor Podcast Network Twitter: @cdn_investing Simon’s twitter: @Fiat_Iceberg Braden’s twitter: @BradoCapital Dan’s Twitter: @stocktrades_ca Want to learn more about Real Estate Investing? Check out the Canadian Real Estate Investor Podcast! Apple Podcast - The Canadian Real Estate Investor  Spotify - The Canadian Real Estate Investor  Web player - The Canadian Real Estate Investor Asset Allocation ETFs | BMO Global Asset Management Sign up for Fiscal.ai for free to get easy access to global stock coverage and powerful AI investing tools. Register for EQ Bank, the seamless digital banking experience with better rates and no nonsense.See omnystudio.com/listener for privacy information.

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So this would be his fifth that he's starting out. If he does anything like he did with Headwater, like Headwater was a dollar a share in 2020, and it's sold for a mid-13 range today. Customers being broad base, it's just saying you have a lot of customers. But it doesn't mean that you're not especially concentrated with a few customers. For example, you could have 100 customers,

but two of them represent 50% of your revenue combined, while the other 98 represent that other 50%. So, of course, you're still very concentrated, but you can still make that statement that your customers are broad-based. The valuation is still extremely cheap. It's trading at a 9-4d PE and a 9-4d price-of-free cash flow. So there is a case to be made that this is extremely cheap.

Welcome to the Canadian Investor Podcast. I'm Simone Berengen back with Dan Kent. We have a fun episode today. Pretty much only earnings that will be going over some recent news, I guess. We'll go over Oracle and the most recent quarter that was last week. After that, we'll go over Dahl Rama, then Adobe, and then we'll finish with the Carthus and the Tamarack headwater merger, which we were planning to talk about last week, but it went on a bit too long, so we decided not to.

But some interesting news and obviously make sure you tune in later today if you're hearing this, probably around 10.30 a.m. that will be starting the live show, Dan Foch and I, should be a banger because there's a lot to talk about. We'll go over obviously what the Fed will be doing. We're recording this around 11 a.m. Eastern time. So we don't know what the Fed is going to do yet, but I assume is going to move the markets one way or another depending on what they're going to do. Yeah, there's a lot of rumors that, well, not rumors. It's actually, I think the betting favorite right now that they're going to raise interest rates. Yeah. Oh, yeah.

I don't. It'll be interesting to see if they do it or not. I don't really know. I don't really think that policy rates in either direction will kind of solve the solution they're in right now. But yeah, it's kind of a downtime in terms of earnings. There's a few Canadian companies that we typically talk about. But yeah, it's definitely slowing down. Yeah, like Pollymard 80% chance that they're going to raise.

that they're raising. Yeah, 11% no change. So we'll have to see. So make sure you tune into the live show for that. We'll be talking about a bunch of different topics. A lot to talk about with, I guess, Canada, potentially becoming a NIEU associate member. Also, some of the investments that Carney is putting on the table. And of course, oil, energy prices just keep going up.

So a lot of stuff to talk on the macro sides. But let's get started. Earnings. So Oracle. Yeah. Did you have a chance to. to look at their earnings? No, they reported late last week, didn't they? Yeah, they did. So they reported, I believe it was on the 10th and the market, I don't think really, I mean, it went up and down around

the reporting and I didn't look at the stock specifically on earnings day, but it definitely looks like the market was not impressed. So I'll just show here for our joint TCI subscribers. So you can see it went. Yeah, I think it went up a little bit before earnings and then kind of went down after earnings. And over the last five days, the stock is down 10%. So I'm going to say that the market did not love what they reported. Revenues were up 30%, which exceeded their guidance from the previous quarter. So that's pretty substantial. I mean, it is kind of showing that they're able to convert some of those RPO's into actual revenue.

the RPO's that are actually sitting at $600 a billion currently. So it's pretty massive. I mean, we remember those they jumped. What was it? Yeah, like about six quarters ago at this point when they saw the massive jump. So at least they're able to convert some of that into actual revenue. And that was always a question is, can they convert that to revenue? And the second question, can they convert that to profitability?

Yeah, I think they had it tripled on like a sequential basis. Yeah, from May to. August you can see here it went from 137 billion to 455 billion and I remember the stock just launched on that quarter I think it went like straight north and then it's kind of given it all back and then some because of how much it costs to kind of satisfy those those RPO's which has kind of been an issue for this company I would imagine like just I haven't looked at the quarter but I would imagine spending is probably the reason why it dipped because that's kind of I think the commentary around spending for this company has been the reason why it's been

kind of hammered down in price over the last year or so. Yeah, exactly. So, CAPEX has been definitely a big point of discussion, not only for them, any of the kind of infrastructure companies that are building out the infrastructure for AI. So they spent $28.5 billion in CAPEX during the quarter and they burn $5.4 billion in free cash flow. On the good side, though, Q1 cloud revenues were up 61%. They hit a record at 11.6 billion. Cloud infrastructure revenues was up 121%.

So infrastructure as a service is basically how they would describe it. Cloud apps revenue was up 10%. So that's their more traditional business, so software as a service. Gap EPS was up 55% while adjusted EPS was up 30%. and they added $30 billion to RPO. So those are remaining performance obligation. They're essentially, I think it's not quite set in stone, but they're kind of commitments from customers to use the capacity in the future.

And they expect to spend between $90 and $95 billion in CAPEX for fiscal year 2027, which they just started now. They added 850 megawatts in capacity during the quarter and have 98% GPU utilization along. with 20% renewal price increases. So that's on the good side. They definitely highlighted that during the quarter. And that power that they added during the quarter is pretty massive.

Just to put that in perspective, that's around like 800,000, 850,000 homes worth of power. So that's a whole lot. Yeah, exactly, in one quarter. And they said on the call that currently access to capital is constrained. So they are using different ways to build out the infrastructure. They said they're looking at supplier-vender financing, so basically pay for the equipment over time. Or as the customers pay Oracle, customer-funded hardware where the customer pays and Oracle provides the rest of the infrastructure. And customer prepayments where the customer pays up front to reserve or build capacities.

So they completed the sale on top of that of $20 billion worth of new shares during the quarter, which has led to the share count to increase 5%. And it's kind of conflicting a little bit because they're saying, okay, we're finding other ways to finance it, but they also issued 20 billion worth of shares, which of course diluted shareholders, and they're issuing a lot of debt as well. And during the call, they were asked about specific delays for data centers, specifically New Mexico and Wisconsin. They acknowledge that it is becoming a constraint. But even if they face regulatory hurdles, their buildout is not dependent on one or two projects. they have backup options. They did really talk about their customer base aside from saying that demand is really broad base.

And the problem with the kind of statement is that it's just really vague. Customers being broad base, it's just saying you have a lot of customers. It's pretty broad. But it doesn't mean that you're not especially concentrated with a few customers. For example, you could have 100 customers, but two of them represent 50% of your revenue combined while the other 98 represent that other 50%. So of course, you're still very concentrated, but you can still make that statement that your customers are broad-based. So that's why, and that's what you're seeing on these calls is you tend to get, especially like I guess

Oracle, but also the hyper-scalers, you're seeing some vague language into stuff that is around profitability, return on investment. Even they had a claim about like the return on investment that was a bit of a head scratcher too during the call. I can exactly remember. But overall, I mean, still more questions than answers, I would say, for Oracle in terms of financing the buildout and some potential bottlenecks, not only just for the chips, the GPUs, the memory, but also physical bottlenecks for being allowed to build those data centers, for example. Yeah, I think, like, broad base, that can mean so many things, because you can have a. broad range of customers, but if they're all concentrated on one thing, that being the AI build out and that slows, it doesn't matter how many customers you have. If they're all focused on

the exact same thing, it's effectively like having one large customer. I kind of looked at while you were doing this, I kind of looked up, if they grow operating cash flow at the same pace as last year, and they do spend that much, the 90 to 95 billion, you're looking at like 27 or 25 billion negative free cash flow over the course of the year. So they're going to be burning quite a bit of cash again. I would imagine the hyperscalers will get up to that point as well. Like I think they burned. They had negative $28 billion over the last 12 months. So it seems like it's kind of going to be par for the course over the next year or so here. They're not turning profitable on a free cash flow basis anytime soon, unless that the growth actually expands. No, exactly. And I think it just remains

to be seen. Obviously, there's a lot of demand right now. for what they offer, but I think it doesn't address depreciation. It doesn't address like the longevity of some of the equipment they'll be putting in there. And a lot of those physical bottlenecks. So we'll have to see an interesting one. I think we'll have to cover it pretty much every quarter just because it's a bit. It's not as solid as the hyper, like the other hyperscalers. So if you're thinking about just Microsoft, Google, Facebook, like or meta,

I feel like those are still, the businesses are bit stronger, the underlying business. So Oracle is a bit kind of a case study on its own, but still shares some of the similarities with the spending. But anything else you want to add before we move to the quiet Canadian compounder that is Dolarama? I was just going to say 98% utilization with 20% renewals in pricing is a good start. Yeah, it's a good start. If that continues. I've been thinking about doing a Quebec City trip where I bring my mountain bike and the family tags along. I could spend part of the day riding while my wife and my daughter explore the city, walk around the old streets, stop for ice cream, and burn that energy in a beautiful park.

Then at night, we'd all meet back up, go out for dinner, and make it a family trip. And while we're doing that, our home in Ottawa would just be sitting empty. That's when it hit me. Listing our home on Airbnb just makes sense. Someone else could enjoy our place while we're away, whether they're here for a summer weekend, visiting family, or coming in for a big event in this city. They could explore the Rideau Canal, take the kids to the water park, catch a CFL game downtown, or just use our place as a home base to experience Ottawa like a local.

The extra income could go right back toward our own trip, and we can choose to host only when it works for us. Your home might be worth more than you think. Find out how much at Airbnb.ca.com slash host. There is an old saying in investing. It's not about timing the market, but time in the market. The most successful investors aren't usually the ones trying to catch every top and bottom. They're the ones who spend the most time in the market.

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Check out the asset allocation ETFs at bemoetifs.com. Yeah, we can go on to Dollarama. So they just reported this quarter. So I didn't really get a chance. Actually, the call wasn't even started by the time I did these notes. But it's a pretty solid quarter, but there's a bit of, question marks here. Revenue increased 17.6%. Ebenes 11.2, EBita by 11%. Even a margins decline by nearly 2%. And I would imagine, like if I were to guess, they will, I'm sure they'll

talk about this on the call, but I would say fuel costs would probably be what's hitting margins, just kind of freight, I guess, not necessarily fuel, but just freight costs overall will probably be what is hitting margins. I would imagine they're going to answer that on the call. Australia also hit earnings by about 5%, meaning it took 5% off the total earnings growth. So if we strip that out, we're talking about 15.5% earnings growth for this company. I'm not saying that the Australia loss is not a loss, just more so highlighting that once Australia starts turning out profits, you're looking at a company that's growing at a pretty reasonable pace. Obviously, it's not guaranteed Australia will work out. But judging by Dollarama's model over the years,

There's a good chance it will. Canada looks pretty strong. Same store sales up 5.4% transactions up 3.7. Overall ticket up 1.7, meaning what people are spending when they go in the store. And it does look like that oddball quarter where they blame the weather seems like it was absolutely the weather. It was the weather. I'm getting, I'm meeting my words. Yeah.

If you look at dollar, like you can look at the same store sales here for Canada. you can tell what quarter it was where they blame the weather. It pretty much dropped from 5% down to 1.5. And the interesting thing there is the overall ticket, like what people spend when they go into the stores. That was like noticeably higher than any other quarter. So people were coming in. And pretty much they relate exactly what was happening.

Fewer people are traveling to the stores, but they're spending more when they get there. I don't blame people who like didn't believe them when they were saying this, but it definitely, they were definitely being honest. Yeah, exactly. Well, I mean, I think the proof is in the pudding, right? It's, to me, I'm always skeptical, but when you follow it with two solid quarters of 5.6 and 5.4

comparable sales in Canada, then it's hard to argue there. But a lot of the times when companies say that, it does not improve. So the weather keeps being bad year round. Pretty hard to do that in like July, though. But you never know. Gross margins in Canada came. in 45.7%. That was ahead of guidance.

The only concern, I guess, I would have with Canada as slower stores. So they only opened 15 stores. I think last year they opened 27. And they're at around 41 stores through the first six months compared to 49 last year. Overall, it's pretty strong. And they actually did bump their guidance in terms of store growth. So they have to have some sort of acceleration coming in the back half of the year. and with Australia pretty much declines across the board margins fell 8%.

Sales declined 4%. Losses widened. This really should not come as a surprise, though. I would imagine the sales are declining because they are, I don't know if they're just outright closing down these stores when they renovate them. They might not be, but your sales are going to be impacted when you're doing this wholesale renovation on all these stores. It's to be expected. 60 stores out of the 414 now have the dollar ramma layout so they're all renovated ready to go

but they're still operating under the reject shop which is the company that they they bought there until their product assortment gets sorted out because that's probably the biggest edge with dollarama is how they manage the product how they manage the inventory things like that so when they when they finish that they're going to flip them to dollar ramas I think this one is probably going to be a loss for the company for two or three years. But once they do get this running, you've got 400 plus stores that are likely going to have margin profiles as Dollar Ram is here. Maybe I'm not exactly sure on that because I don't really understand the market in Australia overall. But there is a lot of potential there.

Dollar City, which is Latin America, growing as well. Sales are 30% higher. Store counts are up 18.7%. So you've got double digit same store sales growth. I can't remember how much of this company they own now. It's 60 or 70%. They don't own all of it, but they have been buying more of it. Mexico is kind of still burning money again.

But it is a pilot project right now to see if there's money to be made there. If there is, I mean, you've got a massive market in Mexico to get exposure to. Guidance was bumped. So they now say same store sales is going to come in 4 to 4.5% versus 3 to 4 to 4 previously. New stores. 65 to 75 from 60 to 70 previously and gross margin bump 50 basis points. SG&A expenses like sales and administrative expenses are up.

They're going to be up, but that's probably all Australia. The thing about the guidance is they're either expecting it to slow down in the back half of the year or they're definitely sandbagging here to some regard because they've posted two quarters of 5.5% same store sales growth and now they're guiding to four to four and a half. Yeah, it seems a bit odd. They either expect Australia maybe and I just can't see it.

I don't know where the drag is going to come from. So that'll be interesting. They're probably, if I were to bet they're going to come ahead. They're going to come in ahead of that, which is kind of what you want to see. And the conference call would have been interesting. I would have been looking for probably three things. How much of that margin dip was fuel related? Store openings.

See what's happening there. And then, yeah, the back half of the year in the, guidance, but it's still pretty pricey, 32x expected earnings. It's kind of flat after this. It's been all over the place. I think it was up two or three percent. Then it went flat and now it's up four percent. So probably something good on the call was talked about. But yeah, expensive stock, but one that is just not slowing down on just the consumer crunch costwise. Maybe some people are just moving to Dollar Tree. Who knows? I don't know. Yeah, no. I mean, I think they're both going to do pretty well.

I was kidding. But when we last look at Dollar Tree, I mean, I think Dollar Tree obviously is not as well managed, but Dollarama, I mean, they, I mean, I think they have a track record. So it's very hard to bet against them. The problem with Dollarama for me has always been valuation. But I've had a like, I've felt their valuation being high for the past 10 years. So at some point, does it just warrant the higher valuation? we'll have to see, yeah.

Yeah, I kind of had like $150, $150 on like my buy target for this company. I don't know if it'll get there, but that, just reasoning for that, that would be like a slight premium. That would be what it's traded at. That would be what, high 20s in terms of valuation, pretty much, yeah. Which it would be about a 10% premium to like what it has historically traded at, which I think it deserves that premium because of, like, are these tailwinds? I don't want to say ever slowing down. I mean, things are just getting more expensive. Yeah, it doesn't look like it.

And when things get more expensive, yeah. With the higher diesel prices that we're seeing, it's hard to think any even gas prices, right? I think people will have to trade down and just find value wherever they can. But no, good overview. Anything else I add there before we move on to Adobe? Nope, let's go. So let's go to Adobe. So, Saspocalypse, I think the poster child for Sospocalypse.

You know what? It was an okay. quarter, I would say, for Adobe. They saw revenue grow close to 13% year over year. AAR, so their annual recurring revenue rate, at the end of the quarter, reached $27.5 billion. And that represents a deceleration a little bit, though, for Adobe. So last quarter, it came at 12.5%. And that's a growth rate. The $27.5 billion is a growth weight of 11.2%. so compared to the previous quarter, it was slightly slower. It was still higher than Q1.

Q1 was around the same rate, 10.9%. But if you go back to Q1 of 2024, that growth rate was actually 13.8%. So the AR is actually going a little bit on a downward strand. It's not massive, but I think that's where a lot of investors are a bit worried about Adobe. because yeah, the top line numbers go pretty good, look pretty good, but those annual recurring revenue that you establish at the end of the quarter, for example, they haven't been going in the right direction now if you smooth out over a few years. So that's just something to keep in mind.

It's still solid growth, but the direction is definitely something that I think investors are paying attention to. They continue to push the premium model pretty aggressively with more now they have more than 1 billion monthly active users for their freemium model. And they were saying on the call, it's a bit of a transition period. And they didn't provide some concrete ways or numbers on the monetization and strategy to convert them. So that's still the issue there. And I think that's what's still weighing on the stock. When analysts asked them directly,

management said they were optimizing engagement first and will tune the paywall and conversion point over time. So I don't know what. to help that means, but I guess they'll figure it out as they go. And I think that's a bit the uncertainty here. The AI first revenue increase 150% year now exceeds 650 million. AI first revenue is recurring revenue specifically from newer offerings where AI is really the central focus of the product itself, not kind of add-ons or retention tools, I would say, for existing products, really where it's the product itself. So Firefly, I know you've used.

that in the past Acrobat AI assistant, Acrobat Studio and Gen Studio. So those are really the AI focused tools and they really want to show that they're embracing AI and it's not disrupting the business. They are pushing the agentic AI strategy. They repurchase 9.5 million shares during the quarter and their share count has been going down pretty aggressively. So that's definitely a good thing there. And the RPO's, so again, the purchase orders, if you like, increase 8% year over year, but the recent trend is a bit more concerning here, where it has declined 1.5% over the last three quarters. So the RPO's are slowing down a little bit, just sharing this over here. So the remaining performance obligations, you can see a little bit

the slowdown, right? So they had a bump in November of last year, and then it's been slowing down since. We'll have to see if they'll get another bump this year, but there's been a little bit more of a slowing trajectory when it comes to that. Yeah, I think, I mean, we've talked about this one quite a bit and how the disruption element is definitely there. I think when you look at Adobe right now, there's almost zero question that growth has, it hasn't gone away, but it's decelerated. There's almost zero question. So I think the market in a reasonable way, it was pretty reasonable to mark this one down. to kind of devalue this one. Now, I think it might be a little on the harsher side, but

there's been a lot of people who spoke kind of about how the business hasn't really changed all that much. And it's growing at like half of the rate it was in terms of a top line basis like five years ago. We're seeing deceleration in the ARR, the RPO's, things like that. So there is a slowdown here, which is ultimately, it's going to be an issue from when Adobe we traded at whatever it was 40, 50x earnings a few years ago. So it kind of looks like the market was right on this one for the most part. I mean, it has rebounded a bit. I think it's still up probably what 20, 25% from the bottom at this point.

So but it is significantly down. I mean, the share count is down close to just, yeah, more than 12.5% over the span of like close to three years. So that's a massive deletion of shares. And if you're looking, though, at the stock, looking at the, yeah, the returns over the last year, it's down 30%. It is doing pretty well. Like I said, from the lows, it's rebounded quite a bit. But it's still, if you're looking at the last three years, down 52%, and the last five years down 62%.

So it's still much lower than it used to be. And they did raise guidance a little bit on the revenue side for the full year. but the AR growth guidance, so what I was mentioning that was decelerating, that remained unchanged at 10.2%. So that would be down from the 11.2% that they achieved this quarter. So something to keep in mind. The last thing here to mention is that they announced a few weeks ago, who will be the CEO of the company.

So just a little bit of a recap for people who haven't been following Adobe. So Shatanu Narayan, I'm probably butchering the name, and I do apologize here. He led Adobe for 18 years. He announced, I think it was in March of this year, that he would be stepping down once. The successor was found. So they essentially had two major candidate. The first one, David Wadwani, president of creativity and productivity.

So he oversaw Creative Cloud, Photoshop, Illustrator, Acrobat, Fireflies, Express, like basically the product guy. And then they also had Anil Shakravardi. He was the president of a customer experience. And so just overseeing more the digital experience, the enterprise side of things, data products, Jan Studio, the experience platform and global field operations. And on September 3rd, 2026, they selected Anil Shakravani. So the one that was more, I guess, the more the corporate guy, I would say, versus the more business corporate guy versus the creativity president. And then David Wanhi just said he was leaving the company after losing out on the CEO job. and the new CEO will become CEO on December 1st, 2026, but the current CEO, Shatano and Orion,

will be staying on as executive chair of the board. So there is definitely going to be some transition, and he's obviously going to have some input on the business as executive chair as well. So it is interesting. I think some people wanted more one than the other in terms of shareholders of the company. But at the end of the day, if you like the premise here or you like the thesis that there could be a turnaround and the market was too bearish on it, I don't think the selection of Anil is really a deal breaker, especially when you had the CEO for 18 years that will be staying on as the chair of the board. So it's to me, I think if you were bullish, you probably still are.

Obviously, there are some kind of yellow flags that you're seeing in the numbers. but overall, I mean, it could still do quite well. I can see both thesis. It could go down from here like it could do well from here. The valuation is still extremely cheap. I mean, it's trading at a nine forward PE and a nine forward price of free cash flow. And the peg, so the price of earnings growth is 0.7. So there is a case to be made that this is extremely cheap.

Yeah, I, there was a lot of negativity towards the CEO selection on X. I actually couldn't find anybody that was happy about it. There was a lot of people who actually sold the company because of it. And I just don't understand. Like, if your thesis was surrounding this company, how cheap it is, how it's not going to be disrupted, how it's growing relatively fast considering the valuation. How does a single CEO selection change that? It's like he's going to blow the company up, like, operations. It's also from a shareholder perspective, right? Like from outsiders, you can't, but you don't know how they interview. You don't know the inner workings of the business. Like you just know what they share. So at the end of the day, like even if people were thinking more of the other one, I mean, it was probably just from their own bias perspective that they wanted someone that was on the creative side to take the helm. And look, maybe it's the right move. Maybe it's a mistake. But I think, especially when you have the old seal, staying on the

board, as chair of the board, I mean, you kind of, to me, if you were bullish, you have to kind of stick with it and just say, you know what, let's see, let's give this guy like maybe a couple of years, see what he does and then make a decision. But that's it for Adobe. I've been thinking about doing a Quebec City trip where I bring my mountain bike and the family tags along. I could spend part of the day riding while my wife and my daughter explore the city, walk around the old streets, stop for ice cream, and burn that energy in a beautiful park. Then at night, we'd all meet back up, go out for dinner, and make it a family trip. And while we're doing that, our home in Ottawa would just be sitting empty. That's when it hit me. Listing our home on Airbnb

just makes sense. Someone else could enjoy our place while we're away, whether they're here for a summer weekend, visiting family, or coming in for a big event in this city. They could explore the canal, take the kids to the water park, catch a CFL game downtown, or just use our place as a home base to experience Ottawa like a local. The extra income could go right back toward our own trip, and we can choose to host only when it works for us. Your home might be worth more than you think. Find out how much at Airbnb.ca.com. There is an old saying in investing. It's not about timing the market, but time in the market. The most successful investors aren't usually the ones trying to catch every top and bottom. They're the ones who spend the most time in the market.

I've been a quest trade user for over five years, and the reason I stick with them is that they remove the friction of regular investing. With no commissions on stock and ETF trades, you don't have to wait until you have thousands of dollars saved up to make a move. You can contribute small amounts regularly and keep your portfolio growing consistently, removing the stress of trying to time the market. And they keep making it easier to build a well-rounded portfolio. Soon, you'll be able to trade precious metals through Questrade, giving you even more ways to diversify. Questrade makes the whole process seamless, allow you to focus on what really matters your investment strategy, not trying to avoid fees. Ready to invest? Head over to.

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Descartes. It's actually, Descartes. Yeah. DeCard. Okay. Okay, so it is a Quebec company. Is that it? Yeah. Yeah. Okay. But yeah, it's pronounced Descartes. Well, yeah, that would be the French pronunciation. You kept saying Descartes, so I just went with it, yeah. I said that? I don't ever remember.

I thought you did. Yeah, anyways. I had to look up the, I've looked up the pronunciation of this company's name numerous times before, so I didn't make a mistake. Maybe it was just on my, in my head. Maybe I'm making stuff. I dream. I dreamt that you say it. I'll just say that.

You must have had a dream. Yeah. But yeah, it's not one we've talked about a lot. Actually, I don't know if we've ever talked about it on the podcast, at least not since I come on. But it's a very interesting company. They're kind of the tracking layer, I guess, of commerce. You could say it doesn't own any physical infrastructure that actually moves stuff around. But it's a software company that tracks shipments, calculates duty, tariffs, all that type of stuff.

So customers pay subscription fees for the software plus fees on whatever shipments they decide to track. 95% of the company's revenue is recurring. And despite this company benefiting from a tariff environment, its stock has kind of taken a beating up until this recent quarter. I think it reacted pretty well to this quarter. I think it's just the software element of it, I guess. Revenue topped expectations. Earnings came in relatively in line.

Total revenue grew 11.8%. Organic revenue was around 9%. And organic growth is pretty key here with Descartes. it does make a lot of acquisitions. Faster grower is the U.S., not really all that surprising. 17% increase you over year. This makes up nearly three quarters of the business, so it's kind of important that this is the one that grows the fastest.

Europe, the Middle East, and Asia came in at 21% and Canada, 6%. So the thing with this company right now is trucking volumes continue to fall, but organic growth sits at 9%. So you'd think that falling, trucking volumes falling would ultimately decrease orders, order volume, things like that, which would ultimately impact them. But I think it's kind of the tariff chaos. That's kind of a prime example of the tariff chaos that's going on right now. And this is an interesting element here and one I'm going to keep an eye on because the company is now sitting on six straight quarters of adjusted EBITA margin increases. However, if we isolate out stock-based comps, EBITA margins did not expand this quarter. So stock-based comps are now at 4% of revenue versus around 2.5% last year.

So you have stock-based comps that are added back into adjusted EBITA to get your margins. So your margins are really not expanding. So they've reported six straight quarters of EBITA margin expansion, but that's only because they're paying executives more stock and they're, kind of adding it back in. So the actual margins are kind of flat, even slightly declining for this business. I think it's kind of a good example why you need to take adjusted numbers with a bit of a grain of salt because for the most part, do you have on the screen here, would that just be the gap margins? It's just a bit of the normal ones. Yeah. Yeah. So you can see here the margins

are relatively flat, whereas on an adjusted basis, they've increased for six straight quarters. So I didn't really get the time to dig into why stock-based comps are going up so much. It might just be headcount because maybe they have to get more people because of all the chaos right now in terms of shipping. But I'm not exactly sure. They're in a very good financial position. They're debt-free. I think they have 400 million U.S. in cash. So they've been making a lot of deals on kind of beat-up players.

They made two purchases for around 200 million U.S. dollars combined on tie and extensive. one of them is a freight broker and the other one is a warehouse management company and ultimately I mean if you're paying lower prices on these so yeah there's the cash balance on on the screen here so that's $401 million I think that's that might be Canadian dollars because you're looking at the the TSX listing so it might be 400 mil Canadian but they paid over the last six months here they've they've used 276 million on acquisitions and that's all been cash so they haven't used debt they haven't issued equity, it's all cash. So they do make quite a bit of acquisitions they have for a very long time. And they do admit that tariffs kind of stepped up customs and just overall stepped up

controls are big demand drivers for them. All this stuff is kind of hard to keep tabs on. The whole tariff situation changes every single week. Their software does keep tabs on it. And apparently over the last while here, US customs has swapped their method of of filing. I don't know exactly what this means, but they mentioned that when they did this, a lot of competitor software couldn't do the work while Descartes can. So a big chunk, 33% of their organic growth. So you're talking about 3% of 9% is through gaining market share. New customers that are coming over to the software because other software cannot handle the entire situation. They compared, this is another interesting thing here too.

They compared the acquisition environment right now to the great financial crisis. prices are becoming cheaper not only because valuations are falling, but fewer competitors are in a position where they can actually make deals, which is kind of where balance sheet strength comes in huge, especially when times are tough. This company can just roll out cash for acquisitions rather than take on debt. Yeah, when the tide goes down, you see who's swimming naked, right? Yeah, exactly. It's one, this is a company I'm paying very close attention to. The bull case is obviously that the tariff chaos drives demand for their software. But I think on the flip side, if you have too much of that chaos, that brings declining volume because we hit a global recession, whatever it may be on the transaction side of things, that wouldn't be good.

So I think it's a very, very fine line here. But yeah, I'm paying very close attention to this company because it has been, this was in the Canadian. I can't remember. they used to have the Fang stocks and they had the Canadian one. I can't remember what it was. But Descartes was part of that. I can't remember the hack.

It's like Shopify, CSU. Yeah, I'm trying to look it up now. Yeah, DeKalp. Who else? It would be consolation software. It would be in there. For sure, open text. Yeah.

But anyway, it was, Descartes, it's been a very good company to own for a very long time and it's in a bit of a dip right now. But yeah, it's one I'm paying attention to. I think it went up, it might have went up 10% after the quarter. It was a pretty good quarter. Okay.

No, that's good. Let's move on here to your last one here. So the Tamarack butter mergers. So that's some consolidation in the Canadian energy space. Yeah. So this happened last week and we just didn't get around to talking about it. But Tamarack and Headwater are merging together. And that was kind of what most of the headlines said.

But in reality, Tamarack is buying. headwater and by the looks of it they're getting the good end of the deal i didn't get a ton of time to look at this but it's an all-stock deal headwater shareholders will get one share of tamarack and the thing is tamarack trades at while this would have been last week's numbers around 13 40 cents while headwater is 14 dollars 22 cents so if you're a headwater shareholder you're getting less for your shares but i think you're getting you're getting you're getting some warrants in a spin-off. So I don't know, it's a bit puzzling to me that headwater who is pretty much debt-free, like their net cash is agreeing to be purchased below

which share price. But again, I'm not an energy expert, anybody listening to this. It might be able to let us know, like, how this is beneficial to Headwater, but I was, I was kind of confused. This company now- I have to say, I know joint DCI subscribers will see it, but that's a good picture of him, huh? The CEO of a Tamarack, like Brian Schmidt, like just not in suit. kind of casual looking. Got the fleece like... Yeah, got a fleece.

Like, just like he's... He looks like he has a lot of interesting story. He's lived a full life. I'll just say that. You can, for those just listening on audio, you can look it up. It's the Calgary Herald. So it's from small junior to big boy company,

Tamarack, Tamarack, acquiring headwater in 3.2 billion deals. So, sorry, I just wanted to mention that. No, it's a good picture. I agree. It is. But these are... Yeah, so now it's the only public...

publicly traded clear water oil producer. So clear water is in central Alberta. Production is apparently growing very fast in terms of crude because apparently it is very cheap to get oil out of the ground there. Again, I'm not an energy expert. I don't exactly know the intricacies of that, but that's kind of what I read. The deal is accretive to Tamarack on a funds flow per share basis, despite having to issue more than 235 million shares to get the deal done. Again, they seem to have. come out well ahead here. The other interesting element, and I think this is actually the most interesting part of it all, and I was going to go over, when we do our in-depth on Monday on some stocks, I was going

to go over this spinoff, but there's just not enough information surrounding it yet, but you're going to get Headwaters management team as being split off and will now go to an exploration and development spinoff called tributary exploration. So the asset value is dated to be around 100 million. And holders of Hedgewater also get some warrants that will have a 42 cent strike price. So the company's probably going to start trading in it around there. I'm not exactly sure. So what exactly is happening here is the Headwater CEO is leaving the large company he built up

to go to this explorer and kind of start from scratch again. And the CEO Neil Rossell, Rosel, I think his name is, is somebody who's built up oil and gas companies and sold them for massive profits. Headwater was the most recent one that he did, but I know he grew numerous ones back in the great financial crisis, started them from scratch and sold them for big chunks. The one before this would be Raging River. It was sold to Batex Energy in 2018.

Four companies he's bought and sold. So this would be his fifth that he's starting out. If he does anything like he did with Headwater, like Headwater was a dollar a share in 2020. and it's sold for a mid-13-dollar range today. So I'm definitely going to be paying attention to the spinoff. It's kind of, I mean, in my eyes, they're spinning it off because this guy, like, he knows how to generate profits from starting these oil companies.

So I don't know when, I think October, we're going to know a lot more about the spinoff, like when it's going to start trading, kind of the overall, get some financials on it, the layout of it all. There wasn't enough information for me to kind of speak about it. But, yeah, it seems, it seems pretty interesting. I think the most interesting thing to come out of this. is kind of the management spinoff and the, what are you going to get microcap, I guess you could call it, exploration company that's going to be starting from scratch here.

Yeah, no, it's going to be interesting to follow. I don't really have too much ad because you've looked into this story more than I would have. I just saw the headlines. So I think it's a good spot to end it. I think it was a fun episode despite earnings being a little bit in a lull here in between earnings season, but lots to talk about in the macro show. sure you join that. Hopefully you enjoy the show. If you can give us a review, it does help to grow us. And for those aren't subscribed, you can join us on YouTube. We post the Monday episodes always on

YouTube. So feel free to catch that. We will be doing a deep dive into two companies this Monday. So if you want to watch it, then see the screen shares. You can see it there. You can also go on Join TCI where you get all the episodes and the episodes released early as well. For the Monday one, It's typically released over the weekend. A little later, maybe more on Saturday, Sunday this time around, because our editor is on vacation and I have to do it, but you still get it early, really. So you can go there.

We appreciate all the support. Again, we will be back with a regular episode on Monday, so a deep dive into two companies. Make sure you don't miss that. The Canadian Investor Podcast should not be construed as investment or financial advice. The host and guests featured may own securities or assets discussed on this podcast. Always do your own due diligence or consult with a financial professional before making any financial or investment decisions.