Conference Transcript - KARO 2026-03-06

Dylan Becker, Analyst — William Blair

Thank you everybody for joining. I know it's been a long day here. My name is Dylan Becker. I'm the research analyst at William Blair that covers Carew Logistics for all of the necessary disclosures. You can find those on our website at williamblair.com. We have Richard and Paul here from the team. Richard's got a presentation that he's gonna go through for I don't know 10 or 15 slides or so and then we'll go through Q&A to follow that up. So with that gentlemen thank you for joining us and Richard take it away.

Paul Judd Bieber, Head of Investor Relations

We're tagging. Do you want to just go to the forward-looking statements? And everyone can quickly read the forward-looking statements. I'm sure you all know them. Do you want to go ahead, Victor?

Richard Yu

Okay. So who is Karoo? So Karoo is an operational intelligent platform for connected vehicles and mobile assets. We're delivering mission-critical reports and data to help customers make day-to-day decisions to improve their business operations. Our platform is supporting fleet management, asset management, field worker management and we have AI assisted video safety which helps with compliance and risk management. We have a compelling financial profile and a strong balance sheet. This is all underpinned by a rule of 60 financial profile and we have a healthy strong unlevered balance sheet. We are a founder-led organization with a strong track record of capital discipline, capital allocation, and we focus on organic growth and innovation of our products. We have a growing subscriber base and accelerating ARR. We currently serve 2.7 million subscribers, mostly in South africa southeast asia and europe if we have a look at our numbers our ar numbers are 325 million for the last year and we've got a 95 customer ara retention ratio so those 2.7 million subscribers we're supporting them through over 125 000 businesses those businesses are in over 20 countries, and we've got just over 7,400 employees that are servicing those customers. An important part of the business is we still have 98% of the revenue is subscription-based revenue, and our LTV to CAC is over nine times at this point in time, which really shows a strong disciplined capital allocation and efficient distribution of our platform.

Paul Judd Bieber, Head of Investor Relations

Thanks, Richard. So I'm going to quickly run through some of the financials, and then I'll pass it back over to Richard and he'll talk a little bit about the platform and why we win and a few other things. So we recently recently reported FY 26 results about two weeks ago. The results were very strong. We report in two different segments. CarTrack is our operational intelligence platform. CarTrack is the primary driver of the strong financial profile of Karoo. In FY 26, CarTrack delivered about 4.8 billion in subscription revenue that was a that was up 19% year-over-year there was an acceleration versus the previous year of 15% it's important to note that the growth accelerated despite foreign currency headwinds in US dollars just north of 300 million in in revenue and in US dollars the growth rate was 39% so very healthy growth we combine healthy growth with very strong profitability. In FY26 we delivered an operating profit margin of 28%, so a very unique financial profile. Crew Logistics is another segment. It has a different financial profile. It's our delivery as a service business. We segmented out in our reporting because it has a different financial profile. That business is growing around 30%. In dollars it's growing at around 50%, and again, it has a different financial profile. It delivered at 8% operating profit margin. The end customers for both of these segments are essentially the same customers. Crew Logistics, while CarTrack is the operational intelligence platform, Crew Logistics helps large retailers, drug stores, fast food companies in South Africa execute on the e-commerce ambitions by essentially helping them with last-mile delivery in South Africa. Now, if you combine car tracking crew logistics on a consolidated basis, we delivered about $5.5 billion in revenue. That was up 20%. $4.8 billion in subscription revenue, up 19%. So you can see that the vast majority of revenue is subscription revenue. operating profit of $1.4 billion and EPS of $32.55. You can see that our operating profit growth of 8% lagged subscription revenue growth. And that's primarily for two reasons. One is foreign exchange headwinds. The second is we invest a lot in sales and marketing in FY26 to increase our sales capacity and drive acceleration in our growth. In terms of free cash flow, we delivered about 800, just north of 800 million in free cash flow. That was up 90%, so the business had a very good year in terms of free cash flow generation. We declared a dividend of 150 per share that is payable in July, and that was up 20% year-over-year. 20% year-over-year, excuse me. Now, we have a very unique financial profile. If you benchmark us against other software companies, we really combine very attractive growth and profitability. If you look at GAC rule of 50, we're the only small cap company in a universe of about 150 software companies that have this financial profile. So we're very proud of the financial profile that really combines exceptional profitability and growth. and this financial profile really translates to healthy return on invested capital. I'm quickly going to go through some financial operational highlights from FY26. ARR growth in FY26 accelerated to around 18 percent and this is despite foreign currency exchange headwinds. In US dollars it was up 38 percent and notably in South Africa which is our largest market, it's our most mature market AR growth is actually 23% so very healthy growth in South Africa subscription revenue growth accelerated to 19% I'm sorry car track subscription revenue growth accelerated to 19% in US dollars it was 39% and again South Africa subscription revenue accelerated to 20% year-over-year so strong acceleration trends in the business our investment sales and marketing is driving very healthy subscriber growth. Subscriber growth increased 16%. We delivered record Q4 net subscriber additions and our investments in sales and marketing are starting to pay off our growth in terms of subscribers and Asia is accelerating. I mentioned that operating profit was impacted by FX and our growth oriented investments accelerate growth. We have a very unique financial profile when you combine revenue growth and adjusted EBITDA margin essentially we operated a rule of 60 that's a very unique financial profile the business generates a lot of cash as I previously mentioned and we have a clean and strong balance sheet and I already discussed the dividend we like to return excess cash to shareholders currently via dividend And I'm going to pass it over to Richard to talk a little bit about the product and some other... Thank you, Paul.

Richard Yu

Okay, so our operational intelligence platform is not just providing telematics. It's a full end-to-end solution. If you have a look at our existing customer base, you've got very low customer concentration risk and very low industry concentration risks. So if you have a look, we're supporting customers in mining, agricultural, logistics, retail, all kind of various sectors, making sure that we support the customers' vehicles, workforce and any assets they have within their business. You can see from a feature point of view the platform is very feature diverse and supporting any kind of customers and their requirements. If we look at our typical customer basis, this is customers across various geographies and you can see here we supporting customers from fmcg to cement mixing to leasing customers to last mile delivery customers so we've got a very wide range of customer bases throughout the world so if we have a look why we win and this is a very important slide for us firstly it's providing a very easy to use and feature rich platform secondly we're fully vertically integrated so from our sales staff to our installers to our customer service and support staff all of that is in-house and that's really making sure that we look after the customers customer service is also a strong part of the platform or strong part of the company culture making sure that we really service customers is why we have this high retention ratio of over 95 percent so if we have a look at the geographies we operate so south africa is still the largest geography where over 70% of our revenue is coming from. In this area we're competing against Powerfleet and Geotab, which are North American providers. And then there's some local competition like SeaTrack and Netstar. Within Europe we also see Geotab and Powerfleet and some other local providers. These local providers at this point, some of them are owned by the tyre companies. And then Asia. Asia is our strongest growing market at this point but it's very highly fragmented. We're one of the only providers that is providing a solution across Asia where all the other competitors are generally local operators. Paul?

Paul Judd Bieber, Head of Investor Relations

And then just to finish off, we just want to highlight and since we just reported results where it really matters and in terms of our recent financial report, I I mentioned in FY26, car track subscription revenue growth accelerated from 15% in FY25 to 19%, and that's despite foreign exchange headwinds. So the business is showing good underlying acceleration despite some FX headwinds. In terms of ARR growth, the growth reached 18% in South African Rand. In U.S. dollars, the growth was 38%. And again, in South Africa, AR growth was 23% at the end of the fiscal year in February. So strong growth, especially in South Africa. And during FY26, it really was an exceptional year in terms of free cash flow generation. We increased our free cash flow by 90%. It's around 810 million. And we returned cash to shareholders via the dividend of, excuse me, we continued our track record of returning cash to excess cash to shareholders. We plan to pay the dividend in July. It's a 150 dividend. It's an increase of 20% year-over-year. Importantly, as we look out to FY27, our guidance at the midpoint implies further acceleration and it also implies 21% EPS growth. If you look at last year, we accelerated, but you didn't see as much flow through down to the EPS line because we were investing a lot in sales and marketing. As we look forward to FY27, we, at the midpoint, we aim to accelerate, but we also aim to generate very healthy EPS expansion. And then while we hired a lot and invested a lot in sales capacity in FY26, we envision a slowdown in hiring in FY27.

Dylan Becker, Analyst — William Blair

Perfect. Thank you, gentlemen. That was a very helpful overview. Maybe to kind of segue into the Q&A aspect or part of the conversation here, Richard, you've been a part of the business but as well of the industry for some time. I would love your perspective on how the evolution of the broader kind of telematics moving into connected operation space has evolved the technology's gotten better operations have gotten more complex but what's been kind of the bigger factor or driver of change that's really putting a light on demand and adoption for solutions like yours so i mean crew's been in the business for 22 years now and although although we started with a very much gps offering over the years the product has evolved considerably.

Richard Yu

If you have a look at what a typical customer needs these days, where in the old days customers were happy with location of the vehicles, customers now need a platform that really helps them solve their operational needs. So it's not just monitoring the vehicle, it's monitoring the vehicles, monitoring the workforce, whether that workforce be the driver or the co-drivers that are inside the vehicle, as well as monitoring the assets attached to the vehicle, providing comparative analytics and tools that the customer doesn't have to think for themselves. Providing analytics that you show the customer where they can improve their business, how they can improve their operations is key within this market these days. And with the evolution of things like video telematics, that's grown dramatically in the last sort of two years, where originally it was a very expensive product. The cost of that product has dropped from thousands of dollars to hundreds of dollars, and it's really helped for wider adoption and this really gives the SMEs and smaller businesses the opportunity to use these tools and get the benefits of these tools which they didn't before and recently within South Africa we've launched the car track tag which is an asset management product and that really helps you not just look at your vehicles and your staff but all the assets related to your business you know if you're in a construction business you might have tools that that you want to monitor where they are and how productive they are and how they're being used. And the platform is now encompassing all of those solutions.

Dylan Becker, Analyst — William Blair

Sure, and you guys touched on it in the presentation as well, too. I believe the ROI from customers is something like 9X, what the cost of the platform is, I guess. Could you kind of dive into where those customers are realizing that value from?

Richard Yu

Obviously, it's fuel efficiency, insurance, premium reduction, safety improvement, but kind of give us a sense of how that ROI compounds so the ROI changes depending on the type of customer so a typical customer you would sit with them and analyze what is the requirements for the customer or what are their pain points so if you have a look at for example a mining customer mining customers are very safety conscious and they really want to focus on those points and our general methodology is to take a customer take the pain points they have focus on a couple of pain points once you've implemented them then take the next step and help them improve their business but if you have a look at rois fuel prevention and fuel you know saving fuel costs especially with the increase in fuel prices that we're seeing around the world is a key area and it's a low-hanging fruit that that most companies can implement and get benefits in a fairly quick manner but depending on the industry fuel costs whether you're improving the performance of your driver improving the routes as well as improving your your customers experience your customers want to know when the when the delivery is going to arrive if the delivery is late they want that information and you're also giving the tools to the to the driver before the drivers were very paper bound we've seen still today customers in many regions that run their business on excel spreadsheets and whatsapp messaging and now we're giving them the tool where they can do a delivery they can do sign on glass it's integrated into their erp platform and that erp platform invoices the customer immediately so that's a saving in roi physically on the fuel as well as on all your little operational parts of your business and and all of those add up to give a very competitive benefit to a typical customer i would just add that it costs thousands of dollars to operate a vehicle when you take into account the the payroll the fuel, the insurance, the cost of the vehicle.

Paul Judd Bieber, Head of Investor Relations

And our ARPU is $10 a month, give or take. So we're very confident in the platform's ability to deliver ROI given that relatively low ARPU and the cost of operating a vehicle.

Dylan Becker, Analyst — William Blair

And I would think that it's something that's exceptionally valuable, obviously in that context as well too.

Richard Yu

But thinking about who you're selling into, I know you guys gave kind of a handful of examples on the customer slides, but thinking about kind of those businesses the asset intensity of those businesses the low margin nature of those businesses where that ROI is quite substantial and meaningful as it pertains to the bottom line for them so we've never focused on any specific industry like I said we pretty much looking for an ideal customer for us is a customer who has a vehicle or a workforce or some sort of assets all of those customs are going to get benefits from using our platform. So the reality is there's a large customer base out there and we see adoption in all areas. If we take logistics for example we've seen massive price pressures in the last mile delivery logistics businesses where these guys are being pushed to save little cents on every single parcel and it's not just the saving of the money it's that whole real-time nature You know, when anybody orders a parcel or something, they want to know where it is, when it's going to arrive, is it at home? You know, there's this intense need to know exactly what's happening along the value chain line. And that's really where we're adding value to customers.

Dylan Becker, Analyst — William Blair

And if we kind of frame that in kind of a financial perspective and tie it to the growth algorithm, that we've talked about, kind of investments across the platform. Two million, give or take, plus or minus, subscribers, plus, not minus, subscribers on the network today, you kind of said 10 plus, low double-digit figure. Low double-digit figure per month on the monetization front. How do you think about the levers of adding subscriber count versus kind of expanding ARPU, and where's kind of the headroom within both of those segments, if you will?

Paul Judd Bieber, Head of Investor Relations

I'll take that one. So in FY26, we invest a lot in our sales capacity to expand our ability to take advantage of the large runway that we see ahead of us. Our sales and marketing, I think it was up on a consolidated basis, 39% give or take on the year versus 19% subscription revenue growth. So outsized investment in sales and marketing, you're starting to see some benefits from, You're starting to see some of the early signs of success with those investments. Our growth in South Africa is accelerating in terms of AR and subscription revenue. The growth is accelerating in Asia. And what we've said is that in terms of subscriber growth, you should see a positive impact on subscriber growth from those investments in sales and marketing that we made. so as we look forward to you know the FY27 you should see a balance of subscriber growth with with some of the benefits from selling some of the newer products tag and video to existing customers in South Africa so you should see a balanced algorithm of subscriber growth and some more pure sure and it's it's showed up in kind of the platform evolution right you now have the safety solution you have asset tags you have more go-to-market capacity so as we think about kind of that leverage into fiscal 2027 ramping of those resources as well as kind of just broader maturation of the platform is that a fair kind of characterization of two of the drivers in the core market I mean I could I'll touch on it and then see if Richard wants to add but obviously we've invested a lot in sales capacity so some of that capacity has to become productive in FY27 and then on the innovation side we have new products that TAG expands the TAM beyond vehicles and there's just a lot of tailwinds with video in the market and that's a global phenomenon when it comes to video.

Richard Yu

So we're optimistic that there's a lot of greenfield with the core product in terms of growth, especially in Asia, but also in South Africa, but we're obviously very focused on on selling tag and video as well organic growth has always been our core focus and we all have seen in the last couple of within the last year there has been a little bit of push in the upsell area and we've seen quite good numbers there and our focus when we're growing the teams at this point in time is to provide upsell teams that go through the existing customer base you know like we said in South Africa we've got two million customers two million subscribers and push cameras back into those existing customers and that's been quite successful and given us some ARPU uplift, as well as pushing and carrying on our organic growth within all the markets. Specifically within Southeast Asia, there's still a massive greenfield opportunity and we really want to make sure we capitalise on that while we can and grow in every region we can. We've seen the accelerated growth within those regions, so we're slowly starting to see the impact of those investments.

Paul Judd Bieber, Head of Investor Relations

So it's just important to note that most of the growth is greenfield opportunities. So we have about 2 million. We have 2 million subscribers in South Africa. There are 13 million vehicles. We have about 40 to 45% market share. So there's a lot of runway in the greenfield opportunity in South Africa. And we have a proven track record as well in terms of gaining market share. And then Asia, we operate across Southeast Asia, and there's just a huge runway for growth there. It's large populations, it's large economies, it's much earlier stage, and we're pretty excited about that opportunity.

Dylan Becker, Analyst — William Blair

I definitely want to come back to kind of the geographic mix component, but since we just touched on kind of the strength and greenfield dynamic in the core market of South Africa, too, I guess, Richard, for you, from a data and kind of a platform perspective right how that's the scale of the network how you're now solving more solutions going deeper finding additional use cases layering in more value for customers but how that's driving differentiation and supporting kind of the healthy retention statistics you have the healthy win rates you have just kind of how to think about that moat continuing to grow and compound over time so i mean two practical examples of sort of network effect firstly the tag has been a great solution that we released in south africa and we've

Richard Yu

seen very good adoption and very good sales that is that is helping that growth so i mean the network effect is helping on that side but also if we look more at the data side there's been this big push into sort of operational analytics where we can do comparative analytics and we use that data mode to provide that to a customer so we could tell if you're a customer with 20 vehicles and you are in a certain logistics industry you now have the tools to compare how efficient is your vehicle compared to everybody else in the logistics industry and these kind of comparative analytics help a customer customer really understand their business lots of times we found customers are not fully aware if they you know are their business is their business efficient can they get more out their vehicles and these kind of tools that compare and and use this wider motive data really allow a customer to understand where they need to drive their business and what areas they need to improve with because they can actually see not how the competition is doing it but how the industry is improving in their specific market and that will help them improve this they're offering to their customers perfect and we did kind of call out the three segments right South Africa, Southeast Asia, and Europe.

Dylan Becker, Analyst — William Blair

I guess internally, how are you thinking about the opportunities, kind of allocating capital within each in the runway as kind of the platform continues to evolve?

Paul Judd Bieber, Head of Investor Relations

I think we want to grow as fast as possible in all the geographies while delivering within our profitability framework and while maintaining very strong unit economics. So Asia is accelerating from a subscriber perspective, South Africa is accelerating, and we obviously, we're focused on Europe as well. But there's opportunity in all the markets in which we operate. I'd have to say, obviously given the size, South Africa has a big impact on the overall business, and over the medium to long term, where Southeast Asia is the biggest opportunity for the company given the size of those economies, the populations, and we're just in the very early stages of taking advantage of that.

Dylan Becker, Analyst — William Blair

And that's probably best reflecting the fact that the core market is accelerating in and of itself as well too as kind of signs of fundamental momentum, yeah.

Paul Judd Bieber, Head of Investor Relations

I mean, I think if you would have asked us or Zach a few years ago where South Africa would be as a percentage of revenue in FY2026, he probably would have said a lot lower in terms of percentage of the mix, but South Africa has delivered very healthy growth and it's very resilient and it's accelerating. So that mix isn't coming down.

Dylan Becker, Analyst — William Blair

And in the, I mean, it is a pretty global and diversified business, right? Obviously fuel and oil prices are a big dynamic for a lot of your end customers, I guess. Is there any, but it's something that you helped solve for too. Are you seeing any impact or implications from kind of the ongoing conflict in the Middle East? Like how should customers or I guess investors be thinking about exposure there for the business?

Paul Judd Bieber, Head of Investor Relations

Yeah, it's come up a little bit today in our meetings, probably like half of them. What I'd say is a couple points. I think the elevated fuel prices provides our salespeople the ammunition to customers and show them it's an easy way to deliver ROI to customers. So that's helpful. I think we currently aren't seeing an impact from the war in our in markets so that that's important and then obviously we we just reported two weeks ago so our guidance that we provided implies acceleration at the midpoint and healthy EPS growth of 21 percent so that was there's really no change to that so I think that answers the question.

Dylan Becker, Analyst — William Blair

I know we've got maybe a few minutes here. We've talked a lot about kind of the car track side of the equation. You quickly touched on logistics, I guess. Could you give us a sense as to why logistics makes sense as a part of kind of the car track network and how to think about the evolution of that last mile opportunity as well?

Richard Yu

So the Crew Logistics platform was a strategic purchase that we did M&A a couple of years ago. And the long-term goal is to provide a more holistic solution to all our customers. And last mile delivery or any kind of delivery is a key part of a lot of businesses. Logistics is a big part of most industries. So we've had a real focus of taking that technology, bringing it into our main stack. At the moment, Crew Logistics is only operating in South Africa. And they're doing really well. I mean last year we did 8 million deliveries, parcel deliveries with that software and there's definitely value for customers in all the logistics spaces. So as we integrate that software and complete it we'll release it in other other regions to get that value across the board. Logistics customers are in some way quite challenged with pricing and we've seen that in a lot of markets, it's a very competitive market space, so providing solutions in that industry to help improve it is a key part of the platform and the strategy going forward.

Dylan Becker, Analyst — William Blair

Perfect. And maybe as one final one to kind of wrap up the conversation here, as I know we're kind of close to time, but Richard, maybe for me, for both of you guys, I guess, maybe from a platform perspective and a financial perspective, we've covered a lot on how the evolution of the platform is creating more opportunity to sell into the existing base. there's plenty of greenfield space to go after, presents a healthy growth runway, you have a best-in-class financial profile, but what excites you most about kind of the next five-year opportunity for the business and what you can build and innovate on and obviously kind of what that equates to from a financial perspective?

Richard Yu

So I mean I think the exciting parts for me specifically are the opportunities in the vision space and the analytics space. The video vision has grown dramatically within the last 18 months and the kind of analytics and data you can get and as the AI train carries on you just get more performance and more speed and more features out of the same platform so there's great benefits for customers and the second part is analytics also with the help of AI and these these evolution of these tools the the data presentation and the way that you can help a customer becomes much simpler the systems longer term and we'll be able to give better solutions, quicker solutions, and more direct results to a customer, making it much easier for them to do their job.

Paul Judd Bieber, Head of Investor Relations

I'd say there are a couple things I'd like to highlight. One is, I know it's over five years, but generally our growth is very healthy, and it's accelerating, and it's pretty rare to have a company in a competitive market with the financial profile that we have with accelerating growth with healthy profitability and you know there's just a big runway in terms of the potential opportunity going forward you know especially in Asia it's very early days in Asia these are very big countries they're big economies large population bases and if you see the business that we built in South Africa you know much smaller population than the Asian countries many of them much smaller depending on the country but in aggregate it's a much smaller GDP so if you think you put that together and you project forward however many years I mean over the long term the Asia opportunity is substantial given the size of those economies.

Dylan Becker, Analyst — William Blair

That's great I believe we're at time here so that will wrap kind of the prepared presentation prepared remarks because this is kind of the final presentation for the day in this room we will stay in here for the breakout presentation so we will continue with open Q&A after the fact. Thank you.