Karooooo Ltd. (KARO) July 2026 Investor Update Transcript

Hello, and welcome to Karoo's Q1 FY2027 Financial Results presentation. On behalf of Karoo, we would like to thank you for joining us today. I'm Paul Bieber, VP of Investor Relations and Strategic Finance. We are joined today by Zach Callisto, Founder and Group CEO, Hoshin Goy, Chief Financial Officer, and Carmen Callisto, Chief Strategy and Marketing Officer. I would like to remind everyone that some of the statements that we make today regarding our business, operations, and financial performance may be considered forward-looking. Such statements are based on current expectations and assumptions. They are subject to several risks and uncertainties. Our actual results could differ materially. Please refer to the Safe Harbor Statement in our Form 20F, including the risk factors and the 6K that we filed yesterday. We undertake no obligation to update any forward-looking statements. During this call, we will present both IFRS and non-IFRS financial measures. Reconciliation of non-IFRS to IFRS measures is included in the 6K that we filed with SEC yesterday. Our comments may refer to year-over-year comparisons unless we state otherwise. I will now pass the call over to Carmen.

Thanks, Paul. Welcome to Karoo's Q1 FY27 financial results presentation. FY27 is off to a strong start highlighted by CarTrack's subscription revenue growth accelerating to 19% in Q1 despite foreign exchange headwinds associated with the strengthening czar. In constant currency, CarTrack's subscription revenue growth accelerated to 21%. And despite the strengthening czar, ARR growth also accelerated to 19% in czar and 22% in constant currency. ARR growth increased 32% in U.S. dollars. We continue to cement our leadership position in South Africa, our most mature market, with subscription revenue growth accelerating to 24% in South Africa. The strong performance in South Africa demonstrates that our recent investments in sales capacity are driving tangible results. The acceleration of subscriber growth to 18% from 16% in Q4 FY26 underpinned our strong performance as we delivered record net subscriber additions of 142,472. South Africa's net subscriber additions increased 92% to 113,913 as we realize the benefits of recent investments in sales capacity and capitalize on sales momentum with video solutions and especially with Cartrack Tag as a standalone product. Our strong execution also translated into record Karoo operating profit of 410 million zar despite foreign exchange headwinds, reflecting our ability to accelerate revenue growth and profitability at scale. As we look forward to the rest of the fiscal year, we reiterate our FY27 outlook. Our focus remains on optimizing the investment we made in sales capacity during FY26 whilst growing our distribution footprint at a more moderate pace in FY27. Before diving into the details, we would like to provide a quick introduction to Kuru. We provide an operational intelligence platform for connected vehicles and mobile assets. Our platform enhances operational efficiency, reduces costs, mitigates risk, improves safety and customer service, ensures compliance and empowers service delivery. We help businesses simplify decision-making to optimize their physical operations. We serve a large, under-penetrated market with strong, sustained demand driven by digital transformation, a constant need to improve operational efficiency, and an increasing focus on safety and compliance. We are a founder-led business with a strong financial profile, a two-decade proven track record of execution excellence, and a cultural focus on disciplined capital allocation, operational efficiency, and driving healthy returns on invested capital. Our platform supports more than 2.8 million subscribers across more than 125,000 businesses spanning a diverse set of industries with no customer or industry concentration risk. Importantly, our financial model is anchored by accelerating ARR growth, high margin subscription revenue, exceptional commercial ARR retention and powerful unit economics. Despite the strengthening czar, ARR increased 19% to $5,432 million czar and on a US dollar basis increased 32% to $335 million. In Q3, our commercial customer ARR retention rate remained at 95% and subscription revenue accounted for 97% of car track revenue. We continue to scale our proprietary data asset, now generating more than 330 billion data points monthly, which we leverage to deliver impactful innovation, insights and value to our customers. Finally, our LTV to CAC remains above nine times, underpinned by strong retention, disciplined capital allocation and efficient distribution, which are embedded in our vertically integrated business model and company culture. During today's presentation, we will review both of Karoo's operating segments, CarTrak and Karoo Logistics. CarTrak is our operational intelligence platform. CarTrak operates at scale and has a very attractive financial profile. CarTrak's operating momentum is the primary driver of Karoo's growth and strong financial performance. CarTrak delivered exceptional Q1 results that reflect the returns from the strategic investments we have made in expanding our sales capacity and selling video and car track tag to existing and new customers in South Africa. In Q1, car track delivered approximately 1.4 billion czar in subscription revenue, an increase of 19% or 32% on a US dollar basis. The 19% growth reflects an acceleration compared to 18% in Q4 FY26 despite a strengthening czar that negatively impacted reported Cartrack subscription revenue in Q1. Cartrack's constant currency subscription revenue growth was 21% in Q1. Cartrack's operating profit margin was a healthy 28% in Q1. Karoo Logistics is our rapidly growing delivery-as-a-service offering that empowers large enterprise customers to scale and enable their Q-commerce or quick commerce. Karoo Logistics continues to demonstrate strong growth and operating momentum while delivering real value to our enterprise customers. We report Karoo Logistics separately as its delivery-as-a-service financial profile differs from the financial profile of Cartrack's subscription model. Karoo Logistics is strategically important to us as it empowers our customers to scale their business through a capital-like model whilst driving high Cartrack customer retention in q1 karu logistics's delivery as a service revenue was 177 million czar an increase of 46 percent or 63 percent on a u.s dollar basis we are very excited about the value karu logistics is adding to our customers and its long-term growth opportunity in q1 karu delivered strong consolidated financial results. Total revenue increased 22% to $1,564 million. Subscription revenue increased 19% to $1,354 million. Operating profit increased 16% to a record $410 million and subscriber growth increased 18% to $2.8 million. CarTrack's 19% subscription revenue growth and 28% operating profit margin were the primary drivers of Karoo's strong financial performance in Q1 Q1 continued our track record of delivering profitable growth at scale In Q1, we were a rule of 60 company when adding our CarTrack subscription revenue growth of 19% and our CarTrack adjusted EBITDA margin of 45% We note that our EBITDA margin does not include any stock-based compensation or stock-based compensation add-back, a stark contrast to our peers. Our rare financial profile translates to healthy return on invested capital. It is important to underscore just how differentiated our financial model has become in the context of the broader software universe. We believe we are amongst a select few software companies operating at a rule of 50 plus based on calendar year 2026 Gap Street estimates. Within a universe of approximately 150 companies, Karoo is the only small cap company operating at this combined level of growth and profitability. Our financial profile is incredibly rare in public markets, especially among small cap companies. being part of this elite group reflects our unwavering commitment to disciplined and profitable growth. In addition, with an essentially unchanged share count over the last several years and no stock-based compensation, growth in free cash flow translates directly into higher per share value given the absence of dilution. This is a key point of differentiation relative to many peers that fund growth with material equity issuance and stock-based compensation. Now let's discuss our Q1 financial and operational highlights. In Q1 we accelerated our ARR growth despite foreign exchange headwinds. ARR growth accelerated to 19% and ARR growth in US dollars increased 32% reaching 335 million dollars. Constant currency ARR growth accelerated to 22 percent. Kartrak subscription revenue growth accelerated to 19 percent underpinned by accelerating growth of 24 percent in South Africa. Kartrak subscription revenue growth increased 32 percent in US dollars and 21 percent in constant currency. Kartrak's total subscribers accelerated to 18 percent surpassing 2.8 million driven primarily by exceptionally strong performance in South Africa. Notably, Cartrack delivered record subscriber net additions of 142,000, with South Africa's subscriber net additions increasing 92% to 113,913. Despite foreign exchange headwinds, Karoo delivered record operating profit of 410 million czar as growth-oriented investments moderated. Consolidated sales and marketing expenses increased 9% quarter on quarter compared to a 12% increase quarter on quarter in the equivalent quarters of the previous fiscal year. We were a rule of 60 company in Q1 with subscription revenue growth of 19% and an adjusted EBITDA margin of 45%. Our balance sheet remained strong and unleveraged and we ended the quarter with net cash and cash equivalents of 756 million czar. It's important to note that we keep our excess cash in US dollars and given the stronger czar, the net cash and cash equivalents translate into fewer czar. We declared a 1.5 US dollar dividend per share payable later this month, an increase of 20% compared to the prior year. Our healthy subscription growth margin, efficient customer acquisition and attractive commercial customer ARR retention rates continue to drive our healthy unit economics. In Q1 our subscription gross margin was 73%, our LTV to CAC ratio remained above nine times and our commercial customer ARR retention was 95%. Our unit economics remain healthy despite the increase in sales and marketing expenses during Q1 and we remain committed to profitable growth as we pursue the expansive growth opportunity ahead of us. Q1 subscriber growth accelerated to 18% and reached 2.1 million subscribers in South Africa. South Africa's net subscriber additions increased 92% to 113,913 as we realized the benefits of our recent investments in sales capacity and capitalized on strong demand for the car track tag and video solutions. Importantly, South Africa's subscription revenue growth accelerated to 24%. The pace of growth reflects our deliberate strategy to cement our leadership position in South Africa through a balanced combination of subscriber additions and selling video and car track tag to our existing and new customers in South Africa. We are optimistic about the market opportunity in South Africa and believe there is a long runway to drive strong subscriber growth. Q1 subscriber growth increased 22% and reached 353,000 subscribers in Southeast Asia and the Middle East, with most of the subscribers in Southeast Asia. Q1 subscription revenue growth was 6% and 17% on a constant currency basis. The pace of reported subscription revenue growth in the region reflects the faster growth of certain countries that generate lower ARPU and foreign exchange headwinds as the second largest contributor to group revenue southeast asia continues to present the most compelling growth opportunity for the group in the medium to long term we plan to continue with a strong yet prudent drive to increase sales and marketing in southeast asia and we anticipate our investments to have a positive impact on subscriber growth in the region southeast asia is a vast under penetrated market for sophisticated fleet management and video based solutions and we are well positioned to capitalize on the opportunity q1 subscriber growth increased 13 and reached 236 000 in europe q1 subscription revenue growth was 7 and 13 on a constant currency basis we continue to expand our customer base and drive our distribution capabilities in the region we have partnered with leading oems to provide easy access to our platform seamlessly integrating their connected vehicle data to our platform through application programming interfaces. We expect these partnerships to contribute to our results in the medium to long term. In addition, we are experiencing encouraging demand for our proprietary compliance technology in the region as customers seek to simplify compliance with evolving legislation and enforcement. In Q1, Karoo Logistics continued to build scale and delivered revenue of 177 millions are, an increase of 46% and an 8% operating profit margin. QCommerce or Quick Commerce Orders, a type of e-commerce focused on ultra-fast delivery drove the exceptional performance. Karoo Logistics supports our strong financial performance by immersing our platform into large customers' operations, contributing to strong customer retention. Karoo Logistics also enables us to learn about the operational and logistics challenges confronting our customers. In Q1, we made progress with our FY27 priorities. First, we continued to cement our leadership position in our markets through continued prudent investments in sales and marketing. In South Africa, our results reflect our success driving the adoption of car track tag and video solutions with existing customers as well as success selling car track tag to new customers. The 24% subscription revenue and ARR growth in South Africa underscore our progress cementing our leadership position in South Africa. Second, we moderated our investments in sales and marketing in Q1 as evidenced by the 9% quarter-on-quarter increase in sales and marketing expenses in Q1 compared to 12% quarter-on-quarter growth in the previous fiscal year. Despite this moderation and foreign exchange headwinds, subscription revenue growth accelerated in Q1. We remain committed to optimizing our recent investments in sales capacity and growing our distribution footprint at a more moderate pace in FY27. We anticipate the rate of growth of sales and marketing expenses to be lower in FY27 compared to FY26. Third, we are embracing AI across the organization to enhance our platform, improve efficiency and accelerate the pace of execution. With that said, I will now pass the call over to Hu Xin.

Thank you, Carmen. I will now discuss Karoo's financial performance for Q1 FY 2027. Please note my comments may refer to year-over-year comparisons, unless we state otherwise. Q1 extended CarTrack's track record of durable and profitable growth at scale, driven by consistent execution, our resilient subscription revenue model, and attractive historic retention rates. In Q1, subscriber increased 18%, surpassing $2.8 million. Subscription revenue increased 19% to R1,351 million and operating profit was a record of R395 million. CarTrack experienced record customer acquisition in Q1 with net subscriber additions of 142,472 subscribers, an increase of 70%. The record net subscriber additions reflects our strategic investment in sales capacity and success selling video and CarTrack tech to new and existing customer. In Q1, we experienced noticeable sales momentum with CarTrack tech. Subscription revenue momentum remains the engine behind CarTrack's strong financial performance. In Q1, CarTrack subscription revenue accelerated to 19% despite FX headwinds associated with the strengthening and reached 1,351 million rand. Car track subscription revenue growth was 32% in US dollar and 21% in concerned currencies. Subscription revenue comprised 97% of car track total revenue. ARR growth accelerated to 19% despite FX headwinds and reached 5,432 million rand and ARR growth increased to 32% in US dollar and 22% in constant currency. Our proven and profitable subscription revenue model continued to deliver strong consolidated results in quarter one. In quarter one, Karrou's total subscription revenue increased 19% to R1,354 million. Operating profit was a record of R410 million rand and earning per share increased 11% to 9 rand and 53 cents we delivered record operating profit as we began to moderate our investment in sales and marketing in quarter one quarter one subscriber growth accelerated to 18 compared to 16 in quarter 4 fy 2026 driven by accelerating subscriber growth in South Africa. South Africa subscriber growth accelerated to 18 percent and Asia subscriber growth remained healthy at 22 percent. Asia is our fastest growing region in terms of subscriber growth. In quarter one, car tracks continue to grow its subscription revenue across geographies highlighted by acceleration in South Africa. South Africa subscription revenue growth was 24% and acceleration compared to 22% in quarter 4 FY 2026. We view this acceleration as a clear indicator that our efforts to extend our leadership position are translating into real measurable performance. Asia and Middle East subscription revenue growth was 6% and 17% on a constant currency basis. The reported growth reflects an increase in subscribers from lower APU countries in the region, combined with the translation effect of a stronger czar. Europe's subscription revenue growth was 7% and 13% on a constant currency basis. Healthy performance across regions reflects our strong execution and provide a solid foundation for continued, durable growth. In Q1, ARR growth accelerated to 19%, reaching R5,432 million. ARR growth was 32% in US dollar and 22% in constant currency. This reflects the underlying momentum in the business and signals that our strategic initiatives are gaining traction. Caruso's earnings per share increased 11% to R9.53. Caruso's earnings per share contribution increased 10% to 9.24 and career logistic earning per share contribution increased 61% to 29 cents. While the quarter-on-quarter growth in sales and marketing expense moderated relative to last financial year, earning per share growth continued to reflect significant investment in sales capacity and customer acquisition evidenced by the 33% increase in sales and marketing expense in quarter one. Our upfront sales and marketing costs are not aligned with the lifetime value of customer recurring revenue and related earnings in our financial statements. Importantly, our powerful unit economics remain intact and our balance sheet remains strong as we invest in growth. Quarter one free cash flow was R60 million and primarily reflects proactive investment in IoT device to meet anticipated demand. Free cash flow also reflects growth-oriented investment in working capital given the underlying accelerations in the business. As our growth accelerates, it's natural that capital expenditure and strategic investment temporarily increase as a percentage of revenue to support the planned growth. To be clear, the year-on-year decline in quarterly free cash flow does not indicate a structural issue with our ability to generate strong free cash flow. The decline is a result of delivered investment made to support growth as evidenced by our accelerating growth in quarter one and our outlook for accelerating car track subscription revenue growth in FY 2027 at the midpoint. As we pursue accelerated growth, we expect free cash flow to reflect our investment to drive growth. While quarterly fluctuations may occur due to working capital dynamics and growth-oriented investment, we remain confident in our ability to consistently generate meaningful free cash flow. We have a two-decade track record of strong free cash flow generations that powers our disciplined capital allocation strategy and healthy return on invested capital and position as well for future growth. Our balance sheet reflects our track record of durable growth at scale, profitability, and cash generation. Our net cash on hand plus cash in bank and fixed deposits was R756 million. Because we hold our cash reserve in US dollars, movement in the US dollar and South African exchange rates may impact our reported rent balance. FY2027 is off to a strong start with record net subscriber additions and healthy retention driving the 21% car track constant currency subscription revenue growth we believe we are on track to accelerate total subscription revenue growth in 2027 as we realize the benefit of our recent investment in sales capacity we aim to drive our growth by balancing subscriber growth with the increased adoptions of video and car track tech by existing and new customers we also believe increased sales efficiencies coupled with realising other efficiencies in the business due to scale and leveraging AI will support strong earnings per share's growth. With that said, we reiterate our FY2027 outlook that implies accelerating subscription revenue growth at the midpoint and healthy earnings per share growth. We expect sales and marketing expense to continue to increase for the remainder of FY2027 as we continue to invest in growth. However, we anticipate the rate of increase will be lower than experience in FY2026. In closing, we delivered strong quarter one result with SaaS ARR growth of 19% despite FX headwinds. Our record net subscriber additions propel our exceptional performance in quarter one. We are also pleased that we delivered record operating profit in quarter one. These results reflect the strength of our operating model, return on our investment in sales capacity, and our ability to scale efficiently and profitably. As we look ahead to the remainder of FY2027, we are well positioned to accelerate growth and deliver meaningful earnings per share expansion. We remain committed to disciplined capital allocation, strong unit economics, and long-term value creations. And finally, we are confident in our ability to consistently generate meaningful free cash flow and healthy return on invested capital. With that, I'll turn the presentation over to Zach Callisto for Q&A.

Thank you, Ushin. Good morning or good afternoon to everybody or good evening. I'll start off with the question from, the first question is from Josh Riley of Needham. how much of the strength of south african subscriber growth was due to strong cross cell of tag relative to customer or vehicle additions by existing customers josh i'm going to phrase it this way we did a tremendous amount of sales as a tag as a standalone only the tag product the tag product obviously has got a much lower arpu than our average arpu And also what we did do is also sell a lot of tag into our existing base. And we did focus a lot of our efforts into selling tag as a standalone to certain of our existing customers, new customers, given the new opportunity and the challenges that the tag does address that our customers do have. second question how do you currently feel about sales capacity and will you be making incremental investments through the course of the current fiscal year yes we will make we will increase our sales and marketing spend but at a much lower rate than we did last year and we want to drive more efficiencies last year but over the long term we intend to continue to increase our ability to distribute but this year we intend to grow it slower than the previous year third question do you plan to expand contract to any additional countries beyond south africa in the current fiscal year and one of our biggest challenges is actually growing your head count and training our head count and our ability to distribute and at the moment we have our hands full and we can only do so much. So we intend to remain still very much focused on the contract tag in South Africa for this financial year. The next question is from Ablay. I'm not sure where Ablay's from. Contracts gross margin reached 73% in Q1 above the full year guidance range of 72%. What factors do you expect to drive the margin lower over the remainder of the year? Typically, Ablay, we like to give guidance that we believe we'll meet. And if we beat it, then it's, you know, it's a plus. We've typically never in history have we actually given guidance that we've missed. And I believe given the strong ramping up in customer acquisition, it would be prudent for us to remain that it will be between 70% and 72%. Second question from Ablay. In the Asia-Pacific and Middle East, subscribers increased 22%, while subscriptions have increased 7% in constant constant. How should we think about the evolution of regional ARPU as lower ARPU countries become a larger part of the subscribers? And can product cross-selling eventually close the gap between the subscriber and revenue growth? Ablai, the reality is we first started in Southeast Asia in Singapore. Singapore is a very high ARPU country. And as we move into lower ARPU countries, we believe that the ARPU in the region all resemble South Africa. So we're expecting over time the ARPUs in Asia will come down as Indonesia, Malaysia, your philippine style and become a much stronger part of our business the next question is from from scott from roth zach ar camera continues to gain market traction can you provide some additional detail around current attach rates in different markets particularly south africa scott we're in very despite has been selling a ar camera since about 2018 a camera that obviously it looks very different to our current products our current products much smaller much cheaper and much better much faster um we still believe in very early stages of the product adoption of the video and the ai video uh given that we've only recently gone into the sort of broader customers whereas before we've focused very much on very specific high-end customers that had you know that the challenge was was very detrimental to their business but today at current prices it can actually be something that can help all our customers i think at the moment we're running at about a five percent uh adoption rate in our full base so we do believe there's a long way to to increase uh our penetration into the market the second question from scott it remains in early in adoption of tags but could you provide an update on the adoption cycle in South Africa how many tags are currently in operation and would you expect tags to be meaningful over five percent of the portion of the contract sales in FY28 FY28 is the next financial year I certainly think it will be more than five percent and it currently it is already more than five percent of our sales and i would say that adoption is very strong another question from scott are you seeing macroeconomic headwinds impacting tech deployment adoption of car jack services scott in the 20 years that i you know business a car track we started the business in 2004. I would say that we've been able to do well in both very difficult times and both good times and today I don't see the economic headwinds being any different to very any different to historical there's always been economic headwinds some are more than others but i think fundamentally uh we designed to operate in difficult times and good times clearly not in times that you know it's a total catastrophe but in the countries we are we operate in i would say besides mozambique uh most countries are intact and they've got good economies and the economies are growing and uh you know i certainly believe uh when that shouldn't be a problem uh next question from uh from alex from raymond james with the record net ads in the quarter any change in where you are picking up new subscribers from in terms of other vendors in your various regions versus greenfield first-time buyers alex a lot of the drive in the new uh net ads was actually the tag because that really is opened up a whole market for us and we continue we'll continue to drive that and the first quarter we really went to look for greenfield opportunities but frankly uh we are going to focus probably the next three quarters more on cross selling into our base so we are able we've got we've got either to cross sell or get new or or cross sell or acquire new customers and i think the next three quarters we want to actually focus again on cross selling another question from alex record net subscriber growth in the quarter can you help reconcile the record subscriber growth in the commentary to slow down hiring plans in favor of sales force efficiency what are you seeing below the surface on the rep on the red productivity side and demand environment in any regions in particular for this efficiency focus um i'm a great believer in culture and culture is all about having systems processes and having the ability to execute and when you actually on board so many people like we did in the last year it was close to 2 000 people if you're not careful the culture can fall apart so we want to tighten up the culture and then continue to grow so we believe if you we lose our culture that's probably our biggest risk in being able in our long-term growth uh next question from jackson boggley i'm not sure where jackson is from okay jackson is from uh from dylan becker at william blair okay sorry jackson i wasn't quite sure thank you uh i didn't read question. Net subscriber additions accelerate to a record 142,000 Q1 with particularly strong momentum in South Africa. Can you frame our sustainable of these net ad levels all through 27? How the pipeline and sales productivity have evolved as the last year's sales investment matures? What are the level caught to ads in the reaffirmed guidance? So, Jackson, we don't give guidance to our subscribers because we're going through a phase where we have to expand our distribution capabilities but we've also got this huge opportunity to cross sell and we want to be able to move between these two opportunities swiftly without having to be guided by or be if i could use the word cornered by what we've told the market so we prefer not to discuss this and we prefer to as we go we do what's best for the business the next question another question from jackson caro is increasingly increasingly the operational intelligence platform customers with ar video intelligence and workflow automation becoming more central our customers use cases evolving beyond traditional fleet management and what are the implications for product investment retention output and competitive differentiation uh jackson uh there's a lot to this question i mean i could talk about it for about 30 minutes but to keep it simple uh we have got very strong product adoption and we are very busy with developing and improving our current tech both in hardware and both in our software platform and also in our internal systems to run the business. So I think it really is just a question of us continue to improve, focusing on what we have and having total commitment to our customers to continue to evolve and develop more and give our customers more. And that will drive our differentiation. Our differentiation will be about customer service, our platform, and our product. And to be able to differentiate, it's an ongoing process. It's not something that you do, and then you can put it in the drawer and go to sleep. It's continuous effort. I think those are the questions for today. I thank everybody for joining us today, and thank you. Bye-bye.