Karooooo Q3 2025 Earnings Call Transcript

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Provided by Quartr
January 15, 2025

There are 4 speakers on the call.

Operator

Hello and welcome to Kuru's financial year 2025 Q3 earnings call. On behalf of Kuru, we would like to thank you for joining us today. I'm Paul Bieber, Kuru's VP of Investor Relations and Strategic Finance. We are joined today by Zack Calista, Founder and CEO Hoshan Goi, Chief Financial Officer and Carmen Calista, Chief Strategy and Marketing Officer. Before handing the call over to Carmen, 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.

Operator

Such statements are based on current expectations and assumptions. They are subject to a number of risks and uncertainties. Actual results could differ materially. Please refer to the Safe Harbor statement in our Form 20 F, including the risk factors and the 6 ks that we filed yesterday. We undertake no obligation to update any forward looking statements.

Operator

During this call, we will present both IFRS and non IFRS financial measures. A reconciliation of non IFRS to IFRS measures is included in the 6 ks that we filed with the SEC yesterday. With that, I'd like to hand the call over to Carmen.

Speaker 1

During the call today, we will review both Karoo's operating units, Kartrak and Karoo Logistics. For those new to Karoo, Kartrak is our operations management SaaS platform. Kartrak operates at scale and has a very attractive financial profile. Kartrak's operating momentum has primarily driven Karoo's growth and strong financial performance. For FY 'twenty five year to date, Kartrak's subscription revenue was approximately ZAR3 1,000,000,000, an increase of 15% year on year or 20% year on year on a U.

Speaker 1

S. Dollar basis. Kartrak's year to date operating profit margin was 30%. Karoo Logistics is our rapidly growing delivery as a service business that empowers our large enterprise customers to scale their e commerce and logistics operations. Karoo Logistics is a structurally lower margin business in Kartrak showing good growth momentum.

Speaker 1

Karoo Logistics is strategically important to us as it empowers our customers to scale their e commerce and logistics operations through a capital light model whilst driving high Kartrak customer retention. For FY 'twenty five year to date, Karoo Logistics Delivery as a Service revenue was $310,000,000 an increase of 38% year on year or 45% year on year on a U. S. Dollar basis. Given Karoo Logistics' robust revenue growth, we are very excited about the long term growth opportunity for the business.

Speaker 1

Karoo Logistics is profitable at its current scale. In q3, Karoo delivered another strong quarter with total revenue of ZAR1159,000,000, an increase of 15% year on year, subscription revenue of ZAR1032,000,000, an increase of 14% year on year and adjusted earnings per share of PEN7.67 PEN7 PEN7 PEN10 PEN10 PEN10 PEN10 PEN10 PEN10 PEN10 PEN10 PEN10 PEN10 PEN10 PEN10 PEN10 PEN10 PEN10 PEN10 PEN10 PEN10 PEN10 PEN10 PEN10 PEN10 PEN10 PEN10 PEN10 PEN10 PEN10 PEN10 P In Q3, we were a rule of 60 company when adding our Q3 subscription revenue growth of 14% and our Q3 Kartrak adjusted EBITA margin of 47%. We ended Q3 with more than 2,200,000 subscribers, an increase of 17% year on year and more than 125,000 businesses across all industries trusting us to power and improve their daily operations. We continue to grow our data asset and our platform now generates more than $180,000,000,000 valuable data points monthly, which we leverage to drive actionable insights for our customers. Before diving into our Q3 business and operational highlights, we want to take a moment to underscore our distinctive financial profile, something that is exceptionally rare in the public markets, particularly among small cap companies.

Speaker 1

We believe we are amongst a select few SaaS companies operating at a rule of 50 plus based on 2025 Gap Street estimates. Notably, within a SaaS universe of approximately 200 companies, we believe we are one of only 2 small cap companies operating at this level. Being part of this elite group reflects our unwavering commitment to disciplined and profitable growth. We are proud to stand out as a leader in financial performance amongst our SaaS peers. In Q3, we amongst our SaaS peers.

Speaker 1

In Q3, Kartrak's total subscribers increased 17% year on year, highlighted by stable growth in South Africa and a 200 basis point quarter on quarter acceleration in Europe. In September, we successfully completed the move to our newly built central office in South Africa. This move bolsters our operational capacity and positions us to support higher levels of organic growth. We are already seeing positive early results from this strategic investment. Additionally, we continue to ramp up our investment in sales and marketing across Southeast Asia and are seeing early signs of success.

Speaker 1

We remain confident that Southeast Asia represents the most compelling growth opportunity for the group over the medium to long term. We will have more to say about the Southeast Asia opportunity later in this presentation. With our ongoing investments in sales, marketing and infrastructure to support future growth, we believe we have ample runway to accelerate customer acquisition whilst maintaining robust earnings. Finally, Kartrak delivered healthy subscriber additions in Q3 while maintaining strong unit economics with an LTV to CAC ratio greater than 9. Our commercial customer retention rate remains at 95%, and we continue to grow the business at scale with discipline.

Speaker 1

Our Q3 financial highlights include Kartrak's year to date subscription revenue increased 20% year on year on a U. S. Dollar basis. Kartrak's subscription revenue increased 19% year on year on a U. S.

Speaker 1

Dollar basis. Kartrak surpassed ZAR1 1,000,000,000 in quarterly subscription revenue. We remained a rule of 60 company and Karoo's adjusted earnings per share increased 21% year on year to ZAR7.67 ZAR. Our balance sheet remains strong and unleveraged and we ended the quarter with net cash and cash equivalents of ZAR856 million. Additionally, given our strong Q3 financial performance and operating momentum, we are reaffirming our previous FY 'twenty five financial outlook.

Speaker 1

We believe we are well positioned to deliver durable and profitable growth driven by our strong unit economics, disciplined capital management and consistent track record of execution. We offer an easy to use and differentiated enterprise SaaS platform that leverages our vast and proprietary data asset to provide our customers with actionable insights and analytics to simplify their decision making. Our financial performance speaks for itself, underscored by a rule of 60 financial profile and a healthy unlevered balance sheet. Additionally, as a founder led organization, we bring long term vision, strategic focus and an entrepreneurial approach to an expansive total addressable market with significant growth opportunities still ahead. Our innovative platform goes far beyond connected vehicles and equipment.

Speaker 1

We simplify the decision making of physical operations. Our platform transforms decision making by seamlessly unifying and contextualizing data from a wide range of sources, including OEM we enable our customers to overcome complex operational challenges, we enable our customers to overcome complex operational challenges related to safety, compliance, productivity, service delivery, cost control, fuel management, maintenance, routing, resource allocation and workforce retention. Powered by our extensive data asset, advanced AI and robust analytics, our platform delivers actionable insights that drive meaningful improvements to our customers' physical operations. We are deeply committed to continuous innovation, ensuring our platform remains intuitive, fast and adaptable to the ever evolving business needs of our customers. Simplicity is at the core of our solution from implementation to daily use, helping customers make smarter decisions faster whilst driving ROI.

Speaker 1

Our end to end operations cloud delivers a robust all encompassing suite of advanced features that go well beyond traditional telematics, providing unmatched value by enhancing safety, optimizing operations and driving cost savings for our customers. Key highlights of our platform include AI Powered Cameras. These cameras proactively improve driver behavior and reduce operational risks leading to safer and more efficient fleet management. Field Management Tools. Our tools simplify daily operations with automated scheduling, dispatch management and work order coordination.

Speaker 1

Delivery management excellence. Smart route optimization enables faster, more efficient deliveries, helping customers exceed expectations with their logistics operations. Real time mobile asset tracking. Our asset tags that leverage a proprietary network powered by our vast Kartrak Karoo Logistics empowers our customers to scale their e commerce operations effortlessly through a capital light model. Fraud mitigation features.

Speaker 1

Our advanced rules based cargo floating functionality and automated fuel claim validation help reduce fraud. Vehicle sharing and scheduling. Features like vehicle sharing, scheduling and keyless access enhance fleet utilization and overall convenience. Driver risk analytics. Our platform provides powerful tools to assess and mitigate driver risk, ensuring safer fleet operations.

Speaker 1

By offering an integrated and feature rich solution, we continue to support our customers in achieving operational excellence, scalability and and feature rich solution, we continue to support our customers in achieving operational excellence, scalability and sustainable growth. A prime example of the impact and power of our end to end operations cloud is its deep integration into the daily operations of an emergency service provider. This seamless integration significantly enhances response times, patient care and overall operational efficiency. Through API integrations with the dispatch control room, our platform enables automated dispatch of the closest available ambulance, reducing dispatch time and ensuring faster on scene arrival. Live tracking provides peace of mind to patients and their families.

Speaker 1

Advanced route optimization and real time dashboard support efficiency and utilization by enforcing designated home zones and improving fleet distribution. Safety is a priority. Our AI powered cameras help reduce risk while integrated daily medical inventory checklists ensure ambulances are fully prepared for any emergency. A single click route optimization feature adapts to real time traffic conditions and digital vehicle inspections combined with preventative maintenance improve fleet reliability and uptime. Our control room integration helps maintain brand reputation by ensuring that emergency lights are used only when appropriate.

Speaker 1

Additionally, remote video access supports training, incident management and risk mitigation. By embedding deeply into our customers' daily operations, we enhance emergency care delivery, strengthen patient trust and minimize operational risks. We remain deeply committed to investing in product innovation, particularly in AI driven solutions that deliver ROI for our customers. Our platform leverages AI to provide actionable insights in critical areas such as fatigue driving, unscheduled stops, fuel fraud detection and driver risk profiling, key factors that directly impact our customers' operational performance. By addressing these challenges, we believe our AI solutions enable customers to mitigate risks, enhance service delivery, reduce costs and most importantly, help save lives.

Speaker 1

For example, one of our customers in South Africa used our AI powered cameras combined with our fully digitalized coaching platform and actionable analytics to achieve a 32% reduction in fatigue related driving incidents, a 13% drop in mobile phone usage and improved seat belt compliance, key contributors to preventing road fatalities. In Q3, we saw strong momentum in our AI camera business and we are encouraged by the growing customer interest in our vision solutions. Our customers choose us because we deliver tangible ROI by reducing costs, boosting productivity and enhancing safety, all through a user friendly platform backed by a best in class service team. The value proposition of our platform is significant with a proven ability to create meaningful business impact. For instance, one of our customers in Thailand achieved a fuel theft reduction of over 90% within just 3 months of adopting our platform.

Speaker 1

By automating fuel claim validation and pinpointing theft locations through advanced analytics and other features of our platform, our solution provided unparalleled visibility and control, enabling our customer to eliminate almost all fuel theft across their fleet. As a result, this customer reported a remarkable 70% return on investment across their entire fleet, driven solely by the significant reduction in fuel theft. Our platform drives a significantly higher all in ROI for this customer when accounting for productivity, safety and compliance benefits. As businesses look to increase their e commerce offerings and optimize their logistics capabilities, many companies are also looking to move away from online marketplaces to better serve their customers and reduce the risk of losing control of the customer within a marketplace context. This is a key driver of demand for Karoo Logistics, which connects businesses to an elastic supply of third party drivers and continues to gain adoption by our large enterprise customers seeking to scale their e commerce capabilities on their own terms.

Speaker 1

During Q3, Karoo Logistics delivered revenue of ZAR109 million, an increase of 20% year on year and an 8% operating profit margin. Growth in Q3 was negatively impacted by our customers' strategic decision to focus on in store Black Friday promotions. We see a large opportunity for Karoo Logistics going forward. Our unwavering commitment to product innovation and a disciplined approach to profitable growth positions us to capitalize on the large and growing market opportunity. We believe we have ample runway for growth as businesses across industries seek to leverage technology to optimize their physical operations.

Speaker 1

As we continue to execute and scale, we believe we are only getting started. We believe there is ample opportunity for growth. Over time, we plan to expand our customer base, increase subscription sales to existing customers, expand the scope of our operations in newer geographies, and expand our operations platform and services. We plan to invest in all geographies to expand our sales and support infrastructure to drive growth and maintain our customer centricity, and we continue to see Southeast Asia as the most compelling growth opportunity for the group over the medium to long term. In Q3, we continued to expand our sales and marketing investments in Southeast Asia, positioning ourselves to capture the significant and growing opportunity in this dynamic region.

Speaker 1

Why are we so optimistic about Southeast Asia's potential? Collectively, Indonesia, the Philippines, Thailand, Malaysia, Vietnam, Singapore and Hong Kong represent over 600,000,000 people and a thriving US4 $1,000,000,000,000 economy. Rapid urbanization and the rise of a growing middle class are fueling increased demand for commercial vehicles to transport both goods and passengers efficiently. Moreover, the adoption of data driven supply chain management is accelerating globally and Southeast Asia's logistics sector accounts for a larger share of GDP compared to markets like the U. S.

Speaker 1

And Europe, underscoring its strategic importance. Given these favorable trends, we see significant long term potential in Southeast Asia driven by relatively low fleet management penetration and ongoing tailwinds such as robust economic growth, intensifying competition in logistics and the increasing focus on fuel efficiency and driver safety. While competitive dynamics vary by country, the landscape is broadly fragmented with most players offering basic track and trace solutions. Very few competitors provide a comprehensive feature rich SaaS platform. Given our best in class full stack operations management SaaS platform, strong brand for high service delivery and the favorable macro trends, we believe we are in a strong market position and set up for sustained growth in the region for years to come.

Speaker 1

Our healthy subscription gross margin, efficient customer acquisition and attractive commercial retention rate continue to drive our leading unit economics. In Q3, we maintained an LTV to CAC ratio of more than 9. We are excited about our massive TAM and remain committed to profitable growth as we pursue the expansive growth opportunity ahead of us. We maintain a sharp focus on capital allocation, a cornerstone of our business strategy. Over the past 20 years, we've cultivated a culture that prioritizes profitable growth grounded in disciplined capital management.

Speaker 1

We are committed to continuing this disciplined approach with and given our strong unit economics, sustained profitability and large market opportunity. Over time, we've developed robust operational capabilities to assess unit economics by both country and customer acquisition channel, enabling us to focus on maximizing return on incremental capital invested by geography. At current growth rates, our business generates significant excess cash. With our strong balance sheet and net cash position, we aim to return surplus capital to shareholders when we cannot efficiently invest it for growth, primarily through an annual dividend. As to avoid doubt, management prioritizes growth over dividends.

Speaker 1

In addition, we have shareholder authorization to repurchase up to 10% of our outstanding shares. While share repurchases remain an option, our near to medium term focus is on enhancing market liquidity. Finally, we take a prudent and strategic approach to M and A. We view M and A as a tool to accelerate time to market in key geographies, expand our product portfolio or strengthen our competitive position. However, given our compelling organic growth profile, customer centric culture and attractive unit economics, we set a high bar for any potential acquisitions.

Speaker 1

M and A opportunities must offer clear strategic value or optionality to meet our criteria. Ultimately, we see it as our responsibility to allocate capital thoughtfully always with the goal of maximizing long term shareholder returns. I will now hand over to Hu Xin, who will discuss our Q3 financial performance.

Speaker 2

Thank you, Carmen. I will now discuss Karoo's financial performance for Q3 FY 'twenty five. Please note that all comparisons are against Q3 FY 'twenty four unless otherwise stated. Our proven and profitable SaaS business model continue to deliver strong results in quarter 3. Karoo's total subscription revenue increased 14% to R1032 million.

Speaker 2

On a U. S. Dollar basis, Karoo subscription revenue increased 19% year on year. Operating profit increased 18% to R325 1,000,000 and adjusted earnings per share increased 21 percent to R7.67. The two segments of Karoo's, Kartraks and Karoo's Logistics complement each other by supporting our large enterprise customer as they scale their e commerce operations.

Speaker 2

Overall Karoo's demonstrated strong quarter on quarter financial performance with a quarterly operating profit now at a record of R325 1,000,000. We will now focus on Kartrak's, the underlying assets of Karoo's success. In this quarter, Kartrak experienced healthy customer acquisition. Quarter 3 subscriber increased 17 percent to R2.2 million. Subscription revenue increased 14% to R1029 million and operating profit was a record of R360 million.

Speaker 2

Kartrak continues to prove its ability to scale in varying macroeconomic conditions and was a rule of 60 company in quarter 3 when adding our 3rd quarter subscription revenue growth of 14% year on year and our 3rd quarter adjusted EBITDA margin of 47%. Carsrac experienced solid customer acquisition with net subscriber addition of 86,617 in this quarter, an increase of 15% year on year. We operate in a massive addressable market and we believe that we have ample runway to accelerate our customer acquisition strategy while maintaining robust earnings. We will also prioritize our capital allocation in sales and marketing. Looking ahead, we are on track to surpass 2,300,000 subscriber by year end and we are expecting a record quarter 4 net subscriber additions.

Speaker 2

Cartrax continue to grow its subscriber base across geographies. South African subscriber increased 16% year on year in Q3 and comprised 75% of our total subscriber. We believe that the economic environment in South Africa is improving and we are confident that our move to our newly built central office position us to support strong organic growth as it will allow us to expand our customer base and increase subscription sales to existing customers. In Asia and the Middle East, subscriber increased 20% year on year in Q3 with strong momentum in Southeast Asia. This region comprised 12% of our total subscribers.

Speaker 2

Southeast Asia remained the 2nd largest contributor to the group's revenue, presenting the most compelling growth opportunity over the medium to long term. Europe subscriber increased 19% year on year in quarter 3 and comprised 9% of our total subscribers. European subscriber growth accelerated by 200 basis point quarter over quarter driven by our investment in distribution over the last few quarters. We remain focused on increasing our presence in this region especially through OEM partnerships. In addition, we are experiencing encouraging demand with our proprietary compliance technology as customers seek to simplify compliance with changing legislations.

Speaker 2

Africa Others maintained its growth with 16% increase in subscribers and comprised 4% of our total subscribers. Karoo's adjusted earnings per share increased 21% to R7.67 in this quarter. This is driven by higher subscription revenue and expanding gross margins. Kartrak's earning per share increased 8% to R7.51 and Karoo logistic earning per share increased 23% to R16¢. As Karoo's continue to scale and grow, we are confident with our financial year 25 adjusted earnings per share outlook.

Speaker 2

In this quarter we continue to demonstrate high cash conversions as our earnings increased. Free cash flow was R188 1,000,000. We have now settled into our newly built South African Central Office and looking forward to strong economic growth in this region. Our total development cost for the new building excluding the land was R322 1,000,000 and we do not expect significant capital allocation to the building going forward. Our balance sheet reflects our track record of growth at scale, profitability and cash generation.

Speaker 2

Our net cash on hand plus cash in bank fixed deposit was R856 million. We expect our disciplined approach to capital allocation coupled with our earnings and free cash flow growth to continue and bolster our strong balance sheet. Debt this collection days remain extremely healthy and within our historical norms at 27 days. Last August we paid a cash dividend of $33,400,000 or 1.08¢ per share to our shareholders. The dividend per share increased 27%.

Speaker 2

We have strong unit economics, robust operating margins, unleveraged balance sheet and strong cash conversion. We remain confident that our track record of success especially our ability to generate healthy cash flow is sustainable. Given our strong quarter three results, we are reaffirming our financial outlook for FY 'twenty five. In closing, we are excited about the operating momentum in the business and our year to date financial performance. Looking forward, we believe our attractive SaaS business model, robust cash generations and strong balance sheet position us to capitalize on the expensive growth opportunity in front of us.

Speaker 2

I would like to thank everybody for joining us today and will now open the floor to Q and A with our Group CEO and Founder, Mr. Jack Callisto.

Speaker 3

Hi, everyone. Good evening, good morning, good afternoon. I want to thank everybody for taking the time and joining us. I'll go through the questions. There's a question from Jackson from William Blair.

Speaker 3

Looking at attracting the necessary talent, what have been the best sources of human capital and what has been the company's selling point to prospective employees? I think the best source of human capital, we we don't outsource our recruitment. We do it all internally. And, you know, these various channels, whether it's referrals or whether it's actually just on digital platforms. So we have different ways of attracting people.

Speaker 3

And we also post and, you know, we have incoming queries or applicants, for the jobs. What is Pinard unique selling points? I think that really depends whether you are hiring a technical person, a developer or a salesperson. You know, those, we would have selling points that talk to their respective jobs in the business. But fundamentally, hiring senior people to the business, it's very easy for us.

Speaker 3

We are very attractive business. So if we want a senior person, we find those hires extremely easy. Where it becomes more challenging is actually on the distribution front, which is actually salespeople. Now there's very, really good quality salespeople and attracting the right people and training them is not always the easiest. So that's really, probably where it's the most difficult is building out that ability to sell while being vertically integrated and not looking for agents and third parties to sell for us.

Speaker 3

The next question is from Rudy van Eerkirk. How should we think of the impact of the new generation vehicles that are if that have integrated or have integrated full self driving technologies? And I think we're in the very early stages of self driving technologies. I think there's 1 or 2, smaller cities in America that are doing it. There's a few running around Singapore, but I think we're still quite a long way away from self driving becoming a way of life.

Speaker 3

And obviously things do change between now and where that becomes an absolute reality. I think we could probably see UFOs before we see full self driving vehicles in in some parts of the world. I'm not sure. But I think fundamentally, the way we operate our business and see our business is that one we agile and we adapt. There's no need to adapt right now.

Speaker 3

It's too early in the curve to start planning for that. But I think in itself because we helping businesses run the, you know, out, we help businesses run the operations. Quite frankly, I think whether the vehicle is self driven or not, the whole ecosystem of the supply, the distribution, you know, there's a lot more that we do. And like I said, we probably a couple of years away from this. And by the time that has happened, we will look like a very different business to what we are currently on today.

Speaker 3

In actual fact, I think we today are quite a different business to what we were 4 years ago and certainly a very big, big difference in the business that we were 10 years ago. The next question is from Jackson from William Blair. With multiple regions performing strongly, what has been the contribution to AR from each? Is this a good way to think about the breakdown going forward? Yes.

Speaker 3

I think that's a good way to look at look at it, but it's very much in keeping with the growth growth in subscription revenue in the region. And obviously, at the moment, our ARR and our subscription revenue was impacted by the stronger rent, which obviously the non South African entities, whether it's Europe or Southeast Asia, they were dealing with a stronger rent. I see since November, since year end, that's corrected quite a bit with the South African rand is weakened. But I think the other currencies probably have weakened against the dollar as well. So I haven't quite looked at the impact for Q3 and the potential impact for Q3.

Speaker 3

The next question comes from Alex from Raymond James. Can you talk about your plan global sales and marketing hiring efforts? What is the magnitude you are looking to grow the sales organization over the next 12 months in some of your core regions? In Asia, our target is to grow that by about 70% of our current our current headcount, and we believe that we are comfortably be able to do that 70% increase. We're also increasing in South Africa.

Speaker 3

We're just settling down in the new building, but we're probably gonna increase headcount in South Africa by about 30% on the sales and marketing side. And in Europe, we're also looking at increasing it by about 50% this year. We've been increasing Europe consistently over the last 6 or 8 quarters and we can see already the results where we're starting to get 19% growth. Next question, Patrick O'Reilly from FleetWatch. There's a lot of noise around the Africa free trade agreement.

Speaker 3

Do you see the noise translating to positive opportunities for Carjack in Africa? You know, Patrick, with the trade agreement or no trade agreement, the opportunities are very vast and huge for us. Clearly, the more free trade there is, the more logistics there is that obviously acts in our favor. I think those are the questions for today. I want to thank everybody.

Speaker 3

Should there be any other questions, you're welcome to email me. Thank you. Bye bye.

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