Karooooo Ltd. (KARO) Earnings

Management highlights

- Overall Financial & Core Business Performance * Karoo achieved record Q1 results: total consolidated revenue increased 22% YoY to 1,564 million ZAR, total subscription revenue rose 19% to 1,354 million ZAR, and operating profit grew 16% to a record 410 million ZAR. EPS increased 11% YoY to 9.53 ZAR. * ARR grew 19% YoY to 5,432 million ZAR (32% in USD to 335 million USD, 22% in constant currency), with accelerating growth after 16% in Q4 FY26. Net subscriber additions hit a record 142,472, an increase of 70% YoY, pushing total subscribers to over 2.8 million, up 18% YoY. * Core unit economics remain strong: commercial customer ARR retention holds at 95%, LTV to CAC ratio stays above 9x, subscription gross margin is 73%, and the company meets the Rule of 60 benchmark for CarTrack (19% growth + 45% adjusted EBITDA margin). Karoo is the only small-cap software company globally that operates at this combined growth and profitability level with no stock-based compensation and minimal share dilution. * A 1.5 USD per share dividend, a 20% increase YoY, was declared, payable later this month. Net cash and cash equivalents totaled 756 million ZAR, with excess cash held in USD. - Geographic Performance * South Africa (Karoo's most mature market): Subscription revenue growth accelerated to 24% YoY, net subscriber additions rose 92% YoY to 113,913, and total subscribers reached 2.1 million, up 18% YoY. Strong growth is driven by recent sales capacity investments and demand for the standalone CarTrack Tag and video solutions. * Southeast Asia and the Middle East: Subscriber growth hit 22% YoY to 353,000, with reported subscription revenue growth of 6% (17% in constant currency). Lower growth in reported revenue reflects faster expansion in lower ARPU markets and FX headwinds. This region is Karoo's fastest growing for subscribers and remains the company's top medium- to long-term growth opportunity. * Europe: Subscriber growth increased 13% YoY to 236,000, with reported subscription revenue growth of 7% (13% in constant currency). Karoo has new OEM partnerships to integrate connected vehicle data and sees growing demand for its proprietary compliance technology amid evolving regional regulation. - Strategic & Operational Progress * The company is focused on cementing market leadership through prudent sales and marketing investment, with particular success in scaling adoption of CarTrack Tag and video solutions in South Africa. * Growth investment has been moderated: Q1 sales and marketing expense grew 9% QoQ, down from 12% QoQ growth in FY26, and the pace of expense growth will remain lower in FY27 than in FY26. Management is prioritizing optimization of prior sales capacity investments over aggressive expansion. * AI is being adopted across the organization to enhance the platform, improve operational efficiency, and accelerate execution. The company's proprietary data asset now generates over 330 billion data points monthly to power new innovation.

Guidance

- Management reaffirms its full FY2027 outlook, which expects accelerating CarTrack subscription revenue growth at the midpoint and healthy EPS growth. - The pace of sales and marketing expense growth is projected to be lower in FY27 than it was in FY26, as the company prioritizes optimizing prior sales capacity investments. - Management maintains its full-year subscription gross margin guidance range of 70% to 72%, despite Q1 coming in above this range at 73%. - Karoo does not provide public guidance for net subscriber addition levels, to maintain flexibility to shift focus between greenfield new customer acquisition and existing customer cross-selling as market conditions evolve.

Segment performance

Karoo operates two product segments: CarTrack (Kartraik) and Karoo Logistics (Carew Logistics). CarTrack is the core operational intelligence platform for connected vehicles, accounting for approximately 90.1% of Karoo's total Q1 revenue. It delivered 1.4 billion ZAR in subscription revenue, representing 19% YoY growth (32% in USD, 21% in constant currency). CarTrack achieved an operating profit margin of 28% in Q1, and contributed 924 billion ZAR EPS, an increase of 10% YoY. Subscription revenue makes up 97% of CarTrack's total segment revenue. Karoo Logistics is the growing delivery-as-a-service offering for quick commerce, accounting for approximately 9.9% of Karoo's total Q1 revenue. It generated 177 million ZAR in delivery-as-a-service revenue, up 46% YoY (63% in USD). The segment delivered an 8% operating profit margin in Q1, and contributed 0.29 USD EPS, an increase of 61% YoY.

Risks & headwinds

- Foreign exchange headwinds from the strengthening South African rand (ZAR) negatively impacted reported revenue and the ZAR value of Karoo's USD-held cash reserves, creating balance sheet translation volatility. * Fast expansion into lower ARPU markets in Southeast Asia has pulled down regional average ARPU and slowed reported revenue growth relative to subscriber growth. * Aggressive hiring of ~2,000 new sales staff in FY26 creates risk of eroding the company's performance-focused execution culture if not paired with a period of consolidation and training. * The current expansion focus on CarTrack Tag in South Africa is constrained by limited capacity to hire, train, and scale distribution, preventing faster geographic expansion of the new product in FY27. * Quarterly free cash flow declined YoY in Q1 due to proactive pre-investment in IoT devices and working capital to support accelerated growth, creating temporary near-term cash flow fluctuations. * Macroeconomic headwinds in operating regions (outside of Mozambique, which has higher economic disruption) could potentially impact customer adoption of new services, though management notes Karoo has historically performed well across varied economic conditions.

Analyst Q&A

• Q: How much of South Africa's strong subscriber growth came from standalone CarTrack Tag sales versus cross-selling to existing customers, will you make additional sales capacity investments this year, and will you expand CarTrack Tag to new countries in FY27?

  A: Most of the recent growth comes from standalone CarTrack Tag sales, sold to both new and existing customers. Sales and marketing spend will increase this fiscal year, but at a much slower rate than FY26, with a focus on improving distribution efficiency. For FY27, Karoo will remain fully focused on scaling CarTrack Tag in South Africa, as it is at capacity for hiring and training new distribution staff and cannot support additional geographic expansion this year.

• Q: What explains the gap between 22% subscriber growth and 17% constant currency revenue growth in Southeast Asia and the Middle East, and can cross-selling close this gap over time?

  A: The gap exists because the company initially entered the region through high ARPU Singapore, and is now expanding into much larger lower ARPU markets. Regional ARPU will eventually converge toward South Africa's levels as the market matures, and product cross-selling of higher-margin add-on solutions will gradually close the gap between subscriber and revenue growth over time.

• Q: What is the current adoption rate of Karoo's video solutions, and are macroeconomic headwinds impacting customer adoption of Karoo's services?

  A: Video solution adoption is still in the early stages, at roughly 5% of Karoo's total South African customer base, leaving massive room for growth, with adoption already tracking higher than this level. Karoo has operated successfully through both strong and weak economic environments over its 20-year history, and current macro headwinds across most operating markets are not expected to meaningfully impact adoption. Only Mozambique faces meaningful ongoing economic disruption.

• Q: Can you reconcile record subscriber growth with the decision to slow hiring to focus on sales efficiency, and what is driving this choice?

  A: Karoo hired almost 2,000 new sales staff in FY26 to expand capacity. A temporary pause in aggressive hiring is needed to consolidate the team, embed Karoo's performance-focused culture, and improve rep productivity, rather than risking cultural dilution from unmanaged rapid headcount growth. This consolidation will support stronger long-term growth.

• Q: Is customer demand expanding beyond traditional fleet management, and how does this change product strategy?

  A: Customer use cases are evolving to include more AI-powered operational intelligence, video analytics, and workflow automation beyond core fleet tracking. Karoo will continue investing in product development to expand its platform offerings, with a focus on differentiating through superior customer service, a more capable platform, and continuous product improvement to meet evolving customer needs.