Karooooo Ltd. Q2 FY2025 earnings call

• Cartrack operates at scale with attractive financial profile, Q2 subscription revenue up 15%, gross margin improved, subscribers up 17%. • Karooooo Logistics is rapidly growing, B2B delivery-as-a-service revenue up, and profitable at current scale. • Q2 total revenue up 16% y-o-y, subscription revenue up 15% y-o-y, adjusted earnings per share up 31% y-o-y. • Ended Q2 with over 2.1 million subscribers, platform generates over 180 billion data points monthly. • Moved to newly built central office in South Africa to support organic growth. • Increased sales and marketing investment in Southeast Asia. • Cartrack had record net subscriber additions in Q2, LTV to CAC ratio >9, commercial customer retention rate 95%. • Platform simplifies decision-making, leverages data, AI, and analytics to drive insights for customers, helping reduce costs, increase productivity, and improve safety.

Cartrack: As of August 2024, annual recurring revenue was ZAR3,990 million (ph) or $224 million. Q2 operating profit margin was 29%. Q2 subscription revenue increased 15% year-on-year to ZAR983 million. Gross margin improved approximately 300 basis points year-on-year to 74%. Subscribers increased 17% year-on-year to 2.14 million. Karooooo Logistics: As of August 2024, annualized B2B delivery-as-a-service revenue was ZAR418 million or $24 million. Q2 total revenue was 1,107 million ZAR, an increase of 16% year-on-year. Subscription revenue was ZAR986 million, an increase of 15% year-on-year. Cartrack contributed significantly to revenue with its strong growth in subscription revenue and subscribers, while Karooooo Logistics, though lower margin, is growing rapidly and profitable at current scale.

• Increased midpoint of guidance ranges for FY '25 outlook for subscribers and Cartrack subscription revenue. • Now expecting Cartrack subscriber to be between 2.3 million to 2.4 million (previously 2.2 million to 2.4 million). • Cartrack subscription revenue to be between ZAR3.95 billion to ZAR4.15 billion (previously ZAR3.9 billion to ZAR4.15 billion). • Cartrack operating profit margin outlook of between 27% to 31% and Karooooo's earnings per share outlook of between ZAR27.5 to ZAR31 remain unchanged.

• Potential impact of macroeconomic conditions on business operations. • Intense market competition affecting market share and growth. • Uncertainties in maintaining favorable unit economics and LTV to CAC ratio as scaling continues.

Q: Karooooo Logistics reported revenue of ZAR101 million for Q2 FY '25 with muted Q-on-Q growth. Comment on factors contributing to stagnation and anticipation of double-digit annual revenue growth.

A: In Q1, stagnation was due to increasing driver capacity and operational capabilities, expecting better performance in Q3 and confident in double-digit growth.

Q: Talk about the mix of record subscriber adds this quarter, change in commercial mix or larger enterprise net adds.

A: Most driver growth was still SME business, but did get some large enterprise customers with over 2,000 trucks, but SME was biggest contributor to growth.

Q: Cartrack gross margin ex-logistics is a new record. Talk about drivers and sustainability.

A: Much from operational efficiencies, margins tend to fluctuate in a tight band, believe margins will fluctuate but in narrow band while growing.

Q: Major driving force for ARPU this quarter and color on next few quarters.

A: ARPU tends to increase with new products, but ARPU in Asia may decrease as Singapore becomes smaller part, drive in revenue is customer acquisition.

Q: Company participated in further share buyback over last quarter?

A: Haven't participated due to SEC rules making it difficult, focusing on building liquidity.

Q: Subs growth in Asia Pacific, Middle East vs management base case and good outcome in 3 years.

A: Started huge drive to build sales team, want to start growing at over 30% y-o-y from FY '26.

Q: Update on secondary public offering of shareholding and long-term float.

A: Did secondary offering in July, will sell about 6 million shares over next five/six years, expect higher liquidity over time.

Q: If Karooooo doesn't make transformational acquisitions, why isn't balance sheet leveraged?

A: Not in DNA, prefer clean balance sheet, only get debt if necessary, comfortable in net cash position.

Q: LTV to CAC much higher in Southeast Asia vs company average of 9 and change in past years.

A: Don't have LTV to CAC for each geography, believe can keep LTV to CAC over 9, and if needed, can accept drop to 7.

Q: Percentage of customers using Cartrack AI-based benefits vs vehicle tracking and growth of AI usage base.

A: AI is part of business, all business customers have some form of AI in real time, video introduced last year but BI reports, live alerts are part of AI.

Q: Color on S&M investment across each region as growth and sustainable efficiency.

A: Capital allocation team looks at each country and go-to-market strategy, continuously measures ROI, will see less yield short term but higher returns over time.

Q: Guidance about sales and marketing as a percentage of subscription revenue going forward.

A: Currently increasing, intention is to increase spend on sales and marketing as percentage of subscription revenue.

Q: Elaborate on headcount growth targets over next 12 months, sales and marketing headcount growth.

A: Busy with budgets, gut feel to grow sales headcount, substantial increase in Asia, about 25% in South Africa and Europe, ~70% increase in Asia over next 12 months