Karooooo Ltd. Q2 FY2026 earnings call

Management Statement and Operational Highlights

• Karooooo operates a SaaS platform for connected vehicles and mobile assets, serving over 2.5 million subscribers across more than 125,000 businesses. Q2 annual recurring revenue (ARR) increased 20% to ZAR 4,806 million (USD 272 million). Commercial customer retention rate stood at 95%, and subscription revenue made up 98% of Cartrack revenue. The company generated over 275 billion valuable data points monthly. LTV to CAC ratio remained above 9x.
• Cartrack's subscription revenue growth accelerated, with strong performance in South Africa, Europe, and Southeast Asia. Karooooo Logistics showed strong growth, contributing to customer retention.
• Focused on FY '26 priorities: strengthening South Africa's position by selling video solutions and Cartrack tag to existing customers, expanding distribution in Asia and Europe, and driving broader engagement with the platform. Emphasized disciplined capital allocation, prioritizing organic growth and innovation. Aimed to return surplus cash to shareholders via annual dividends and took a prudent approach to strategic M&A.

Segment Performance

• Cartrack: In Q2, Cartrack generated approximately ZAR 1.2 billion in subscription revenue, a 20% increase (21% on a U.S. dollar basis). Subscription revenue accounted for 98% of Cartrack's total revenue. South Africa subscription revenue growth accelerated to 18%, Europe's to 27%, and Southeast Asia and Middle East's to 26%. Operating profit margin was a healthy 29%.
• Karooooo Logistics: Q2 revenue reached ZAR 139 million, a 38% increase (39% on a U.S. dollar basis), with an 8% operating profit margin. Growth was driven by an increase in e-commerce orders.

Guidance

• FY 2026 outlook remained unchanged excluding the cost of secondary offering. Cartrack subscription revenue growth of 20% in Q2 was in line with guidance. Year-to-date, Cartrack subscription revenue growth was 19% with an operating profit margin of 29%. Confident in achieving FY 2026 growth ambitions with continued investment in sales, marketing, and infrastructure.

Risks

• Forward-looking statements are subject to risks and uncertainties where actual results could differ materially from expectations. Risks included macroeconomic conditions, competition, execution of strategic initiatives, and potential challenges with AI adoption in go-to-market efforts.

Question and Answer

Q: Talked about safety adoption, tax rates on newer offerings, and ARPU growth.

A: ARPU grew 4%. The initial target for South Africa ARPU growth this year was 10%, with group ARPU growth around 6%. The bottleneck in onboarding new customers and cross-selling new products was due to team size.

Q: Maintaining healthy unit economics while adding capacity across territories.

A: Demand exceeded delivery capacity, and the bottleneck was building sufficient teams to meet demand.

Q: South African subscription revenue, drivers of momentum.

A: Focus on recruiting and building teams in South Africa, moved into a new building last year, with momentum in cross-selling new products.

Q: Vision attach rate by geo, impact of video on gross margins.

A: Early days, most sales came from existing customer bases, with video sales accounting for ~10% of sales. Gross margin typically ranged from 70-74%, with a slight dip in Q2 due to increased cost of sales, but unit economics remained unchanged.

Q: Sales force productivity, new vs existing reps.

A: Newcomers went through a learning curve and did not perform as well as established sales reps.

Q: Cartrack subscriber net adds slowdown.

A: Focus on cross-selling new products led to a slowdown in subscriber net adds, with the bottleneck being team size.

Q: Elevated operating expenses persistence.

A: Normalization was not expected in the current phase due to a large total addressable market (TAM) opportunity, disciplined capital allocation, and strong unit economics.

Q: Market penetration in regions.

A: South Africa had ~35% market penetration, Europe ~20-25%, and Asia under 10%. Growth levers included customer acquisition, new SaaS features, and new products.

Q: AI help in scaling go-to-market.

A: AI had potential but faced challenges with market tolerance. Some tools were tried but pulled back due to issues, though AI integration was expected eventually.