Karooooo Ltd. Q4 FY2026 earnings call

Overall Financial and Shareholder Returns

• FY2026 delivered on planned disciplined execution, with Cartrack subscription revenue growth accelerating to 19% from 15% in FY2025, despite ZAR appreciation foreign exchange headwinds.
• Annual Recurring Revenue (ARR) increased 18% YoY to ZAR 5,179 million, and 38% YoY to USD 325 million in USD terms. Mature market South Africa exited FY2026 with 23% ARR growth, reinforcing market leadership.
• A 20% increased dividend of USD 1.50 per share was declared, payable in July 2026, continuing the track record of returning excess cash to shareholders.
• The company ended FY2026 with net cash and cash equivalents of ZAR 746 million, a strong unlevered balance sheet, and 27-day collection days within historical norms.

Unit Economics and Operational Strength

• Commercial customer ARR retention remains at 95%, LTV to CAC ratio stays above 9x, and Q4 FY2026 subscription gross margin was 71%, supporting healthy sustainable unit economics.
• The proprietary platform collects over 300 billion monthly data points from installed IoT devices, creating a 20-year compounding data advantage that is not replicable by generic AI/LLMs.
• Karooooo met Rule of 60 metrics for Q4 FY2026 (18% Cartrack subscription growth + 44% adjusted EBITDA margin), and is the only small-cap public SaaS company globally to meet Rule of 50+ growth and profitability standards, with no material equity dilution or stock-based compensation.

Regional Performance Highlights

• South Africa: Surpassed 2 million subscribers in Q4 FY2026; FY2026 subscription revenue grew 20% YoY (accelerated from 15% in FY2025), with 23% exit ARR growth. Growth was driven by new customer acquisition and cross-selling of AI video and Cartrack Tag to existing customers, following recent operational infrastructure investments.
• Southeast Asia and Middle East: Ended FY2026 with ~336,000 subscribers, up 23% YoY (fastest growing region). Q4 net subscriber additions grew 82% YoY, full-year net additions up 41% YoY. FY2026 subscription revenue grew 17% YoY (20% constant currency), with slight ARPU downward pressure from faster growth in lower-ARPU markets. The region is the medium-term core growth priority.
• Europe: Ended FY2026 with ~228,000 subscribers, up 14% YoY. FY2026 subscription revenue grew 22% YoY (19% constant currency), with growing demand for proprietary compliance technology aligned with evolving regional regulation, and new OEM integration partnerships for long-term growth.

AI Model Resilience and Strategic Priorities for FY2027

• Management views AI as a tailwind, not a threat, to Karooooo's business model: the platform relies on proprietary physical IoT data, deep customer operational embedding, and growth tied to physical asset penetration (not seat-based licensing), making it resistant to AI disruption.
• FY2027 core strategic priorities:
  • Cement market leadership by balancing new customer acquisition with expanded adoption of AI video and Cartrack Tag
  • Drive sales force efficiency to accelerate subscription revenue growth
  • Leverage AI to enhance platform capabilities and drive internal operating efficiencies

1. Cartrack (operational intelligence SaaS platform):

• FY2026 total revenue: ZAR 4,939 million, up 19% YoY; 39% growth in USD terms. Subscription revenue: ZAR 4,831 million, up 19% YoY (accelerated from 15% growth in FY2025).
• Subscription revenue accounted for 98% of total Cartrack revenue.
• FY2026 operating profit margin was 28%.
• Q4 FY2026 total revenue: ZAR 1,304 million, up 17% YoY; subscription revenue: ZAR 1,278 million, up 18% YoY, with 71% subscription gross margin.
• Total subscribers reached ~2.7 million, up 16% YoY, with record Q4 net subscriber additions of 93,755 (up 19% YoY).

1. Karooooo Logistics (delivery as a service offering):

• FY2026 total revenue: ZAR 540 million, up 29% YoY; 50% growth in USD terms.
• Q4 FY2026 total revenue: ZAR 145 million, up 32% YoY, with a 9% operating profit margin.
• The segment surpassed ZAR 1 billion in cumulative driver payments since 2021 and executed over 8 million deliveries in FY2026.

Consolidated Karooooo results:

• FY2026 total revenue: ZAR 5,479 million, up 20% YoY; total subscription revenue: ZAR 4,844 million, up 19% YoY. Operating profit: ZAR 1,450 million, up 8% YoY; adjusted EPS: ZAR 32.55 (USD 2.05, up 20% YoY). Adjusted free cash flow: ZAR 809 million, up 90% YoY.

• Karooooo expects to further accelerate subscription revenue growth in FY2027 while delivering strong adjusted EPS growth, based on the traction of 2026 sales capacity investments.
• Cartrack FY2027 subscription revenue guidance is ZAR 5,700 million to ZAR 6,000 million, implying 18% to 24% YoY growth.
• Cartrack FY2027 gross profit margin is guided to contract to 70% to 72%, and operating profit margin is guided to 27% to 30%.
• Consolidated Karooooo FY2027 EPS guidance is ZAR 38.5 to ZAR 40. The midpoint of this guidance implies 21% YoY EPS growth compared to FY2026 adjusted EPS excluding secondary offering costs.
• The company plans to slow hiring growth in FY2027 while prioritizing sales force efficiency gains and broader AI adoption to drive margin and earnings expansion.

• ZAR appreciation creates foreign exchange headwinds for reported revenue, as majority of IoT device depreciation is based on prior-year lower ZAR exchange rates, negatively impacting near-term gross margins.
• Accelerated subscriber growth increases the share of active IoT devices still in their depreciation cycle, raising near-term cost of sales and reducing gross margins relative to periods with slower growth.
• Global geopolitical tensions (such as the U.S.-Iran conflict) can push up global fuel prices, which may negatively impact customer demand over time if prices remain elevated. The conflict has had a small limited impact on Karooooo's Middle East business to date.
• AI tools for internal customer support use currently suffer from frequent misinterpretations that frustrate customers, limiting near-term efficiency gains from AI adoption.
• Memory component prices have increased 200%, creating upward pressure on IoT device input costs.

Q: How does Karooooo view AI's potential for driving internal efficiency in functions like customer support, and what is the current state of deployment?

A: Management has been working on internal AI applications for 18 months with a dedicated in-house team. Current AI tools still make too many misinterpretations that frustrate customers, so the company is using AI less than it ultimately aims to. Management expects AI tools will improve over time, and AI will eventually become a major efficiency win for the business.

Q: What are the key regional investment priorities for FY2027, and is APAC still a core incremental investment focus?

A: FY2027 will prioritize improving platform, product, and sales productivity after significant hiring across all regions in FY2026. APAC, especially Southeast Asia, remains a key investment priority with no planned slowdown. The main hiring slowdown will occur in South Africa, allowing existing new hires to settle and drive higher efficiency before further ramping headcount.

Q: Why did the Q4 provision for vehicle IoT devices increase, and was this driven by auditor requests or accounting changes?

A: The provision adjustment was a proactive management decision, not a request from auditors. PPE (IoT devices) on the balance sheet grew substantially with accelerated subscriber growth in FY2026, and management chose to align provisions with this faster growth to maintain a cautious forward-looking position. Management only gained full visibility into the acceleration by Q4, so the adjustment was made then, and there has been no unexpected increase in customer churn to justify larger provisions.

Q: Why has IoT device depreciation and cost of sales grown much faster than ARR?

A: Cost of sales growth is aligned with growth in IoT devices (PPE) on the balance sheet, which grew 45% in FY2026, much faster than ARR. Older, fully depreciated devices still generate recurring revenue with no additional depreciation cost, so faster current growth increases the share of subscribers using devices still in their depreciation cycle, leading to faster cost growth than revenue growth.

Q: How has the 200% increase in memory component prices impacted business and pricing?

A: The company has adjusted pricing via its existing long-term pricing model to account for higher memory costs. The impact on overall business is limited because most depreciation in the current P&L comes from devices purchased at older lower prices, and the price adjustment is not expected to meaningfully slow sales growth.