Release Date: July 19, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Karooooo Ltd (KARO, Financial) experienced strong customer acquisitions with total subscription revenue up 15% to ZAR964 million.
- Operating profits increased by 34% to ZAR300 million, and earnings per share rose by 41% to ZAR7.17.
- The company has a high customer retention rate of 95%, indicating strong customer satisfaction and loyalty.
- Karooooo Ltd (KARO) continues to invest in platform innovation and territorial expansion, particularly in Southeast Asia, which is seen as a significant growth driver.
- The company maintains a robust balance sheet with net cash on hand plus cash in bank fixed deposits standing at ZAR950 million.
Negative Points
- Despite the positive financial performance, Karooooo Ltd (KARO) faces rising costs in research and development, which increased to 6% of subscription revenue.
- The competitive environment in South Africa remains extremely challenging, with strong competitors having been in the market for approximately 10 years longer than Karooooo Ltd (KARO).
- The company is experiencing macroeconomic headwinds in some of the markets it operates in, which could impact future growth.
- General and administrative expenses as a percentage of subscription revenue are at 21%, indicating significant overhead costs.
- The company acknowledges that not all customers are fully utilizing the platform's capabilities, which could limit the potential value derived from their services.
Q & A Highlights
Q: You talked about the improving environment in South Africa, your most mature market, but still seeing nice growth. How should we think about the runway here, and how much logic can these customers be if they were to adopt more of the platform?
A: We saw growth this year in South Africa, up 16%. We believe we are continuing this momentum. Moving into our new office in Johannesburg in September will give us the opportunity to expand. Currently, one of our bottlenecks is space constraints. Not all our customers use as much of the platform as they should, but we are embarking on initiatives to increase platform usage starting in September.
Q: What is your estimated market share in South Africa, and what do you estimate the penetration rate is? Can you discuss the tech competitive environment?
A: South Africa is an extremely competitive environment. We estimate our market share to be approximately 40% of the installed base. The penetration rate is estimated to be between 3.5 million to 4 million vehicles, with a total market capacity of 12 million. We believe the entire market will eventually be penetrated.
Q: Your 16% guidance, is that traditional check and trace, or are you gaining more market in fleet management?
A: In South Africa, 40% of our growth came from consumer customers, and 60% came from commercial customers.
Q: Can you talk more about your improved macro unit trends in South Africa? What did you see in June growth relative to prior months?
A: We are seeing a positive economic environment in South Africa, especially with upcoming elections. Customer defaults have started to decrease over the past three to four months, indicating a more favorable economic climate.
Q: Could you provide some more color on the launch of next-gen vision? What percentage of your commercial customers are adopting the vision solution?
A: We started launching the next-gen vision about two months ago and have seen a very positive uptake. The new version includes more AI capabilities and better integration into our platform. We expect to roll out all improvements by October.
Q: Could you give some color on growth rates for the Asia Pacific, Middle East, and USA regions in FY25?
A: We believe we can maintain and even increase our current growth rates. Although we had a relatively weak quarter in Asia, we are seeing much better performance in Q2.
Q: Is your investment in R&D related to AI capabilities growing dramatically, or is it in line with previous trends?
A: Our R&D expenditure is about 6% of subscription revenue, and we are seeing a significant increase compared to last year. However, we expect this to be under control by the end of Q4, with better talent contributing to more effective R&D efforts.
Q: What are the key financial highlights for Q1 FY25?
A: Total subscription revenue increased by 15% to ZAR964 million. Operating profits rose by 34% to ZAR300 million, and earnings per share increased by 41% to ZAR7.17. Free cash flow stood at ZAR82 million, and we announced a cash dividend of $33.4 million to be paid in August 2024.
Q: How is Cartrack performing in terms of subscriber growth and financial metrics?
A: Cartrack's total subscriber base grew by 17% to 2,047,442. Subscription revenue increased by 15% to ZAR960 million, and operating profit stood at ZAR287 million. Cartrack's earnings per share rose by 29% to ZAR6.94. The gross profit margin improved to 73%, and the adjusted EBITDA margin remained consistent at 46%.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
