Release Date: October 15, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Karooooo Ltd (KARO, Financial) reported a strong Q2 with total revenue of ZAR1,107 million, marking a 16% year-on-year increase.
- Cartrack's subscription revenue increased by 15% year-on-year to ZAR983 million, with a growth margin improvement of approximately 300 basis points to 74%.
- The company achieved a record net subscriber addition of over 89,000 in Q2, an 18% increase year-over-year, bringing the total to over 2.1 million subscribers.
- Karooooo Logistics demonstrated robust revenue growth with a 40% year-on-year increase, reaching ZAR101 million in Q2.
- Karooooo Ltd (KARO) maintained a strong balance sheet with net cash and cash equivalents of ZAR674 million, supporting its growth strategy.
Negative Points
- Karooooo Logistics showed muted quarter-on-quarter growth, with Q2 revenue matching Q1 FY25 revenue, indicating potential operational challenges.
- The company faced difficulties in executing share buybacks due to SEC rules, impacting liquidity management strategies.
- There is a potential risk of decreased LTV to CAC ratios as the company plans substantial headcount increases, which may affect short-term efficiency.
- Karooooo Ltd (KARO) experienced a drop in share price during a secondary public offering, leading to the termination of the offering.
- The company anticipates lower ARPU in Asia as Singapore's contribution decreases, potentially impacting revenue growth in the region.
Q & A Highlights
Q: Karooooo Logistics reported revenue of ZAR101 million for Q2 FY25, showing muted quarter-on-quarter growth. What factors contributed to this stagnation, and do you anticipate double-digit annual revenue growth in the future?
A: In Q1, we intentionally stagnated to increase our driver capacity and operational capabilities to meet demand. We expect better performance in Q3 and believe we can continue delivering double-digit growth.
Q: Can you discuss the mix of record subscriber additions this quarter? Any changes in the commercial mix or larger enterprise net adds?
A: Most of our growth was driven by SME businesses, although we did acquire some large enterprise customers. The SME sector remains the biggest contributor to our growth.
Q: The quarter's gross margin, excluding logistics, appears to be a new record. What are the drivers, and how sustainable is this higher margin level?
A: The increase is due to operational efficiencies. Our margins fluctuate within a tight band, and while we aim for growth, these margins will likely remain stable.
Q: What is the major driving force for ARPU this quarter, and what can we expect for the next few quarters?
A: Our new products are likely to increase ARPU. However, as Singapore becomes a smaller part of our business, ARPU in Asia may decrease to align with South African levels. Our revenue drive remains focused on customer acquisition.
Q: Has the company participated in further share buybacks over the last quarter?
A: We have not engaged in share buybacks due to SEC rules and our focus on increasing liquidity. We are enhancing investor relations to support growth in liquidity.
Q: How is subscriber growth in Asia Pacific and the Middle East compared to management's expectations? What would be a good outcome in terms of numbers in three years?
A: We have initiated a significant sales headcount increase and expect to grow over 30% year-on-year, starting in FY26.
Q: Could you update on the secondary public offering of your shareholder, and what should be the long-term float expectation?
A: I plan to sell about 6 million shares over the next five to six years responsibly. We terminated a recent offering due to unfavorable pricing but expect higher liquidity over time.
Q: Why isn't the balance sheet leveraged if Karooooo doesn't make transformational acquisitions?
A: We prefer maintaining a clean balance sheet and only consider debt if absolutely necessary. We aim to remain in a net cash position to be prepared for unforeseen circumstances.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
