All right. Good afternoon, everyone. My name is Alex Clark. I'm one of the application software analysts here at Raymond James. Very pleased to have Karooooo Cartrack with us again this year. We've got Richard Schubert, the COO, and Paul Bieber, VP of IR and Strategic Finance. We're gonna do a fireside chat. This is a webcast. I'll open it up to the audience if there's any questions at the end. But Richard and Paul, thanks for the time today. Maybe just for folks kinda newer in the room and on the webcast, just talk about kind of history of Cartrack, what solutions you offer in market, kinda your core geographies, and what kinda problems are you trying to solve for with your platform broadly?
Okay. Thanks, Alex. Thanks for the invite to the conference. So we operate Cartrack, which is a SaaS platform, offering solutions for customers within the telematics space, fleet management space, AI video space, as well as logistics space. We currently have just over 2.4 million subscribers in 24 different regions. In the last quarter, we had very good financial results: 20% subscription revenue increase. That's with a 29% operating profit margin. We're still a founder-led company. There's a strong focus on capital allocation, and we still generate really good free cash flow. If we look at the geographies we operate in, South Africa is by far our largest region, still generates just under 70% of our revenue. Within South Africa, we compete against Powerfleet and Geotab, which are North American competitors, as well as some local ones: Netstar, Ctrack, and Tracker.
Important to note about the Africa region, we arrived to the market approximately 10 years after all our competitors. We currently have a 40% market share. So if we have a look at within that region, we're really winning for a number of reasons. Firstly, fully vertically integrated. We're a large portion of our competitors outsource parts of their business. We still do all of it internally. That founder-led culture really helps us within the region. If we have a look at Asia, Asia is our fastest-growing region. If we look at competitors in Asia, most of the competitors are fairly small competitors that are offering basic solutions, where we're the provider that's providing a next-generation platform across the entire region. Then lastly, Europe. We operate in Portugal, Poland, and Spain.
There again, we compete with competitors like Geotab and Powerfleet, as well as a couple of the tire manufacturers that have bought local telematics companies.
Well, perfect. So, I appreciate the overview. I think one of the, you talked about some of the value proposition and how you've been able to gain significant share in some of the regions being a later start to market. Maybe talk about the differentiation in terms of a vertically integrated strategy. What does that mean in practice? How has that been a differentiator for the company?
So if we have a look at the vertical integration, firstly, we own the whole tech stack. And the tech stack these days is about improving a customer's business, improving safety for a customer, and at the end, you're solving a customer's problems and saving the customer's money. The vertical integration means we really own the customers. And this is, we see other customers outsourcing various sections of their business. This could be sales. It could be customer care. It could be collections. We own the full value chain of the customer, and that ensures that we also make sure that we keep the customer stickiness because we keep them happy through the entire value chain.
So, maybe, Paul, for you, accelerating growth results last quarter. Richard talked about 20%, but that's kind of a pretty market acceleration versus where you've been. You talk about this idea that your rule of close to, I think, 50 on the last quarter's print, which is pretty unique in this market in terms of some of the kind of opportunity ahead and what's kind of sustained this kind of level of growth, like, where do you see kind of the biggest opportunity for you to kind of continue to invest across some of the geographies or whether it's on a product basis? Where's kind of the focus on the addressable opportunity?
Sure. So I'll take that question. Just to level set on some of the numbers in FY25, our growth, subscription revenue growth was 15%. We guided to 16% to 21% for FY26. In Q2, we're at 20%. So we're showing a good acceleration year over year, 500 basis points year over year acceleration. And, you know, we're very happy with those results, but obviously would like to grow even faster. I think when you think about our growth, we are, there are a few things that are driving it. I think first of all, in South Africa, we're very focused on hiring people. So we have sufficient capacity with our sales teams to grow both subscribers and to sell newer products, which are Cartrack Tag and Video, to our existing customers in South Africa.
So in South Africa, you are getting some growth from both subscribers, which grew at around 15%, and then there was an ARPU uplift from selling those other products that are installed on our existing customers in South Africa. We're happy with those results, but we're in the early stages of cross-selling those products to our existing customers. In Asia, we're very focused on hiring again to expand our footprint. Asia's about 20% of revenue. It's our fastest-growing region on a constant-currency basis. I think we're growing on a constant-currency basis in the mid-20s. We said that we plan to increase our headcount in Asia, sales headcount by 70% year over year. So we're obviously very focused with that.
And then the growth rates in Europe are healthy, low 20s, and we operate in three countries in Europe, and we're very focused on expanding our footprint there.
A lot I'm probably gonna hit on from that answer there, but maybe just sticking in the hiring aspect. You don't hear a lot of companies talk about 70% growth in sales hiring, especially in this backdrop, but you're in a position with kind of significant cash flow. What do you see in terms of the opportunity that's kind of behind the 70% growth in Southeast Asia? And it's a pretty big growth target, I think, in South Africa as well. And then kinda what's been the progress to date on some of those hiring targets?
So in all the regions we operate, even outside Southeast Asia, we see massive potential. I mean, all the geographies have the potential to expand. We said, we told the market we wanted to target about 70% sales headcount growth within Asia. At the end of quarter two, we were at 38% growth. So we're on track. We're getting there. Our long-term logic behind the growth is that if we can get to 70% growth in our sales headcount, our revenue numbers can jump up to the mid- to high-20s%, and that's really what we wanna target going forward. So the progress is really good within Southeast Asia. I mean, we're gonna continue at growing that headcount 'cause the potential is there in all the regions we operate.
I know there's a little bit of a ramp associated when you bring on a new hire, but how has productivity been tracking for that kinda 38%?
So it is a challenge. The new hires, there's a constant focus of taking those new hires, training them, getting them to the customers, getting them to understand the product. So, the numbers have been higher, but there has obviously been some staff churn along the way, to keep the quality up. For us, we've always said that we wanna grow as fast as we possibly can, but we don't want to waste too much money along the way. We've always been a company that's focused on sustained growth and sustained capital allocation.
I guess just sticking with this for besides hiring and the amount of boots on the ground kinda selling the product, are there any other gating factors of growth that you've kind of experienced in some of the core geos like South Africa or Southeast Asia?
So sales has always been the challenge because what we found is the salespeople are, I would say, the most challenging staff to hire. It's much easier to hire a customer care or tech support role than it is to hire a salesperson. A salesperson needs a uniqueness of being able to go and deal with a customer. And we found that if we can get the salespeople in line, the other region, the other departments will follow and grow accordingly.
Yep.
That's truly been the strategy.
Okay. So I wanna shift gears to the video-based safety. You talked that's a big focus, especially in kinda the core geo of South Africa. That's something that's still early days today. So maybe talk about where it stands today. And it's something in the U.S. and North America, there's a lot higher penetration while still being earlier days. What is the value prop in kinda your core geos the same as what people might be used to here in the States?
So if we compare the product to what Samsara is offering, we're competing in the same space. The technology and the features are very similar. If you have a look at the video offering three to four years ago, we were selling at a very high cost. It would cost a customer a couple of thousand dollars to buy a solution. The cost of that hardware has dramatically plummeted in the last couple of years. So that opens up a lot of opportunities, and we've seen a big take on the video AI. Lots of customers are using it. And before the penetration was more in an enterprise market space, we've seen the SMEs have started to adopt the video solutions at an accelerated rate.
Yeah. I'll just add that, you know, we're excited about video. Video has a really positive impact on ARPU. So there's usually a two- to four-X uplift at a similar operating profit margin as our conventional offering just because we have the same approach, in terms of pricing where we're looking at the cost of the hardware, the installation costs, the customer service, the data costs over the lifetime of the customer. And then we're actually trying to derive a 40% operating profit margin from that customer. You don't see that 40% margin in our IFRS financial statements just because of misalignment with some of the expenses and the long-term benefits of the revenue. But if we stopped growing tomorrow, you would see our margins go from, in Cartrack, from 30% range to close to 40% because of that.
So the two- to four-times uplift, pretty significant. I guess in terms of the outlook for this year, maybe just for starters, you've framed this idea that you can increase ARPU, which hasn't really been the historical focus for the company, increase ARPU on an aggregate basis by kinda close to 10-ish%. How does what else play into that besides the cameras? Is the asset tags? I know price tag.
So the asset tag is a second part of the recipe. So the asset tag is a new product that really focuses on asset management. We've got customers that are monitoring any kind of industrial equipment. That starts from generators to cranes to compressors, and customers really need to know where's the equipment, what is it doing, how productive it is. So both of those areas have added uplift within the sales area. What we've also found to some degree that the new hires, we're taking our new hires, we're pushing some of them into the upsell, some of them into the greenfields opportunity because the effort to sell to an existing customer is slightly lower because you've already got a contact, you already have the lead, you just need to convince them about the new technology.
And especially we found the younger salespeople are very good at promoting the AI and the, you know, the tech type technology.
I just like to clarify one thing, that 10% is a goal in South Africa.
That's correct.
So on a consolidated basis, it's more like 6%, give or take. In Q1, we were probably running behind, you know, at 2%. In Q2, we made a lot of progress. We're at 4%, so now we're kind of on track with driving that 6% on a consolidated number.
Good clarification. Make sure we don't cause any confusion on the market from this.
Okay. So just on sticking with video safety and asset tags, there's this idea that, hey, there's a lot of the market. You talk about 40% of the market in South Africa, but it's 60% that you don't have. How do you feel about video safety or asset tags being kind of a tip of spear solution? Maybe it's your inroad to those customers you don't have for the core telematics.
Is that something that's a focus area or just really all back-to-base motion?
I think it's a little bit of everything. There is some of the newer customers that see the value of the AI telematics. And as the market perception grows and as we advertise and people understand about the technology, the reality is two years ago, it was technology that no one really understood and it was new. And people are not always easily to adopt new technology. Whereas we've seen now, it's a common technology. People understand, people can see the benefits, and that's really helped us grow that business case. And if you look at the asset tracking tag, traditionally, most customers had a wired product. This is a product that is totally wireless, totally battery operated, and has a long battery life.
So you take the device, you attach it to your generator, and for the next five years, you've got monitoring on your generator or your specific asset. So lots of customers where they had maybe only vehicles that Cartrack was servicing. Now there's this additional segment within their business that we can now support them on. And there's even some customers that are only using the tag to monitor their various assets. You know, for example, a tool hire company. We've got tool hire companies that rent out cement mixers to home industries and things like that. Now they don't have vehicles, but they have all of this equipment that now they can very effectively monitor. And that's really added value and new industry segments for our salespeople to target.
Got it. I kinda wanna talk, pivot, and maybe talk about some of the geos specifically, and maybe just starting with Southeast Asia. You're in several of the countries there. Obviously, from a population standpoint, I think we all can comprehend how large it is from what probably is a vehicle TAM, a population TAM. What is it about those geographies that's been so exciting for you to kind of put more dollars towards? How does it look like from a penetration standpoint relative to where South Africa is or some of your other core geos today?
I think everywhere in Southeast Asia is very under-penetrated. But the success in places like Indonesia, where we've launched the AI video, we've had customers, bus companies, for example, that really have adopted the technology quickly. And I think within these regions, the adoption is gonna be very fast. We've seen a virtually exponential growth in the last year of customers trying this technology and wanting to try it. And this crosses all the geographies in Southeast Asia. If you have a look at all the, I would say, the large operations, whether it's Thailand, Philippines, Indonesia, there's a hunger for technology and solutions that help improve their businesses.
Yeah. I'll just add quickly. I mean, there's data out there. The US market's probably, you know, give or take 50% penetrated. Europe's probably 30% to 40%. South Africa's 35%. Asia, where we operate in Southeast Asia is kind of immature. So the penetration rates are much lower than the other markets. And obviously, they're all moving higher over time, just at kind of different trajectories. Yep.
Is there an aspect, in Southeast Asia in particular where the idea that some of these customers were locked up a little bit longer? I mean, so it's funny you're still talking about the pandemic. It feels like it's been a long time ago. But what would you attribute kind of that accelerating growth? Is that execution? Is it the hiring results from the Cartrack side?
Is it this customer, really kind of emerging from what was a longer lockdown period than what we experienced here in North America? What do you think are the biggest factors of why so hungry now for some of this technology?
I think in the last year, the aggressive marketing that we've put in place and the expansion in the sales team has really helped. It's really about getting to a customer, educating them about the products and the potential. And the reality is lots of customers don't always immediately adopt the technology. And then coming back around and recircling those customers and going back to them and showing and saying, you know, you're in the logistics industry and your competitor, this is the kind of benefits they've got. And we are very focused on a use case model where we can say we've got a customer that is in cement industry, within the F&B industry, within the baking industry. And we provide those use cases that our salespeople can go to a new customer and say, you customer, do this. You deliver water.
When you deliver water, the challenges are A, B, C, and D. This is what your competitors. This is how we've solved it with your competitors. How can we help your business? And we found this is a very successful way of targeting those new businesses, especially the ones that might not always be as technology savvy as they should be.
So you kind of alluded to this earlier, but three geos in Europe, Portugal, Spain, and Poland. You're not everywhere in Southeast Asia right now either. Like, what does it take? What do you look at when you're expanding to new markets? How interesting is going into more geographies from here, whether that be Asia or Europe?
We have said in the past that in the next year or two, our focus is to slowly look at new geographies, but not go into any unless we've really looked at it and really see the value. We've got such an opportunity within all the markets we operate that we're gonna focus where we are. Vietnam was a recent addition where we started trading during this year. So that's obviously next on our radar to grow. But new regions can take weeks to months to get them up to scratch, to get them synced with the culture of the business, and to get all the systems ready for the localization within that region. And then we scale accordingly.
But going forward, our core focus in the next six months is take our regions and grow them as aggressively as possible.
Yep. No shortage of growth where you are given the penetration on video and tags, even in particular. Okay. So we kinda hit on some of the growth drivers. Obviously margins here are already at 30% GAAP even margins. What's the right way to think about kind of investment posturing given some of this growth opportunity in front of you? You talked about the unit economics on a per customer basis closer to that 40% level. What's kind of the give and take investors should expect as you accelerate growth? And then where could it be from a long-term perspective?
I mean, first I'll start off by saying the company's always grown, with the focus on profitability and the focus on very strong unit economics.
Even kind of on this trajectory of accelerating growth, we've been generating very good operating profit margins at good unit economics. Just so we level set with the numbers, we guided to 16% to 21% growth, which is an acceleration, then we guided to 26% to 31% operating margin for the year. So you kind of see the potential impact on acceleration on margins. In Q2, we're at 20% growth and 29% operating profit margin. So we've been at the high end of that range. It's possible that margins come down a little bit in that range, as we accelerate growth the rest of the year. We'll see what happens as we execute, but generally, you know, I wouldn't expect margins to expand beyond the 30% range.
We are on this journey of improving the growth rate, and when we do that, there is a trade-off with margin over the short term. Once we normalize at a higher growth rate, you know, we should see margin expansion back to the 30% range, but as long as we're growing kind of in the range of where we're growing, I wouldn't really expect margin expansion, and again, if we'd stop growing tomorrow, then margins would expand to close to 40%.
We're already talking about, at the scale revenue scale today, 30% EBITDA even margins is already probably above anyone, and you'd look at it in the pure comp sense, so
yeah, I mean, the combination of top line growth and operating profit margin is very unique for any company and especially a small cap company.
We're very proud of that.
Okay. In terms of uses of cash outside of kind of back in investments back into the business, you have had kind of an annual dividend, a special dividend. What's the right way to think about uses of cash from here? You do put up a lot of cash even after all these growth investments.
We generate cash, but our biggest priority from a capital allocation perspective is really investing in our own business, investing in product innovation. That is our primary focus. We would like to grow. We would like to grow faster. To the extent that we cannot grow with good unit economics and generating good profits, we do generate excess cash. Currently, we pay that out in a dividend. We do an annual dividend.
I think if you've looked since we've been listed on NASDAQ, we paid out the vast majority of free cash flow in the form of a dividend. So that's the second priority: returning cash to shareholders. We don't like to hoard cash. And then third, we do look at M&A opportunities. We look at things that would augment our tech stack and more importantly, probably provide us access to additional geographies, countries. But we have a pretty high bar in terms of M&A. Again, we generate 30% operating profit margins. So something has to be very attractive from a strategic perspective and just an overall impact on the strategic direction of the business and contribution in terms of opening up a market for us to think about it because we like investing in our own business.
That's kind of our priority for now.
Maybe just, we'll hit on the last acquisition you did make. It was a pretty small tuck-in. It's grown nicely has since you bought it, Karooooo Logistics. Maybe talk about what you saw in that asset, what it does, and kind of how you view kind of the strategic rationale for owning that business.
So Picup was already a partner with us in a supermarket chain. And at that point, we really already providing various software and logistics services to the supermarket. And we really believed, and I think this is most probably the most important part of the acquisition, we really believed in the people who were running the business at that point in time. They had a right, they had the right stuff. They knew what they were doing. And we gelled with them.
And it was really about acquiring someone where we could see the potential. So at this point in time, they're growing nicely. They've got the largest supermarket chain in South Africa, the largest pharmacy chain where we're assisting with the last mile delivery. And we've also had various F&B outlets that have started to come onto the platform, really in the POC phase. So the potential for growth is there. At this point in time, the tech stack has been merged or is being merged with the Cartrack tech stack to make one tech stack, long-term. And long-term, we're going to then offer these services outside South Africa. At the moment, the Karooooo Logistics is offered solely in South Africa.
Is that something that, it, it's near-term enough that you've kind of started talking about when that could be available in Southeast Asia or it's just more over?
No, we haven't given dates yet. We are very focused on growing that business and learning as much as we possibly can. When we, because South Africa is sort of our home territory, it's quite easy for us to understand the market. We don't want to go into another market and not understand what to do. So it's in the research phase and it continues to grow in South Africa. And the last quarters have been really good. And we think it was a great purchase. And it's really done well for us.
I think there's still work to be done on the tech side, before we can take it elsewhere. So we're focused on that.
Okay. Let's see if there's any questions in the audience. All right. So one of the things that's been a trend in the industry that you've participated in some is kind of some of the OEM partnerships. How do you, how strategic are those in terms of building out more of them? How much time do you guys spend in terms of trying to get further upstream in your software and your hardware into some of these OEMs?
So it's a significant effort. However, it's also very early days. What we've learned from the OEMs is they're very much in a consolidation mode at the moment. So at this point in time, I think we recently announced we've got 20 OEMs we are working with. And we've seen some significant business come from them.
But the OEMs are still very much in their first year or two of their telematics space. Certain data that we get from them is still very basic and they're growing. But the long-term potential is there. That's why we can see it. For us, it enables us to grow quicker. The sooner that the OEM's technology is up to the standard of a normal telematics device that we make, it's gonna make onboarding for us a lot quicker. It's gonna make us our ability to grow a lot faster. And that's really what we're waiting for. So I don't think we're gonna see significant movement in the next sort of six months. We have started to deal with some of the Chinese OEMs within the Southeast Asia space. The BYDs and those manufacturers are quite common. So we're busy working with them. But the potential is there.
But it's also an early stage investment and it's an early stage opportunity.
Yeah. Obviously, a brand like that has very high penetration in Southeast Asia and in Africa as well. So it'd be a good. So how, when you do contract with the 20 OEMs, how often is that just in a particular geo versus the ability to kind of take them globally?
Most of the OEMs have started in one or two areas. So the traditional more European brands, if you take the Stellantis, Mercedes, have really only focused on Europe and they're only moving to other Europe. And they've just started in North America, but North America I'm excluding 'cause we don't operate there. And they've just started to expand into other regions. They, to some degree, are going there, but they're not very aggressive at their expansion rollouts.
And they expect to cover the world in two or three years. So it's gonna take time. Our focus is to grow with them in the regions they operate. So, I mean, the European manufacturers are very much focused only in Europe at the moment and don't have options outside of there. But for example, the BYD is a much more global player. And we would see them within the Southeast Asia and Africa market where we see them less within the European market.
Got it. Maybe coming full circle before we wrap, but within the kind of the growth algorithm that you laid out, the 16% to 21% subscription growth this year, you talked about getting maybe 6% blended ARPU growth, which is a new motion for you. I think historically there hasn't really been much there.
What do you see as kind of the right balance over that long-term growth horizon? You've talked about trying to get even above 20. I know this is the first step here, but what's that balance between back to base versus the new, new customer opportunity kind of looking more over a two or three year period?
I'll, I'll take that one. I mean, if you look at our results, in Q2, there was a modest acceleration in the subscriber growth. And then, I think it was like 150 basis points. And, you know, that really reflects our strategic decision to focus on selling tag and video into our existing customers in South Africa to cement our leadership position in South Africa. We're very focused on expanding our sales capacity. But we're, we're constrained in terms of, head counts.
We're still building the muscle to adequately focus on subscriber growth and tag and video to the extent that we want in terms of the growth rates. So as a result of that, you know, we are heavily investing in sales capacity. I think the investments in sales capacity should see a positive impact on the subscriber growth number in 2027. And then, you know, we're still early stage in terms of selling video and tag into our existing customers in South Africa. So, you know, we're optimistic that ARPU trends could be healthy as well.
So multiple years behind that.
Yeah. We don't know what the exact penetration rates will be, but we're early in that cementing our leadership strategy, which is focusing on tag and video.
Okay. Maybe just in time here, we'll wrap up with this one.
But in terms of the investor conversations today or post-quarter or this year, if and like, what do you feel like is still the most underappreciated aspect of the Karooooo story? And is there anything that you see in your horizon that might change that in kind of calendar 2026?
I'll take that one quickly. I mean, I just from a very big picture perspective, I don't think people really appreciate the uniqueness of our financial profile. 20% growth, 30% operating profit margin. There's just not that many large cap companies, never mind small cap companies that have that financial profile. So I think that's still really not well appreciated by the market and understood.
I think in terms of you, if you're looking kind of at more tactical things around our results. I just talked about how we're focused on selling tag and video into our existing customers in South Africa to cement our leadership position there. We think that's important from a long-term health of the business perspective, and I think people are overly focused on the modest acceleration in the subscriber growth, and they think that's a reflection of macro headwinds or TAM becoming penetrated. That's just not the case. We don't see macro headwinds in the business, and we don't think the TAM is penetrated, and then the other one, minor thing is, I think some people think that video is margin dilutive to the business, but the video generates operating margins similar to the conventional business.
Yeah, well, great.
Richard and Paul, thank you for joining us today. Thanks to everyone in the audience. Thank you for hosting.