Here at Raymond James. Very pleased to have Karooooo again with us here this year. We've got Richard Schubert, who's the Chief Operating Officer, and Paul Bieber, who's the Vice President of IR and Strategic Finance. They're gonna run through some slides and a presentation to start, and then we're gonna come up here for a little fireside chat at this time. At the end I'll open up to the audience for questions. Richard, Paul, take it away.
Okay. Thanks, Alex. Appreciate the invite and the great day we've had here. Who is Karooooo? Karooooo is an operational intelligent platform for connected vehicles and other mobile assets. Our platform really helps fleets and field workers, and provides video telematics API, improving customers' productivity, and safety within their specific environments. We're still a founder-led company with a very strong track record of very disciplined capital allocation. We have a growing subscriber footprint. Currently, our subscriber footprint is 2.6 million subscribers, and these subscribers are in South Africa, Southeast Asia, and Europe. If we have a look at some of the numbers, our ARR has increased 28% year-over-year in dollar terms at $298 million.
We have a look at the customers we're supporting, we're supporting 125,000 commercial customers. This is with about 7,500 employees, it's in just about 24 countries. I think two of the other important metrics to understand is we have a 95% commercial customer retention rate across our customer base, we've always had a very strong LTV to CAC, which has been over nine for a large number of years at this point in time. If we have a look at Karooooo, there's two specific verticals that we separate the reporting into. The first is Cartrack. Cartrack is our operational management platform, Karooooo is our delivery -as -a -service.
If we have a look at Cartrack, the subscription revenue for Q3 was at $72 million. That was a 20% growth in USD. We also have a Q3 operating profit of 28%. Looking at Karooooo Logistics in comparison, it's a much smaller part of the business. It's delivered $8 million in Q3, which is a 31% growth, and it has a 7% operating profit margin. If we roll this up into a group snapshot, the total revenue is up 22%. Here in a, on a ZAR 1.4 billion number. Subscription revenue also increased within the last quarter, up 20%, ZAR 1.23 billion. Our operating profit across the group sits at 14%, making ZAR 369 million.
Sorry, an increased 14%.
Increased. Sorry, increased 14%. Our subscriber numbers have also up 16%, and we ended on 2.5 million subscribers at the end of Q3. We have a very rare financial profile. If we compare ourselves to other small cap companies that are listed, we're one of a few companies that exceed the Rule of 50. What are we really doing? We're providing a large number of services to very different industries. If we have a look at the industries we're servicing, there's very common industries where that ranges from mining, to cold chain, to logistics, to taxis, to public sectors. You can see there's a wide variety of solutions and offering that we give to these customers.
A large portion of these solutions include improve the productivity of the organization, but there's also quite a few that focus on safety. These systems are very heavily integrated into customers' ERP and third-party systems. The benefits that one customer gives is different to other customers. As a sort of a logo comparison, if we have a look across the world, these are sort of our common logos that we see in different regions. You'll see that there's various types of companies. There's pharmaceutical companies that are using us for their last mile delivery. There's supermarkets that we help with last mile delivery. There's also a very diverse variety of companies.
You'll see food and beverage, logistics, agricultural companies, refrigeration companies, cement companies. Any kind of company that needs to improve their operations is a potential Cartrack customer. Why we win, if we have a look at a couple of options here. The most important thing for us is providing a very feature-rich platform. That feature-rich platform is the key to our success. The other important parts of the business is we're fully vertically integrated. That means that we have every single salesperson is a Cartrack salesperson. Every single installer works for us. The entire business processes are all managed internally.
That makes sure that we get the best value for customers and the best quality. We also have a very strong customer care, customer service philosophy, and this is why we're keeping the customers in the geographies we operate. We're still very founder-led, and we have a very entrepreneurial culture. We have a look at the areas we operate, South Africa is still about 70% of the revenue generated. We compete with customers like Powerfleet and Geotab, which are, common North American competitors. There's a couple of local competitors, Netstar, Tracker, Ctrack. Within Europe, it's a very similar landscape where our main competitors also Geotab and Powerfleet.
We have a couple of local providers as well. Asia is the real different area. Within Asia, it's a highly fragmented business where we don't have a single regional player. We're the regional player. All our competitors are very localized in that market.
Sorry. This is like that way. Excuse me. As you can see, last quarter we delivered very strong results. Our subscription revenue increased by 20%. Our operating profit increased by 14%, and EPS was up 11%. This is very. I think these results are very strong, especially considering the significant investments that we made in sales and marketing in Q3. Our sales and marketing was up about 46% in Q3, so a lot of investment in increasing our sales capacity in South Africa and in Asia. Despite that significant investment, we still managed to drive healthy operating profit growth and EPS growth.
The strong performance of the company is really driven by the revenue momentum at Cartrack. Cartrack revenue was up 21%. Subscription revenue was up 20%. This is very much a SaaS model. Subscription revenue was around 97% of total revenue in Q3. In terms of dollar ARR, we're approaching about $300 million in ARR. That was up 28%. In Q3, in ZAR or rand, it was up 22%. I believe there's a slide further on, what's noticeable about the ARR is we've actually accelerated our ARR growth for the last four quarters. We're very proud of that, of the kind of journey of acceleration that we're on.
As I mentioned, we invested heavily in sales capacity over the last couple of quarters. I mentioned the 46% increase in sales and marketing. The benefits of that are starting to show up in our financials and the metrics. As I said, we've accelerated our growth over the last couple of quarters. We've also delivered record net subscriber additions in Q3. The record net subscriber additions really reflects the strategic investments in sales capacity and also success selling some of our newer telematics hardware, video, and Cartrack-Tag. As I mentioned, we're on a journey of acceleration. If you look back to FY 2025, our growth was around 15% in terms of ARR growth.
We've steadily marched that up, 17%, 18%, 20% and last quarter is 22%. We're seeing the benefits of our investment in sales capacity in South Africa and Asia. We're also seeing the benefits of starting to cross-sell some of our newer telematics devices, tag and video, to our existing customers in South Africa, and that has driven some ARPU expansion. We have a very strong track record of free cash flow generation. Our founder and our CEO bootstrapped the company, so there's always been a very strong focus on profitable growth and unit economics. You could see that in the consistent free cash flow generation in FY 2023, 2024, 2025.
This year you could see the growth rates in terms of the free cash flow year -to -date and in Q3. Healthy free cash flow generation. Again, what's interesting, we've been able to maintain this healthy free cash flow generation while accelerating our growth. As I mentioned, Q3 ARR increased 22%. The quarter before was 20%. The year before was 14%. We've accelerated our growth while maintaining healthy operating profit margins and while generating healthy free cash flows. This all reflects our strong track record of disciplined capital allocation. You could see on the left some of the earnings highlights.
We've kind of mentioned some of them. I'm gonna go through this pretty quickly so we get to Q&A. In terms of key investment highlights, we think we're very well positioned to drive profitable growth given our efficient unit economics and expansive TAM in front of us. We have a strong track record of free cash flow generation and capital allocation. Right now, our number one priority is growth. We've reported four consecutive quarters of ARR growth acceleration, so some of the investments you see the benefits of some of the investments actually showing up in the numbers. We have a very compelling financial profile.
Richard touched on it in terms of the Rule of 50. The slide previous benchmarked us against about 150 SaaS companies, and that was basically adding our the revenue growth with EBITDA margin, and it's essentially a GAAP EBITDA margin. We don't have any stock-based comp, so we're not adding back anything in that benchmarking analysis. Very unique financial profile in terms of Rule of 50 versus those other companies, but we're actually a Rule of 60 company in Q3. Differentiated enterprise-grade platform, big focus on innovation and continuously rolling out new features to our customers. Obviously, we have a very proprietary data asset that we gain from installing hardware telematics devices onto assets and vehicles.
Then we maintain them, and that data asset that we've been collecting for 20 years in more than 20 countries, it's a very big moat for the business. Founder-led business operating a large TAM and very strong track record of disciplined execution and cash generation. Went through that pretty quickly so we could leave time for Q&A. Great. I'll just say, thanks Alex, for hosting us.
Oh, yeah. Well, thanks. You gave a lot of stuff. You showed industry, you showed your geographies. Maybe just help level set what an average customer looks like, in terms of how they're utilizing Cartrack or Karooooo today. What's their vehicles, what's their fleets look like in general? How should we think about kind of an average customer?
Okay. Let's take a practical example from a practical F&B customer. A customer that is delivering goods. A typical customer, we would have a customer that would have a set of vehicles. In the morning, we would pull that set of jobs from their ERP system. We would optimize those deliveries and give all of those trucks a specific delivery path to make sure they're optimized and delivered the shortest possible route. Those jobs are given onto digitalized tablets for each driver. Those drivers have the ability to do inspections on the tablet, do the sign on glass, and manage the entire job process. We monitor the vehicles as they leave the warehouse and go to the customer.
Along the way, we're using telematics to monitor the health of the vehicle, make sure there's no breakdowns or no issues. We're also using cameras to specifically monitor the drivers, make sure the drivers aren't fatigued, the drivers aren't using their cell phone, and actively making sure that that trip is safer. Once the customer arrives, once the vehicle arrives at the customer, obviously the digitization allows for sign on glass and proof of delivery. The vehicles are pushed back to the warehouse, for example. We also integrate back into the warehouse systems and report when those vehicles are arriving to prepare that warehouse for the next set of deliveries.
A typical customer like that might, for example, we've got use cases that they would have 1,500 vehicles. We could typically, out of 10,000 deliveries a day, save the customer at least 15 minutes per delivery, and that's really a productivity saving. Then there's a safety saving where we can decrease their accident rates over time and improve their fleet metrics.
I kinda wanna dig into that, in terms of the key value props that are driving the acceleration today. Obviously, you hit on some of the sales hiring. In terms of what's catalyzing some of the demand out there, what are you seeing? Are there any regulatory catalysts that have been out there? Is it safety driven right now? Is it still an ROI-based sale? What do you think's been catalyzing the growth acceleration aside from maybe just more boots on the ground?
Most customers want to improve their businesses. They want to effectively make more money, and they want to improve their productivity. Safety is a good byproduct of this in most cases. When a sales guy goes to a customer, the real first point is, how am I going to improve your business? How am I going to decrease your fleet size, improve the performance of your fleet, make sure that your customers are serviced in a faster and better way? That's really the first strategy. Safety in certain cases is critical to customers. The reality is customers aren't gonna just implement for safety unless they're in a very specific zone. They really want to improve the productivity.
There's certain regions where there's, for example, in Europe, there's certain laws about how long you must drive and these sort of fatigue-based monitoring systems where there's regulatory requirements. That helps in a certain number of instances, but the majority of customers are really just looking to improve their fleet's performance.
Just to add on to that, our ARPU is around $10 a month and the cost to operate a vehicle is in the thousands when you take into account the cost of insurance, the cost of paying the driver, the cost of fuel, the cost of the vehicle. We feel very confident in our ability to drive ROI from that $10 a month versus the thousands of dollars that it costs to operate the vehicle. Obviously fuel is a big portion of the cost center for operating a vehicle, fuel is often a easy kind of gateway for our salespeople.
You know, there's lots of tailwinds in the market generally with video right now. We have a very rich feature set and it's really incumbent on us to show the customers how we could help them be more efficient and save money and we're confident that we can do that.
Obviously a lot earlier on your video journey than kind of the broader telematics footprint that you have in the installed base. How do you think about big picture the ability for the ROI around that video safety product? Obviously here in the US, we obviously see a lot of insurance savings around the accident reduction a lot of these businesses key one. How do you think about the ROI value prop of the video product as you're rolling it out now versus where it's traditionally been for your core product and how does that kind of impact how you think about monetizing and pricing of that solution?
I think the video product has a big benefit in most environments. It takes that safety to one extra step. The reality is a lot of challenges with monitoring your drivers is typical things like cell phone usage and fatigued drivers and these solutions give you a relatively low cost solution to monitor this very effectively. I think our path in the video telematics is really only in the last year or two where we've really started to accelerate growth. We're in the, in the infancy. The potential for long term is going to be pretty much where the US is, where at some point in time, the smaller video sales will be pretty much all of the business, but that's gonna take significant time.
Longer term, all the customers that implement the video are seeing big ROIs at this point in time. It was originally the enterprises that started with the video telematics and the AI solutions. With the reduction in costs and the more efficient products, we now for the first, I would say first, last year was the first time where we saw SMEs starting to implement this technology as a prevention. Make sure they know what their staff are doing and limit their risk. If you're a small customer and you have an accident and you lose one vehicle, it's a big portion of your fleet and a big portion of your potential revenue.
Spending $25 or $30 on a video product that gives you very good insights to which of your drivers need training, or potential problems, or could cause you some sort of a insurance claim is a benefit to all customers.
Obviously a really large unit opportunity still on the vehicle side, but you talked about the $10 ARPU. What's a right range for people to think about the video safety kind of uplift relative to kind of where a core customer pays on the telematics side?
The video safety uplift is sort of about 2.5, starting at about 2.5x ARPU what we currently do. Instead of the 10, you know, it's 25 or 30, and obviously in slightly larger vehicles where you have more cameras, and you might want to monitor your cargo and other parts of the vehicle, then there's a little bit more. I mean, the uplift and the benefits are clearly, for that extra 1.5x that you're adding, you know, the benefits really are there.
Yeah. One of the things that's going into the training, I want to kind of pivot and talk about AI. It's obviously a big topic right now in software broadly. You have a massive data asset with all the vehicles that you've collecting data points from daily, monthly, et cetera. There's obviously a lot of data that's going into the safety product, the video product, tracking distracted driving. How should we think about like what your AI strategy is for the products today? Where you think it ultimately can go to over the next few years?
We came a little bit prepared for a different line of questioning, we'll just put that out there so people can watch it while Richard.
I think, at this point in time, we see continuous evolution inside the AI frameworks, specifically on the cameras. You know, these things started very simple and originally detected fatigue drivers, then it became seatbelt monitoring, then it became detecting how many people. As the models and the ability of the AI increases, we're focusing on upgrading the current technology and giving those customers the additional benefits or the additional AI algorithms that help their vehicles. There's really two parts of it.
There's the in-cabin alerting, where it's really taking a driver and then pushing the driver and saying, "You know, you shouldn't be smoking now, you should be doing this." The future is also to take the data of the vehicles or the deliveries and then use AI to provide analytics on top of that, so that you can then see what is the benefits in your vehicle, where you need to improve. You know, instead of having to look at a dashboard, provide a much simpler way to give that data to the customer.
I guess you somewhat answered the next question about where you see some of the biggest moats here. Where do you like, where do you actually feel like that the risk of a new startup or someone else embedding AI technology to maybe leapfrog where they've been historically rests in the model?
Sure. The data's obviously a big moat 'cause we're actually installing devices in more than 20 different countries and then maintaining them over the lifetime of the customer. We have that physical footprint of people across 20 countries doing that. That is a very unique moat. Obviously, an LLM or some kind of agentic solution doesn't have access to any of that data. I think also we're pretty embedded in the workflows and the daily operations of a lot of our customers. We integrate with a lot of their systems, whether it's ERP or CRM or warehouse management systems.
We're— for lack of a better word— the system of record in terms of how companies run their fleets. When you get to the business model as well, we're relatively low ARPU. There's very little incentive for ROI disruption right now, given the low ARPU and the high ROI that we're delivering. We're not a seat-based model. Our model is dependent on penetrating the physical assets in the real world and the growth of physical assets in the real world.
I think when you kind of combine all those factors, we think that we're in a pretty good position. To Richard's point, there are a lot of reasons why AI will be a tailwind for the business as opposed to headwinds for the business.
I wanna talk about growth, and I think one of the things that you've already proven, 30% GAAP EBIT margin is kind of the profitability out. Going back, maybe talk about your sales hiring plans, where you are in those today, how productivity's tracking, and how that ultimately should flow through the model in terms of kind of the growth rates that are embedded in your outlook.
Yeah. I mean, if you look at the in FY 2026, there's been a heavy focus on increasing our sales capacity in South Africa, in Asia, and obviously we've hired a lot of people. You could see those numbers in our sales and marketing investment. I mentioned the 46% in Q3 in the previous quarter. This investment sales and marketing was much higher than our revenue growth. There's kind of been this upward trend of investment in sales and marketing. We're starting to see positive impacts of it. You see the acceleration in AR and revenue growth. We had record net subscribers, as I mentioned during the presentation last quarter.
There's still—given the investment in Q3, there's, I guess capacity that is yet to manifest in the financials or the KPIs. What we have said is that our investment in sales capacity will have positive impact on our subscriber growth in FY 2027. Subscribers last quarter grew 16%, we're aiming to grow faster than that. Obviously, ARPU is currently a tailwind.
Got it.
Did that answer the question?
Yeah.
No.
Richard, there's some European regulations coming through. You're in three main geos right now, I think in Europe. Maybe talk about what those regulations actually mean for the business. How much of a catalyst do you actually think that could be for the industry, and how does that kind of— how does that drive your own ambitions to expand further into Europe?
Most of these regulations in Europe are about driver safety. Effectively, there was previous regulations called tachographs, which were in heavy vehicles. These regulations are slowly moving into all other vehicles. For example, a taxi driver or a traveling salesman can only drive a certain number of hours a day, and these are what these technologies do. This regulation has come into effect within Portugal, and we've seen quite good numbers and increases in the last year that have had benefits in that geography. However, we've also seen that the adoption of these laws in other regions is taking a lot longer than we originally anticipated.
You know, the European Union isn't the fastest at adopting these new kind of laws. In all the regions where we see these specific regulations put in place, it's not really just a benefit from the regulation. We never target and just say, "We're gonna sell you a product that's just going to be to keep the government happy," because when customers implement that, it's very easy for them to switch, it's very easy for them to change because they're just doing it to get the lowest possible product.
We're always trying to focus and tell a customer we provide this regulatory compliance, but we're also giving you all the benefits of increasing the productivity, the last mile delivery, because you have to provide a comprehensive set of solutions to keep the customer engaged and keep them on board your platform.
Okay, maybe just a last one to wrap up. You've been one of the top-performing software names, at least in our coverage over the last year -to -date and last 12 months or so. In all of your investor conversations you've had, what do you think you're most excited about that investors still don't appreciate about the Cartrack story?
I mean, I'll answer quickly, and then Richard can opine as well. You know, I think when you look at our company, it just has a very rare financial profile and a very large opportunity ahead of it. There are just not that many companies out there that are growing 20% with a 30% operating profit margin, and there's no stock-based compensation, so that's a real operating profit margin. Again, our growth's accelerating, and we're very confident in just the opportunity in front of us. You know, we're speaking to investors every day, and I still think there's not enough recognition of just the unique financial profile as a company.
Yeah, I think I'm gonna second that. I mean, we're very proud of the growth we've seen in the last year and the improvements, and I think that really has shown us, we've been able to prove that we've got this long-standing track record of many years now of very competent execution and growth, and that's really where we have to explain that more and make sure that people understand the value that we can bring.
All right. Well, great. Thank you, Richard. Thank you, Paul. Thanks everyone in the audience for joining us.
Thank you very much.
Thank you, everyone. Thank you, everyone, for joining us this afternoon.