Karooooo Q1 Earnings Call Highlights

Key Points

• Karooooo posted a strong Q1, with total revenue up 22% to ZAR 1.56 billion and operating profit up 16% to a record ZAR 410 million, despite pressure from a stronger South African rand.
• Subscriber growth accelerated sharply, with Cartrack topping 2.8 million subscribers and delivering a record 142,472 net additions, led by a 92% jump in South Africa net adds.
• Management reaffirmed fiscal 2027 guidance for accelerating subscription revenue growth and healthy EPS growth, while noting that sales and marketing investment will continue but at a slower pace than in fiscal 2026.

Karooooo NASDAQ: KARO reported a stronger start to fiscal 2027, with management highlighting accelerating subscription revenue growth, record subscriber additions and record operating profit despite foreign exchange pressure from a stronger South African rand.

Carmen Calisto, Chief Strategy and Marketing Officer, said Cartrack subscription revenue grew 19% in the first quarter, or 21% in constant currency. Annual recurring revenue increased 19% to ZAR 5.43 billion and rose 22% in constant currency. In U.S. dollar terms, ARR increased 32% to $335 million, according to the company.

Karooooo said total revenue increased 22% to ZAR 1.56 billion, while total subscription revenue rose 19% to ZAR 1.35 billion. Operating profit increased 16% to a record ZAR 410 million. Earnings per share rose 11% to ZAR 9.53, Chief Financial Officer Hoe Shin Goy said.

Subscriber Growth Accelerates, Led by South Africa

Management said subscriber growth accelerated to 18%, with Cartrack surpassing 2.8 million subscribers and delivering record net subscriber additions of 142,472 in the quarter. Calisto said South Africa was the primary driver of the stronger performance, with net subscriber additions in that market rising 92% to 113,913.

South Africa subscription revenue increased 24%, an acceleration from the prior quarter. Calisto attributed the performance to recent investments in sales capacity and demand for video solutions and Cartrack Tag, including the sale of Tag as a standalone product.

During the Q&A session, Founder and Group CEO Zak Calisto said the company sold “a tremendous amount” of Cartrack Tag as a standalone product, while also selling the product into its existing customer base. He noted that Tag carries a much lower average revenue per user than the company’s overall average, but said it has opened a new market opportunity.

Asked whether Cartrack Tag would expand beyond South Africa this fiscal year, Zak Calisto said the company remains focused on the South African market for now. He cited the challenge of growing and training headcount and expanding distribution capacity.

Regional Results Reflect Currency and ARPU Mix

In Southeast Asia and the Middle East, subscriber growth increased 22% to 353,000 subscribers, with most subscribers in Southeast Asia. Subscription revenue in the region increased 6% as reported and 17% in constant currency. Management said reported revenue growth was affected by faster growth in lower-ARPU countries and by the stronger rand.

Zak Calisto said the company expects regional ARPU in Asia to decline over time as Indonesia, Malaysia, the Philippines and Thailand become larger contributors to the business, compared with Singapore, where Karooooo first entered Southeast Asia and where ARPU is higher.

In Europe, subscriber growth increased 13% to 236,000 subscribers, while subscription revenue rose 7%, or 13% in constant currency. Calisto said the company continues to expand its customer base and distribution capabilities in the region, including through partnerships with leading OEMs that allow connected vehicle data to be integrated into the platform through APIs. She also cited demand for the company’s compliance technology as customers respond to changing legislation and enforcement.

Margins, Cash Flow and Capital Allocation

Karooooo said Cartrack’s operating profit margin was 28% in the quarter, while its adjusted EBITDA margin was 45%. Management said the company was a “rule of 60” business in the quarter when adding Cartrack subscription revenue growth of 19% to the adjusted EBITDA margin.

The company reported a subscription gross margin of 73%, above its full-year guidance range of 70% to 72%. In response to an analyst question, Zak Calisto said management prefers to provide guidance it believes it can meet, and said it would be prudent to maintain the 70% to 72% range given the ramp-up in customer acquisition.

Goy said free cash flow was ZAR 60 million, primarily reflecting proactive investment in IoT devices to meet anticipated demand, as well as growth-oriented working capital investments. He said the year-over-year decline in quarterly free cash flow did not indicate a structural issue with the company’s ability to generate cash, but reflected investments to support growth.

Karooooo ended the quarter with net cash and cash equivalents of ZAR 756 million. Management noted that excess cash is held in U.S. dollars, so movements in the dollar-rand exchange rate can affect the reported rand balance. The company also declared a dividend of $1.5 per share, a 20% increase from the prior year.

Logistics Segment Continues to Grow

Karooooo Logistics, the company’s delivery-as-a-service business, generated revenue of ZAR 177 million, up 46% from the prior year, or 63% in U.S. dollar terms. The segment reported an 8% operating profit margin.

Calisto said quick-commerce orders drove the segment’s performance. Management described Karooooo Logistics as strategically important because it helps large enterprise customers scale through a capital-light model while increasing customer retention and giving Karooooo insight into customers’ operational and logistics challenges.

Outlook Reiterated as Sales Investment Moderates

Management reiterated its fiscal 2027 outlook, saying it expects accelerating subscription revenue growth at the midpoint and healthy earnings per share growth. Goy said the company expects sales and marketing expenses to continue increasing during the year, but at a lower rate than in fiscal 2026.

Calisto said Karooooo is focused on optimizing the sales capacity investments made during fiscal 2026 while expanding its distribution footprint at a more moderate pace in fiscal 2027. In the Q&A session, Zak Calisto said the company onboarded close to 2,000 people in the prior year and wants to improve salesforce efficiency while preserving its culture.

Asked about the sustainability of record net subscriber additions, Zak Calisto said Karooooo does not provide subscriber guidance because it wants flexibility to shift between expanding distribution and cross-selling to existing customers. He said the company expects to focus more on cross-selling over the next three quarters after pursuing greenfield opportunities in the first quarter.

Management also highlighted early-stage adoption of AI video products. Zak Calisto said video adoption is currently about 5% of the company’s full base and that Karooooo sees a long runway to increase penetration.

About Karooooo (NASDAQ:KARO)

Karooooo Ltd is a global provider of telematics software-as-a-service solutions for vehicle and fleet management. Through its flagship platform, the company delivers real-time GPS tracking, stolen vehicle recovery and driver behaviour analytics, enabling commercial fleets and automotive insurers to optimise operations, increase safety and reduce costs.

Karooooo's SaaS platform integrates proprietary hardware devices with cloud-based analytics and mobile applications. Customers gain access to live vehicle location data, engine diagnostics, route planning tools and customizable reporting dashboards.

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