Karooooo Q2 Earnings Call Highlights

Key Points

• Subscription growth accelerated: Cartrack subscription revenue rose 20% year over year, or 23% in constant currency, while subscribers increased 18% to approximately 2.9 million. The company added a record 94,516 net subscribers during the quarter.
• Profitability reached record levels: Consolidated revenue increased 22% to ZAR 1.640 billion, and operating profit rose 19% to a quarterly record of ZAR 422 million. Cartrack posted a 28% operating margin, a 71% subscription gross margin and a 46% adjusted EBITDA margin.
• Management maintained its fiscal 2027 outlook: Karooooo expects stronger free-cash-flow generation in the second half as revenue momentum continues and sales-and-marketing investments become more efficient. Demand for video services and Cartrack Tag remains strong, while the logistics segment grew revenue 36% but operated at a lower 6% margin.

Karooooo NASDAQ: KARO reported accelerating subscription-revenue growth and record quarterly operating profit for the second quarter of fiscal 2027, supported by sales-capacity investments, customer additions and demand for its video solutions and Cartrack Tag products.

Chief Strategy and Marketing Officer Carmen Calisto said Cartrack subscription revenue rose 20% year over year despite foreign-exchange headwinds, accelerating from 19% growth in the prior quarter. On a constant-currency basis, Cartrack subscription revenue increased 23%, compared with 21% in the first quarter.

Karooooo, which provides an operational-intelligence platform for connected vehicles and mobile assets, said its platform supported about 2.9 million subscribers across more than 125,000 businesses. The company processes more than 345 billion data points monthly, according to Calisto.

Subscription and subscriber momentum

Cartrack added 94,516 net subscribers during the quarter, up 34% from a year earlier and a second-quarter record, the company said. Total subscribers increased 18% to approximately 2.9 million.

Annual recurring revenue increased 19% on a reported basis to ZAR 5.708 billion, or 22% in constant currency. In U.S. dollars, ARR increased 30% to $354 million. Commercial customer ARR retention remained at 95%, while the company said its lifetime-value-to-customer-acquisition-cost ratio remained above nine times.

South Africa remained the company’s largest market, reaching approximately 2.2 million subscribers. Subscription revenue growth in the country accelerated to 25% from 24% in the prior quarter, marking the seventh consecutive quarter of acceleration, Calisto said. South African net subscriber additions rose 20% to 65,997.

In Southeast Asia and the Middle East, subscribers increased 21% to 367,000. Reported subscription revenue growth in the region was 12%, while constant-currency growth reached 25%, up from 17% in the first quarter. Europe subscribers increased 13% to 245,000, with revenue growth of 4%, or 14% in constant currency.

Calisto said the company plans to maintain a “strong yet prudent” approach to sales and marketing investment in Southeast Asia, which it views as a significant longer-term opportunity for fleet-management and video-based services.

Profitability and cash flow

Consolidated revenue increased 22% to ZAR 1.640 billion, while operating profit increased 19% to a quarterly record of ZAR 422 million, according to Calisto. Chief Financial Officer Hoe Shin Goy said consolidated subscription revenue rose 20% to ZAR 1.480 billion.

Cartrack generated 98% of its revenue from subscriptions and posted a 28% operating margin in the quarter, Calisto said. The company reported a 71% subscription gross margin and a 46% adjusted EBITDA margin. Earnings per share increased 18% to ZAR 9.28, while adjusted earnings per share increased 12% to ZAR 9.28, with Goy citing a higher tax rate and finance expense as factors moderating adjusted earnings growth.

Sales and marketing expenses increased 16% in the quarter, slowing from a 33% increase in the first quarter and 37% growth in fiscal 2026. Management said it is focused on optimizing its prior sales-capacity investments while continuing to expand distribution at a more moderate pace.

Free cash flow was ZAR 41 million during the quarter, primarily reflecting higher receivables and investment in in-vehicle IoT devices. First-half investment in those devices totaled ZAR 966 million, including memory inventory intended to support growth and provide a buffer against higher RAM and memory prices.

Goy said Karooooo expects more robust free-cash-flow generation in the second half following those investments. Cash and cash equivalents were ZAR 649 million at the end of the quarter, after ZAR 752 million in dividends paid in July 2026 and the effect of a stronger South African rand on U.S.-dollar cash reserves. Debtor collection days were 33 days.

Logistics business and outlook

Karooooo Logistics, the company’s delivery-as-a-service segment, generated ZAR 189 million in revenue, up 36% year over year, and recorded a 6% operating margin. The company said quick-commerce orders drove the segment’s growth, while profitability reflected costs related to driver availability and network expansion.

Founder and Group CEO Zak Calisto said management evaluates Cartrack and Karooooo Logistics separately because they have different financial profiles. He said the logistics operation is not asset-heavy, although it carries substantially lower margins than Cartrack.

Calisto said adoption of video-based services is increasing across the company’s markets and that Karooooo is still in the early stages of that adoption. He added that demand for Cartrack Tag has been strong in South Africa, noting that inventory ran out during the first quarter due to demand. Tag and video sales are exceeding the company’s budget for the fiscal year, he said.

Management reiterated its fiscal 2027 outlook, which it said implies accelerating constant-currency subscription-revenue growth at the midpoint and healthy earnings-per-share growth. Goy said the company expects to benefit in the second half from continued revenue momentum, sales-and-marketing efficiencies and a moderately lower tax rate.

About Karooooo (NASDAQ:KARO)

Karooooo Ltd. is a technology company that provides software-as-a-service solutions for connected vehicles, fleet management, and mobility operations. Through its Cartrack business, the company offers vehicle tracking, fleet monitoring, driver safety tools, asset management, and data analytics designed to help businesses improve productivity, security, and operational efficiency.

Cartrack's platform collects and analyzes telematics data, providing customers with real-time visibility into vehicles and other mobile assets.

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