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spk00: Hello and welcome to Carew's financial year 2025 Q2 earnings call. On behalf of Carew, we would like to thank you for joining us today. I'm Carmen, the group's chief strategy and marketing officer, and together with Hu Xin, our group chief financial officer, we'll discuss our Q2 results and key business highlights. Our group CEO and founder, Zach Callisto, will be available for Q&A following our presentation. All investors are advised to read the disclaimer. During the call, we will review both of Karoo's operating units, Kartrek and Karoo Logistics. For those new to Karoo, Kartrak is our operations management SaaS platform focused in Asia, Africa, and Europe. Kartrak operates at scale and has a very attractive financial profile. As of August 2024, Kartrak's annual recurring revenue was 3,990 million ZAR or two hundred and twenty four million u s dollars and car tracks q two operating profit margin was twenty nine per cent historically car tracks operating momentum has driven carew's growth and strong financial performance Karoo Logistics is our rapidly growing delivery-as-a-service business that empowers large enterprises to scale their e-commerce operations and capabilities. Karoo Logistics is a structurally lower margin business than Kartrak, and it is growing rapidly. As of August 2024, Karoo Logistics' annualized B2B delivery-as-a-service revenue was 418 million ZAR, or 24 million US dollars. Given Karoo Logistics' robust revenue growth, we are very excited about the long-term growth opportunity for the business. We are also proud that Karoo Logistics is profitable at its current scale. In Q2, Karoo delivered another strong quarter with total revenue of 1,107 million ZAR, an increase of 16% year-on-year, subscription revenue of 986 million, an increase of 15% year-on-year, and adjusted earnings per share of 7.35 RAN, an increase of 31% year-on-year. Q2 continued our track record of delivering profitable growth at scale. In Q2, we were a rule of 60 company when adding our Q2 subscription revenue growth of 15% year-on-year and our Q2 car track adjusted EBITDA margin of 45%. For the benefit of investors in the U.S., we believe our quality of earnings is high as there is no stock-based compensation in our adjusted EBITDA reconciliation unlike many U.S.-based technology companies. We ended Q2 with over 2.1 million subscribers, an increase of 17% year-on-year, and more than 125,000 businesses across all industries trust us to power their daily operations. We continue to build upon our strong data pool and our platform now generates over 180 billion valuable data points monthly, strengthening our position to capitalize on our strong network effects and continue driving enhanced insights for our customers. In Q2, we started to move to our newly built central office in South Africa, which positions us to support higher organic growth in South Africa. Not only does this office ensure that we can continue to grow our headcount, but it also provides a layout that ensures we continue to foster the car track DNA and our strong culture as we scale. We completed the move in September and are already seeing the positive improvement. We also increased our sales and marketing investment in Southeast Asia beginning in August to capitalize on the attractive and sizable opportunity in the region. We continue to see Southeast Asia as the most compelling growth opportunity for the group over the medium to long term. Finally, CarTrack delivered record net subscriber additions in Q2 whilst maintaining strong unit economics with an LTV to CAC ratio greater than 9. Our commercial customer retention rate remains at 95% and we continue to grow the business at scale with strong discipline. Our Q2 financial highlights included CarTrack's subscription revenue increased 15% year-on-year to 983 million ZAR, CarTrack's growth margin improved approximately 300 basis points year-on-year to 74%, Kartrax subscribers increased 17% year-on-year to 2.14 million. Karoo's adjusted earnings per share increased 31% year-on-year to R7.35. Our balance sheet remained strong and unleveraged, and we ended the quarter with net cash and cash equivalents of R674 million. Additionally, given our strong Q2 financial performance and operating momentum, We are increasing the midpoint of our guidance ranges for our FY25 outlook for subscribers and car track subscription revenue. We believe that we are very well positioned to drive profitable and durable growth given our efficient unit economics and have a proven track record and culture of operating with financial and capital allocation discipline. We offer an easy to use and differentiated enterprise SaaS platform that leverages our vast and proprietary data assets. We have a strong track record of compelling financials and are a rule of 60 company with a strong and unlevered balance sheet. Finally, we are founder-led with a unique winning culture and operate in a very large TAM with a massive runway ahead of us. Karoo simplifies the lives of operators to help them maximize the scale and efficiency of their operations. Our innovative platform goes far beyond connected vehicles and equipment. We simplify the decision making of physical operations. Our platform transforms decision-making by unifying and contextualizing the data and information we collect from OEM devices, proprietary devices, as well as open APIs. It centralizes the operations of businesses across diverse industries into a single place and helps customers conquer complex challenges around safety, compliance, productivity, service delivery, cost management, fuel, maintenance, routing, resource allocation, driver and worker retention and more. Our platform leverages our large data scale, AI and data analytics to offer customers pragmatic and impactful insights that are easy to execute on. Given Karoo's vertical integration and long track record of strong capital allocation and efficiencies, we have a real edge in knowing what data actually matters to physical operations and how to provide that data in a way that is easy to implement and will drive real impact. We constantly innovate to ensure our platform keeps decision-making simple, fast and agile. Our platform is easy to use and it's pragmatic. From start to finish, our entire solution focuses on simplifying complex decisions to ensure huge ROI for our customers. Our customers choose us because we deliver ROI by reducing costs, increasing productivity and improving safety with a user-friendly platform supported by a best-in-class service team. The value proposition of our platform is massive. If you think about your day to day, the toughest part really is around decision making. Let's say, for example, your business is suffering from high fuel costs. Well, firstly, we'll benchmark you to others in your industry so you can understand how much of a problem this really is. Then, there are three key things that could cause this. You're paying for fuel your vehicles aren't using, spending too much fuel per mile traveled, or traveling more miles than you need to to achieve the same result. Our platform takes customers through each of these, highlighting where the drainages are, and more importantly, offering solutions for each. By simplifying these decisions, we empower our customers to spend their time, energy, and resources overcoming their challenges and improving their businesses. We have some businesses saving over $300,000 purely on idling in a year, and we have others who have managed to scale their business 12-fold as a result of the control, visibility, and digitalization our platform provides. We remain committed to investing in product innovation that leverages AI to deliver ROI to our customers. From fatigue driving to unscheduled stopping and detecting fuel fraud to end user risk profiles, our platform harnesses AI to deliver insights around areas that negatively impact operational performance. In doing so, we believe we are using AI to help our customers mitigate risk, improve their service delivery, save money and likely save lives. For example, our AI-powered cameras alongside our fully digitalized coaching platform and actionable analytics helped a South African customer reduce fatigue driving by 32% and mobile phone usage by 13% whilst improving their seatbelt compliance, all of which are key contributors to eliminating fatalities on the road. During Q2, momentum for our camera business was strong and we are excited about customer interest in our vision solutions. As businesses look to increase their e-commerce offerings, many are also looking to move away from online marketplaces as they see a risk in losing control of their customers. This has been a continued driver for Karoo Logistics, which continues to gain adoption by our large enterprise customers seeking to scale their e-commerce capabilities under their own terms. During Q2, Karoo Logistics delivered revenue of 101 million ZAR, an increase of 40% year-on-year, and an operating profit of 9 million ZAR. We see a large opportunity for Karoo Logistics and continue to maintain a positive outlook on this business unit. Our commitment to product innovation and a disciplined approach to profitable growth positions us to capitalize on the large and growing market opportunity. We believe we have ample runway for growth as businesses across industries seek to leverage technology to optimize their physical operations. As we continue to execute and scale, we believe we are only getting started. We believe there is ample opportunity for growth and we plan to increase subscription sales to existing customers, expand our customer base, expand the scope of our operations in newer geographies, and expand our operations platform and services. We will continue to invest in all geographies to expand our sales and support infrastructures to achieve growth and maintain our customer centricity, and expect Southeast Asia will be our largest driver of growth over the medium to long term. Our balance sheet and strong cash generation put us in a good position to accelerate our customer acquisition strategy whilst remaining highly profitable. Our founder-led culture and vertically integrated business model have created an entrepreneurial environment with high customer centricity. This, alongside our open APIs, innovative platform that is easy to use, and continuous investment in proprietary internal systems, ensures we offer customers an unparalleled offering and is why we win. In Q2, we maintained our leading unit economics with an LTV to CAC ratio of over 9. Our strong discipline in capital allocation, high platform ROI, customer centricity, and tight efficiencies at scale lead to our low cost of acquiring a customer, high customer lifetime value and retention rate, as well as strong benefits from economies of scale. Our Q2 growth profit margin was 75%, and our Q2 commercial customer retention rate was 95%. We are excited about our massive TAM and remain committed to profitable growth as we pursue the expansive growth opportunity ahead of us. I will now hand over to Hu Xin, who will discuss our Q2 financial performance.
spk01: Thank you, Carmen. I will now discuss Carew's financial performance for Q2 FY25. Please note that all comparisons are against Q2 FY24, unless otherwise stated. Our proven and profitable SaaS business model continued to deliver strong results in Q2. Karoo's total subscription revenue increased 15% to R986 million, operating profit increased 22% to R302 million and adjusted earning per share increased 31% to R7.35. In this quarter, CarTrack experienced strong customer acquisition and Q2 subscriber increased 17% to 2,136,000 subscribers. Subscription revenue increased 15% to R983 million and operating profit was R293 million. CarTrack continues to prove its ability to scale in varying macroeconomic conditions and was a rule of 60 companies when adding our second quarter subscription revenue growth of 15% and our second quarter adjusted EBITDA margins of 45%. Our solid start in Q1 continued as we gained momentum in Q2 with a record net subscriber addition of over 89,000 in this quarter, an increase of 18% year-over-year. We operate in a massive addressable market In August this year, we accelerated our capital allocation to sales and marketing, and we are comfortable that we can continue to grow our subscriber base profitably at scale. Castrex continues to grow its subscriber base across geographies. In Q2, South African subscriber increased 16%, represents 76% of total subscriber. We believe the economic environment in South Africa continues to improve, and we are confident that our move to our newly built central office in September 2024 positioned us to support strong organic growth as it will allow us to expand our customer base and increase subscription sales to existing customers. Asia, the Middle East and USA subscribers increased 21% with strong momentum in Southeast Asia. This region made up of 12% of our total subscribers. Southeast Asia remains the second largest contributors to the group's revenue, representing the most compelling growth opportunity over the medium to long term. As such, in September, we started to prudently invest in sales and marketing in Southeast Asia to drive incremental growth. Europe subscriber increased 17% and comprised 8% of total subscriber. We remain focused on increasing our presence in the region especially through OEM partnership with our proprietary compliance technology. Africa excluding South African subscriber increased 15% and comprised 4% of total subscribers. With the strong tractions, we believe we are well positioned for geographical expansion. Carew's Q2 adjusted EPS increased 31% to R7.35, mainly driven by highly subscription revenue and expanding gross margin. CarTrack's EPS increased 22% to R7.17 and Carew Logistic EPS increased 29% to R18. As Carew continues to scale, grow and increase its EPS, We are confident in our FY25 earnings per share outlook. In quarter two, we continue to demonstrate high cash conversions as our earnings increase. Free cash flow was R166 million. We invested R49 million in the development of our South African central office, bringing the total investment in our new office to R316 million. We believe our strong track record of disciplined capital allocations earnings and free cash flow will continue to bolster our balance sheet. Our consistent results extend our track record of growth at scale, profitability and cash generation ability. In this quarter, our net cash on hand plus cash in bank fixed deposit stood at RM674 million. Debtor's turnover days was 27 days, which includes prudent provisioning given strong economic headwinds in some of the markets we are operating. In August, we paid a cash dividend of $1.08 per share, a total of $33.4 million to our shareholders, an increase of 27% per share year over year. We have strong unit economics, robust operating margin, an unleveraged balance sheet, and strong cash conversion. Our robust business model are geared for growth with massive opportunities ahead of us. This was backed by a strong and clean balance sheet, and we remain confident that our track record of success, especially our ability to generate healthy cash flow, is sustainable. Given our strong Q2 results and operating momentum, we are raising our outlook for FY25 subscriber and car track subscription revenue at the midpoint. We are now expecting CarTrack subscriber to be between 2.3 to 2.4 million compared to 2.2 to 2.4 million previously. CarTrack subscription revenue to be between 3.95 to 4.15 billion rand as compared to 3.9 to 4.15 billion rand previously. CarTrack operating profit margin outlook of between 27 to 31% and Karoo's earnings per share outlook of between 27.5 to 31 rand remains unchanged. In closing, we are excited about the operating momentum in the business and our strong first half result highlighted by our improved outlook for FY25. Looking forward, we believe our attractive SaaS business model, strong cash generation and strong balance sheet position us to capitalize on the expensive growth opportunity in front of us. I would like to thank everybody for joining us today and we'll now open the floor to Q&A with our Group CEO and Founder, Mr. Zach Callisto.
spk02: Thank you, Yuxin. I've got a few questions. So I'll start with the first question from Adi Al. Perilogistics reported revenue of $101 million for Q2 FY25. which while demonstrating a strong 40% year-on-year growth, shows muted quarter-on-quarter growth as it matches the Q1 FY25 revenue. This appears to be the first time we've seen muted Q2 growth for KU Logistics. Could you comment on the factors contributing to the stagnation? Additionally, do you anticipate KU Logistics will achieve double-digit annual revenue growth over the next few years? And if so, are the key drivers expected to support this growth? So in Q1, we really stagnated quite a lot because we needed to basically increase our driver capacity. And we needed to onboard more drivers to be able to deal with the increased demand. Further, we also needed to increase our operational capabilities. So we did stagnate intentionally. You will see in Q3, you will already see a much better performance compared to Q2. And we certainly believe that we can continue delivering double-digit growth. A question from Alex Scala. Zach, can you talk about the mix of the record subscriber ads this quarter? Any change in commercial mix or larger enterprise net ads? It was very much a situation where most of our drive for our growth was still SME business. Clearly, we did get some large enterprise customers. We got one or two customers with more than 2,000 trucks. But fundamentally, it was driven by SME being still primarily the most, the biggest contributor to our growth. Another question from Alex. Zach, implied contract gross margin X logistics looks like a new record this quarter. Can you talk about the drivers there? How sustainable is this higher gross margin level? A lot of it comes from operational efficiencies. But as you've seen over the past years, our margins tend to go up and down in a very tight band. So we did see a very good increase in gross profits. I think our business model is not to try and keep it at 74%. But frankly, if it goes down to 72%, it's still great margins. And we look at the full margins of the business. I do not believe that we can get much better margins if we still want growth. While we're growing, I think these margins will fluctuate, but in a very narrow band. Jackson, thanks for taking my question. I'm Jack from Leng Gelonggui Research. What is the major driving force for ARPU this quarter? Could you give some color on the ARPU for the next few quarters? Given our new products, I believe that our ARPU will have a tendency to increase. Although in Asia, as Singapore becomes a smaller part of the business, the ARPU in Asia will probably decrease because the ARPUs we experience in most Asian countries are very much in keeping with the South African ARPU. So our drive in revenue is really just through customer acquisition. And it's been our model since day one, which is 20 years ago. We've continuously driven subscription revenue through customer acquisition. Question from Roy Campbell from Morgan Stanley. As the company participated in further share buyback over the last quarter, really we haven't participated. What we experienced in the ability for our ability to buy shares, it's quite difficult. Now the SEC rules make it very difficult in the way we can buy shares. And at the moment we are picking up liquidity And I think we need to support the growth in our liquidity. We've also bought on Paul Beaver as head of our internal relations. So we will be doing a lot more activity on the investor side to build up liquidity. And I don't believe a share buyback, considering that we're now starting to get momentum, will send the right message. A question from Seki from Ashmore. How is subs growth in Asia-Pacific, the Middle East fairing versus management space case, and what would constitute a good outcome in terms of numbers in subs, say, in three years versus the current 250,000? We started in September a huge drive. to get our sales headcount to a level that we really wanted. I think we've sorted out a lot of our ability to recruit and to build a team. And I believe that we would certainly like to start growing at over 30% year on year. And I believe we can do that starting FY26. A question from Goku Raj. Could you update on the secondary public offering of your shielding and also what should be the long-term float in the stock that we should expect? Yeah, the In July this year, we basically did an offering to the market, a second offering to the market, where it was me selling down secondary shares, my shares. And I've made it public that over time, I will sell about 6 million of my shares. Over the next five or six years, I'll do it in a responsible way. So this is public knowledge. There's documentation out there. So the first block build that we did, we wanted to sell 75 million shares. We were well oversubscribed already in the first day. And then for reasons that I don't really understand, our share price dropped from $35 to $28.80. And then if I remember correctly, we had a book build of over $150 million for the 75-minute offering, but I wasn't willing to sell at $28.80. And for that matter, we terminated the secondary offering. So over time, we do expect As I sell into the market or if we happen to do M&A, we will expect higher liquidity and we're certainly working towards that. Miles Ferree. If Karoo doesn't make transformational acquisitions, why isn't the balance sheet leveraged? I don't think that's really our DNA. I mean, one can get into very clever financial engineering where you start, but I don't believe we need to do that. And I'm quite prudent. If you look, we've been a public company as CarTrack before JSC. We've always run a very clean balance sheet. I believe you only get debt if it's absolutely necessary. And you know, we might have a few rainy days and we want to be well positioned. You know, when COVID came, we continued growing. We weren't worried about the balance sheet. So we never know what's around the corner. And we don't want to be where when the banks knock at our door, you know, we start panicking. We're very comfortable to remain in a net cash position as opposed to in a debt position. However, we're not scared of debt if it makes absolute sense. But I don't think we need to do it just to leverage our balance sheet so that we can engineer our balance sheet. A question from Prashant Pemkumar. Is the LTV2CAC much higher in Southeast Asia versus company average of nine? Has this metric for Southeast Asia changed much in the past few years? Prashant, I don't have the LTV2CAC for each geography, and then LTV2CAC to nine is for the whole of car track. But fundamentally... We've got very high LTV2 CACs in all our geographies. We are now going to go into quite a substantial increase in headcount. And we normally find these headcounts don't normally deliver results in the first six months. That could obviously have a negative impact on our LTV2 CAC. but we believe that we should be still be able to keep it over nine. And if it drops below nine, it's also fine. LTV to CAC of nine is very high. If it goes to eight, if it goes to seven, and if we believe we're going to get the results, and if we believe the way we allocate in capital, we on the right path, we don't mind dropping to LTV to CAC of seven, you know, for that matter. Um, Thank you for showcasing the AI capabilities of the company. Approximately what percentage of scribes use quadric AI-based benefits as opposed to just vehicle tracking? How fast is the base of AI usage customers growing? The answer to that, AI is, in my opinion, it's just the latest fashionable word. So for me to answer that, I would just like to give a bit of color of what I believe AI is. And AI is really just the ability, in our case, is to have a substantial amount of data, the ability to process that data, the ability to have algorithms, and the ability to give instant information to our customers to better improve their businesses. And that's really AI. Then, you know, the terminology is a new terminology. It's loosely used. But, you know, we've been doing this for many years. Over time, obviously, we get better and better with our predictions, our data, amount of data we've got, our algorithms get better, but we've been doing it. So I would say that all our business customers have got some form of AI in real time and access to it. It just depends. What exactly are we talking about? So when it comes to the video, that's very much something that we've introduced in the last year. But I mean, when it comes to the business intelligence reports, the live alerts, all of that is part and parcel of a broader definition of AI. A question from Faith Rumer from Wood and Black. Can you provide some color on the S&M investment across each region as growth seems to be broad-based? How are you thinking about sustainable efficiency across these investments? So we've got a capital allocation team that is run by Hong Yap. And in this capital allocation team, they actually look at each country. And not at each country, they also look at each go-to-market strategy within each country. And on that basis, we're always continuously measuring our return on investment. So it's something that we do as a full-time job, and we don't do it just across the company. We do it quite granular. And we've been doing this for many years, and we do it, in my opinion, really well. I think our lead is that we perhaps... at being too prudent in the way we allocate capital. So we definitely are going to see less yield in the short term as we grow our sales force. But over time, we will go back to very high returns on our sales force. In Seki Mutukuaka from Oshawa, any guidance about sales and marketing as a percentage of sub-revenue as contract going forward? That is currently increasing at this point in time. we will obviously do this in keeping with our track record, which is in a very disciplined way. But the intention is definitely to increase that as a percentage of subscription revenue, to increase the spend on sales and marketing. A question from Alex Scholar. Can you elaborate on your headcount growth targets over the next 12 months? How much are you planning to grow sales and marketing headcount in the next 12 months. Alex, we're actually busy most of the day today with these budgets for the next year. And my gut feel is at this point in time, we're probably going to grow the sales headcount in In terms of Asia, that will be substantial. But in South Africa, it will probably be about 25%. And in Europe, it will be about 25%. But in Asia, we're expecting that we'll be able to do about a 70% increase in headcount, about 70%. That's the questions for today. Thank you very much for joining me. Thank you. Bye-bye.
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