Karooooo .(KARO) - 2024 Q3 - Quarterly Report

Report Overview Executive Summary Karooooo reported solid results for Q3 2024, demonstrating consistent growth, profitability, and cash generation, with subscription revenue growing 17% to ZAR 904 million - The company's Operations Cloud platform powers the digital transformation for over 113,000 commercial customers, maintaining a high retention rate of 95%[6] - Carzuka's reduced operations negatively impacted EPS by ZAR 0.75 in Q3 2024, but it is not expected to have a significant impact on earnings going forward[8] Q3 2024 Key Performance Indicators (Y-o-Y) | Metric | Q3 2024 | Q3 2023 | Growth | | :--- | :--- | :--- | :--- | | Karooooo Subscription Revenue | ZAR 904 million | ZAR 772 million | 17% | | Annualized Recurring Revenue (ARR) | ZAR 3,711 million | ZAR 3,097 million | 20% | | Earnings Per Share (EPS) | ZAR 6.34 | ZAR 4.70 | 35% | Financial Performance Third Quarter 2024 Financial Overview In Q3 2024, Karooooo's consolidated revenue grew 16% year-over-year to ZAR 1,080 million, with subscription revenue up 17%, driven by Cartrack's 33% increase in operating profit - Cartrack subscribers grew 14% to 1,908,192[12] - Cash generated from operating activities saw a substantial increase of 55% to ZAR 443 million[12] Karooooo Consolidated Financials Q3 2024 | Metric | Q3 2024 (ZAR thousands) | Q3 2023 (ZAR thousands) | Y-o-Y Growth | | :--- | :--- | :--- | :--- | | Total Revenue | 1,080,143 | 929,993 | 16% | | Subscription Revenue | 903,915 | 772,483 | 17% | | Gross Profit | 687,311 | 583,089 | 18% | | Operating Profit | 274,706 | 209,131 | 31% | | Adjusted EBITDA | 427,874 | 333,525 | 28% | Revenue Analysis Group revenue growth was primarily driven by Cartrack's 17% increase in subscription revenue, which reached ZAR 900 million, while Karooooo Logistics also contributed significantly with a 67% revenue surge to ZAR 91 million Q3 2024 Revenue by Segment | Segment | Q3 2024 Revenue (ZAR millions) | Q3 2023 Revenue (ZAR millions) | Y-o-Y Growth | | :--- | :--- | :--- | :--- | | Cartrack | 919 | 804 | 14% | | Carzuka | 70 | 72 | (2)% | | Karooooo Logistics | 91 | 54 | 67% | Operating Expenses Analysis Total operating expenses rose 10% to ZAR 414 million, mainly due to strategic investments at Cartrack for territorial expansion and growth, while Cartrack's key expense categories as a percentage of its subscription revenue either decreased or remained stable - Cartrack's sales and marketing expenses as a percentage of its subscription revenue decreased to 13% from 14% in Q3 2023[26] Q3 2024 Operating Expenses by Segment | Segment | Q3 2024 OpEx (ZAR millions) | Q3 2023 OpEx (ZAR millions) | Y-o-Y Growth | | :--- | :--- | :--- | :--- | | Cartrack | 378 | 345 | 10% | | Carzuka | 17 | 21 | (21)% | | Karooooo Logistics | 19 | 11 | 67% | Profitability Analysis The group's operating profit grew 31% to ZAR 275 million, with EPS up 35% to ZAR 6.34, primarily driven by Cartrack's record operating profit of ZAR 295 million - Karooooo's consolidated earnings per share grew 35% to ZAR 6.34[22] Q3 2024 Operating Profit/(Loss) by Segment | Segment | Q3 2024 Operating Profit (ZAR millions) | Q3 2023 Operating Profit (ZAR millions) | Change | | :--- | :--- | :--- | :--- | | Cartrack | 295 | 222 | +33% | | Karooooo Logistics | 7 | 2 | +250% | | Carzuka | (28) | (15) | Increased Loss | Nine Months Ended November 30, 2023 Financial Overview For the first nine months of fiscal year 2024, Karooooo's revenue increased by 20% to ZAR 3,117 million, with operating profit rising 16% to a record ZAR 746 million - Net Cartrack subscriber additions for the nine-month period increased by 25% to 191,115[29] - Earnings per share for the nine-month period grew 17% to ZAR 17.04[38] Karooooo Consolidated Financials YTD Q3 2024 | Metric | YTD Q3 2024 (ZAR thousands) | YTD Q3 2023 (ZAR thousands) | Y-o-Y Growth | | :--- | :--- | :--- | :--- | | Total Revenue | 3,117,143 | 2,590,712 | 20% | | Subscription Revenue | 2,600,643 | 2,215,602 | 17% | | Gross Profit | 1,974,387 | 1,682,189 | 17% | | Operating Profit | 746,266 | 644,750 | 16% | | Adjusted EBITDA | 1,227,262 | 1,064,642 | 15% | Revenue Analysis For the nine-month period, Cartrack's revenue grew 16% to ZAR 2,656 million, while Karooooo Logistics was a standout performer with revenue surging 82% to ZAR 224 million YTD Q3 2024 Revenue by Segment | Segment | YTD Q3 2024 Revenue (ZAR millions) | YTD Q3 2023 Revenue (ZAR millions) | Y-o-Y Growth | | :--- | :--- | :--- | :--- | | Cartrack | 2,656 | 2,280 | 16% | | Carzuka | 237 | 187 | 27% | | Karooooo Logistics | 224 | 123 | 82% | Operating Expenses Analysis Group operating expenses increased by 18% to ZAR 1,237 million, reflecting planned investments in growth initiatives across all segments, including Cartrack, Karooooo Logistics, and Carzuka YTD Q3 2024 Operating Expenses by Segment | Segment | YTD Q3 2024 OpEx (ZAR millions) | YTD Q3 2023 OpEx (ZAR millions) | Y-o-Y Growth | | :--- | :--- | :--- | :--- | | Cartrack | 1,132 | 974 | 16% | | Carzuka | 55 | 43 | 28% | | Karooooo Logistics | 50 | 29 | 74% | Profitability Analysis For the nine-month period, Karooooo's operating profit grew 16% to a record ZAR 746 million, with Cartrack's operating profit increasing 17% to ZAR 780 million YTD Q3 2024 Operating Profit/(Loss) by Segment | Segment | YTD Q3 2024 Operating Profit (ZAR millions) | YTD Q3 2023 Operating Profit (ZAR millions) | Change | | :--- | :--- | :--- | :--- | | Cartrack | 780 | 667 | +17% | | Karooooo Logistics | 19 | 3 | +533% | | Carzuka | (53) | (25) | Increased Loss | Operational and Strategic Review Outlook Karooooo has reaffirmed its full-year 2024 guidance for its core Cartrack segment, demonstrating confidence in its continued growth trajectory and strong market position - The company believes it is well-positioned for growth due to operating in a growing and largely underpenetrated market with strong demand from diverse industries[44] Cartrack FY 2024 Guidance | Metric | Guidance Range | | :--- | :--- | | Number of Subscribers | 1,900,000 - 2,100,000 | | Subscription Revenue | ZAR 3,400 million - ZAR 3,600 million | | Operating Profit Margin | 28% - 31% | Balance Sheet, Liquidity and Cash Flow The company maintains a strong financial position with a net cash and cash equivalents balance of ZAR 782 million as of November 30, 2023, even after paying a USD 26.3 million dividend and investing in a new central office - Reported a strong net cash and cash equivalents balance of ZAR 782 million at November 30, 2023[49] - Generated Free Cash Flow of ZAR 162 million for Q3 2024[51] - Property, plant and equipment increased to ZAR 1,983 million, partly due to a ZAR 154 million investment in a new South African central office[47] - The group has available bank facilities totaling ZAR 1 billion for growth initiatives[50] Geographical Overview for Cartrack Cartrack continues to experience broad-based growth across its key geographical regions, with South Africa, Asia Pacific, Middle East, US, and Europe all showing strong performance South Africa In its primary market, Cartrack's subscriber base grew by 12% to over 1.44 million, with both subscription revenue and ARR in the region increasing by 13% - Subscribers increased 12% to 1,446,754, with subscription revenue growing 13%[56] Asia Pacific, Middle East and United States This region demonstrated robust growth with a 26% increase in subscribers to 220,700 and a 33% rise in subscription revenue, highlighting Southeast Asia as a compelling long-term growth opportunity - Subscribers grew 26% to 220,700, and subscription revenue increased by 33%[58] Europe The European segment saw a 15% increase in subscribers to 161,635, with subscription revenue growing by an impressive 32%, supported by partnerships with leading OEMs and demand for compliance technology - Subscribers increased 15% to 161,635, with subscription revenue growing 32%[61] Africa (excluding South Africa) In other African markets, Cartrack's subscribers grew by 8% to 79,103, with subscription revenue increasing by 6%, maintaining its role as a positive cash generator and strategic asset - Subscribers grew 8% to 79,103, and subscription revenue increased by 6%[63] Corporate Developments A significant strategic decision was made in Q3 2024 to cease buying second-hand vehicles for the Carzuka platform in South Africa, aiming to avoid conflicts of interest and preserve relationships with motor dealerships - A decision was made to cease buying second-hand vehicles in South Africa through Carzuka to avoid business conflicts with motor dealerships, who are strategic partners for Cartrack[65] - Valuable components of Carzuka's platform will be integrated into Cartrack's fleet platform, and the platform will be offered to dealerships as a Software offering[66] Corporate Policies The company outlines its dividend policy, prioritizing reinvestment for growth while considering financial factors, and emphasizes its commitment to ethical conduct through comprehensive anti-bribery, corruption, and whistleblowing policies - The dividend policy prioritizes reinvestment for growth, with the Board determining payments based on earnings, free cash flow, and capital needs[68][69] - The company maintains strict Anti-Bribery and Corruption, Code of Ethics, and Whistleblowing policies, providing annual training to all employees[72] Consolidated Financial Statements (Unaudited) Consolidated Statement of Profit and Loss This section presents the unaudited consolidated statement of profit and loss for the three and nine months ended November 30, 2023, detailing revenue, cost of sales, operating expenses, and profits, culminating in the earnings per share calculation Consolidated Profit and Loss Highlights | Metric | Three Months Ended Nov 30, 2023 (ZAR thousands) | Nine Months Ended Nov 30, 2023 (ZAR thousands) | | :--- | :--- | :--- | | Revenue | 1,080,143 | 3,117,143 | | Gross Profit | 687,311 | 1,974,387 | | Operating Profit | 274,706 | 746,266 | | Profit for the period | 199,332 | 539,493 | | Basic and diluted EPS (ZAR) | 6.34 | 17.04 | Consolidated Statement of Financial Position This section provides the unaudited consolidated balance sheet as of November 30, 2023, with comparative figures, detailing the company's assets, liabilities, and equity, showing an increase in total assets to ZAR 4.1 billion Key Balance Sheet Items (as of Nov 30, 2023) | Item | Amount (ZAR thousands) | | :--- | :--- | | Total Assets | 4,105,701 | | Total Liabilities | 1,334,893 | | Total Equity | 2,770,808 | | Cash and cash equivalents | 781,980 | Condensed Consolidated Statement of Cash Flows This statement details the cash inflows and outflows from operating, investing, and financing activities for the three and nine months ended November 30, 2023, highlighting a strong net cash flow from operating activities of ZAR 443 million for the quarter Cash Flow Summary | Metric | Three Months Ended Nov 30, 2023 (ZAR thousands) | Nine Months Ended Nov 30, 2023 (ZAR thousands) | | :--- | :--- | :--- | | Net cash flows from operating activities | 442,851 | 1,086,929 | | Net cash flows utilized by investing activities | (293,845) | (736,774) | | Net cash flows utilized by financing activities | (17,548) | (553,845) | Reconciliations of Non-IFRS Measures This section provides reconciliations for key non-IFRS financial measures used in the report, bridging them to the most directly comparable IFRS measures, including detailed calculations for Free Cash Flow and Adjusted EBITDA Free Cash Flow Reconciliation The company reconciles Free Cash Flow by subtracting the purchase of property, plant, and equipment from net cash generated from operating activities, resulting in ZAR 162 million for Q3 2024 Free Cash Flow Calculation Q3 2024 | Item | Amount (ZAR thousands) | | :--- | :--- | | Net cash generated from operating activities | 442,851 | | Less: purchase of property, plant and equipment | (280,400) | | Free Cash Flow | 162,451 | Adjusted EBITDA Reconciliation Adjusted EBITDA is reconciled from profit for the period by adding back taxes, net finance costs, depreciation, and amortization, resulting in ZAR 428 million for Q3 2024 with an Adjusted EBITDA margin of 40% Adjusted EBITDA Calculation Q3 2024 | Item | Amount (ZAR thousands) | | :--- | :--- | | Profit for the period | 199,332 | | Taxation | 79,327 | | Net Finance Costs/(Income) | (3,953) | | Depreciation and Amortization | 153,168 | | Adjusted EBITDA | 427,874 | Supplementary Information Constant Currency (A Non-IFRS Measure) This section provides a reconciliation of reported revenue figures to constant currency figures to illustrate the impact of foreign exchange rate fluctuations, showing slightly lower growth rates on a constant currency basis Q3 2024 Revenue Growth vs. Constant Currency Growth | Metric | Reported Growth | Constant Currency Growth | | :--- | :--- | :--- | | Subscription Revenue | 17% | 14% | | Total Revenue | 16% | 14% | Definitions This section defines the key non-IFRS financial measures and business metrics used throughout the report, providing clarity on terms such as Adjusted EBITDA, Annualized Recurring Revenue (ARR), and Free Cash Flow - Provides definitions for key non-IFRS measures including Adjusted EBITDA, Adjusted EBITDA Margin, Annualized Recurring Revenue (SaaS ARR), and Free Cash Flow[102][104][108] - Explains the calculation of unit economics metrics such as Lifetime Value (LTV), Customer Acquisition Cost (CAC), Cost of Acquiring a Subscriber (CAS), and Cost of Servicing a Subscriber (CSS)[111][112][113][114] Disclaimers This final section contains standard legal disclaimers, including a forward-looking statements clause cautioning investors about potential differences in future results and a note on the use of non-IFRS financial measures - Contains a 'Forward-Looking Statements' section, warning that actual results may differ materially from projections due to various risks and uncertainties[116][117] - Clarifies that the report includes non-IFRS financial measures for supplemental purposes, which should not be considered in isolation from IFRS measures[120]