Karooooo Ltd.
Q3 2023 Earnings Call Transcript

Published: 20 Jan 2023

[Richard Schubert:]

Welcome to the Karooooo 2023 results webinar. I am Richard, the group’s COO and we are pleased to present the Q3 results to our shareholders and investors. We are excited to share our performance, growth, and future plans. Our team led by our CEO and Founder, Zak, is committed to delivering on our strategic goals and creating long-term value for all of our stakeholders. With Hoeshin, our Chief Financial Officer and the rest of the team, we are confident in our abilities to continue driving growth and innovation in the future. All shareholders and investors are advised to read this disclaimer. Today, we will review the three entities within Karooooo, mainly Carzuka, Cartrack, and Karooooo Logistics. At Karooooo, we understand that mobility is core to all underground operations. We are not only thinking about connected vehicles and equipment, but also on how to improve the overall mobility ecosystems. We are constantly exploring new ways to use data to optimize operations and make them more efficient. We are establishing the leading connected cloud platform, enabling customers to develop effective controls and workflows, while digitizing their daily operations in one enterprise grade platform. Our cloud platforms seamlessly embeds into the day to day activities of our customers and offers unprecedented visibility of varying aspects of their operations covering driver, vehicle, cargo, worksite and more. Our platform contextualize these data points to offer actionable insights for their challenges. This helps customers understand and ultimately streamline their operations, enabling them to deliver on their service offering to a higher level and remain competitive within their industries. We are committed to providing our customers with the best possible service and support, and we are constantly looking for new ways to improve our platform and our service offering. Karooooo's cloud platform is well-positioned to successfully service customers across diverse industries. We support over 100,000 small to large businesses in optimizing their underground operations, including global multinationals like Coca Cola and Cargill. This is a 15% increase, compared to the previous quarter. Our success across our diverse customer base continues, ensuring our low customer and industry concentration risk. [Highlights of the] Karooooo Investment. Innovating through an entrepreneurial approach that prioritize customer needs, utilizes hands on experience and skills, and being adaptable in both planning and execution, offering a strong value proposition, proven track record of delivering value enhanced solutions and passing on cost savings to customers through successful execution while maintaining prudent capital allocation. Having a strong financial foundation, the ability to control prices and maintain higher operating profit margins, solid unit economics and a history of sustained growth at scale, our strong management, intraperitoneal culture, and vertically integrated business model puts us at a significant advantage by inspiring ownership and practically creative thinking throughout the business. This has been a leading contributor to our proven track record of growth and profitability in varying macroeconomic headwinds across multiple regions. Karooooo is using data to improve operations, and we are at an early stage of a large growing opportunity with over 40% of global GDP based on the underground operations. Mobility is the key to solving customer challenges, and crew is leading the way in this area. The platform is well-positioned to leverage this opportunity as it continues to grow. In South Africa, over 10% of all vehicles are connected to the Karooooo platform. Karooooo has a large untapped network effect generated from its platform with over 120 billion valuable data points generated monthly. Customers are benefiting by personalizing their experiences and provided with tools to improve decision making and increase their efficiencies. Predictive analytics of historical data are not only leading to improve customer loyalty, but allow us to develop new products and services. I will now hand over to Carmen to present the Karooooo financial results for Q3.

[Carmen Calisto:]

Thank you, Richard. I will now talk through Karooooo's financial performance for Q3 FY 2023. Please note that all comparisons are against Q3 FY 2022 unless otherwise stated. As expected, after substantial investment for future growth in all segments, earnings per share for the period was ZAR4.70. Year-to-date earnings per share increased 20% to ZAR14.59. Our cash generation continues to bolster our quality balance sheet. Free cash flow increased by 27% in this quarter and by 42% to ZAR434 million on a year-to-date basis. These robust earnings were achieved despite the group's strategic investment for expansion, brand building, and custom acquisition, a testament to our resilient business model that is highly cash generative. Supported by a high customer retention rate, Karooooo continues to grow at scale with a 14% growth in subscribers to 1,678,606 and 29% growth in revenue to ZAR930 million. Our growth remains organic and we continue to be prudent with capital allocation, focusing on deploying capital in key opportunities that will drive short and long-term value. Karooooo’s success is largely attributable to our innovative and customer centric culture, which has led us to become an operational technology partner that offers high customer return on investment through our end-to-end all-inclusive IoT operations cloud. Even with our large scale, our vertically integrated business model empowers us to remain agile and adaptable with full control over infrastructure, advanced internal systems, and our expanding distribution network. We have a proven ability to execute and achieve strong growth at scale. Our profitable SaaS business model continues to bolster cash flow generation with net cash on hand up by 2% at the end of November 2022 at ZAR819 million, despite paying a cash dividend of US$18.6 million in the period. Debtor’s turnover days improved to 31 days. We have strong unit economics, robust operating margins, a quality balance sheet, and strong cash position and have consistently beaten the Rule of 40. We report performance by our three key business segments