Q2 2022 Karooooo Ltd Earnings Call
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Good day welcome to Cameroon limited results presentation for the second quarter of 2022 hosting here today is Mr. Zack Kevin Stone CEO and founder of care, we were limited.
Well, thank you very much operator.
Firstly I would like to thank everybody for premier to those cool and good morning, Good evening wherever you want.
Yourself.
Yes.
Uh huh.
We have the disclaimer that.
Shareholders can Greek EBITDA ambition.
Cause you used to.
Nope I under the same to off contract, it's really quite checklist founded in South Africa.
We just bought an entity and when you go to Singapore.
In our view all vehicles will be connected in Deca will drop all the aspects of mobility in the future.
Our mission.
Through both the leading mobility platform the best month of the Fabulous diaper.
And what do we do with contextualize billions of data points and truck connectivity for our customers and.
We collect data through our proprietary vehicle smart devices and also convicted.
Third party and in vehicle smart devices.
It's a P. I think a three party system crucial collecting data and we have found artificial intelligence, but just kind of legacy boxes that can also collect and stream data to and from.
Hum.
Metrics the boxes that we choose as upstate it's to your traditional telematics fleet management devices, and they're all but just kind of masks the viruses and we also connect beta extreme data too.
Two two parties.
Oh, My God, She's an administered.
Porsche about flexing that predicts data that's not necessary vehicle data.
And we will.
Contextualize the data about doing the backend analytics, we also use I R and that's all driven through our SaaS platform and with that we allow our customers to monetize and get the value out of the data that we have processed operation as they get operational pieces predictive analytics their lives.
Great.
They able to do the deliveries they manage their deliveries.
To manage the field service the people out in the field worked in the field and the workflows that al.
Great.
Intelligence reports that allows our customers.
Fixed July the operation the vehicles. They drive it allows our customers to know the drivers and we also had did that cause because of it.
Good luck on the fourth quarter, we are in the base the size at this point in time and without insurance.
This value for our customers for the insurance group.
Fundamentally what could easily solved mobility puzzles for catalyst, we add value to their day to day operations of our customers, we grow and assist our customers with the only operate world class, Greg minted and inefficient workflows unproductive use of resources.
We assist our customers with the safety and compliance.
We assist customers with logistics operation operations.
We also.
Especially in today's World. We E Commerce is getting a bigger part of most of our customers' businesses their system with their delivery operations and as I said before we also see.
With our customers managing the AR the field with because we did the slide notes 90 minutes or the conditions whatever they being compute at the one single platform.
We do.
They may have their kazuko, which that's secured by entirely.
And we do compete with the price insurance credits.
We are well aware of the mix with the effect of that platform and of the much needed to rewrite that services and when we envisage to create value for our customers in the near future and we have already started this journey.
Yeah.
Operating a large underpenetrated market.
This slide shows you the what we perceived the market to take.
Mark.
And different signals that the operating in South Africa, we have close to one 1 million subscribers.
I was at 10 million vehicles, and how that affects about 12 million vehicles. At this point in time, there's quite about 815, a pooled vehicles on the Reagan South Africa. They are.
On the anti equally tactful and South East Asia. It is 100 million vehicles. We've currently got as Angela 50000 vehicles. So we would be at.
Very little of the total market in the last three years, we haven't been able to execute on our plans, but if we can do that pretty soon we will be and that is a large market Europe. They suddenly we went historically based into Europe beginning of next year and we've got in the region of about I'm, just intrigued with their own vehicles.
These amendments or end of August and yields could beat the market as well as I didn't even vehicles Africa.
Africa outside of Africa, and not I'll, probably focus at this point we've.
We've got it in the region of 65000 vehicles and we also took out of that market.
We'll go through our financial performance.
<unk>.
During the quarter in the past year.
So we've had pretty good in our opinion and the healthy subscription subscription revenue growth and we've had strong customer acquisition within the kind of the carryout and catering that exists in the market.
It's called the growth has grown by 20%.
And 97% of the business coming from contract is subscription revenue.
Our subscription revenue growth on a constant currency basis grew by 21% and our type of revenue on a constant currency basis grew by 24%.
Yeah.
At actual Opex subscription revenue grew 16% and type of EBITDA, 20% and this is probably mainly as the Rand has strengthened substantially in this financial year compared to the last financial year.
We've got our strongest year of consistently grow.
As you can see on these graphs.
Golf's subscribers, we continuously scaled for many years since inception, and we've grown every single quarter at all.
Our subscription revenue.
Can see consistent growth.
It's a subscription gave me was actually for this quarter constant currency was actually $655 million, but actual was $628 million. That's obviously, there's still a range of 15.
When we look at our profitability last June was a good way with Covid with so much uncertainty we focus of predictable business, we did not move basis for growth in the last financial year and this financial year, we believe that Covid will soon be.
Countries will now to deal with Covid and so we have started to invest for growth with a strong growth and that saw operating profit drop.
But as you can see in this quarter, it's already gone up by $10 million rent compared to the previous quarter. So we certainly on the increase again, despite all the headwinds both by currency and the increase was basically prolong term.
Our net subscriber additions.
We did in this quarter, we did 42000 and you get your bag for offshore we have financed 3000 substantially more than last year, where we did 48 and in the region of about 51% more than all pure clean between pool, which sometimes it's easier to compete to peak COVID-19.
And giving kind of at least towards the digesting two two kilotons, which we can live with.
Talking about Q2 and we.
We would negatively impact our subscriber good mix of smaller guys was 42 telephone.
So 1% more than last year also under Covid.
We either.
So we are negatively impacted in July our biggest statements because he was unveiled in South Africa, which moved lower sales.
Thank you Laura.
Also what we did see is a lot of our customers.
Keep it and keep the vehicles in this quarter this last quarter.
Which also caused a little bit of noise in terms of our customer acquisition costs.
And our low cost of acquiring a subscriber.
You look at our our crews.
I'll stick with Agnico 56, right now that's why 151 grant that's largely driven consumer economics.
Influenced by that.
The fluctuation in currency and the growth we reported in cranes.
We see a decline.
Arthur that's predominant he's got to do with the currency fluctuation.
And the pricing can go so that is the systems gross profit margin a lot of this has got it too with the currency fluctuations. Nevertheless.
We simply need to be if I get it all makes all good.
And this will allow us to continue growing our business and puts us in a very competitive position to be able to grab that.
In this loss.
If we take this half year, we that we have.
Let's call it basically have extra about two 1% Asia, we grew about 20% Europe, 16% and <unk>.
In South Africa, and Africa at the outset that exco, 7%.
And basically for the future.
And then it's wonderful to see if we've got good this quarter compared to the quarter of last year.
Allison Malkin has gone up by 51% extra dominantly on the back of his.
Head count we've increased it substantially sounds a lot of the seat count is still not very productive, but they will become productive over the near term.
We increased R&D by 34%.
We believe that the R&D is now well.
The <unk> increase that much for the next 12 months there might be a bit of an increase but we reached the level that we believe we've got sufficient people close to sufficient people to deliver what we set out to do it now and as you can see our G&A went up by 11%, which is lower than our subscriber base.
Increased which means that we can drive some good some.
Economies of scale.
We've got a robust operating metrics. So in terms of research and development this quarter, which was 6% subscription revenue against parts. The same last year sales and marketing of 14%.
Again, I think last year G&A, it's dropped from 22% decline to 1%.
Include the drop that you can put that as a fun and our adjusted EBITDA margin.
If we exclude that caused weaker business is 47%.
Pretty much in line with what we promised the market.
In terms of our outlook for the core.
For the year and we continue.
It could be the real quick.
Our cash flow.
And at the end of auction last year, we had 232 million grant from the bank at.
At the end of <unk> at 664 million range.
Yeah.
Yeah.
Sorry.
Remember.
Okay.
So because of that.
It's about $350 million range was probably CTO bastian.
The speed with which the pipe and.
In the region of $250 million brand as a dividend to argue the still listed on the <unk> contract and overall we've.
We've increased the cash in the bank.
I believe 12, keeping now breaking profit.
Our capital allocation and financial discipline.
Operating activities.
Oh, Okay I do activities.
So what dropped from competent 16 million to $442 million and that's predominantly because as we planned class scaling of the business a lot of this is reason in working capital.
And investment in the salaries of sales people in the province, and $60 million to 442.
I mean, basically going to Pee Pee has gone from <unk> 8 million 271, B for large portion of that which is got to do with basically piece of infrastructure for their growth.
Foresee into the future.
And.
And at the same time, that's obviously the E T cells compared to last year, that's driven that.
<unk> increased 271 million of free cash flow.
Down, 41% with 171 million grant for the off year, which we believe is really healthy free cash flow.
Our outlook remains unchanged and I think this is quite important because given that.
Sometimes the difficult specifically with Covid.
Forecast and to give an outlook, we'd be real easy my confidence that we will meet what we promised shareholders.
A number of subscribers and at this point in time is 1 billion 400 in our Johnson, we believe we'll exceed the $6.0 million subscribers.
Subscription revenue was one two.
Was $3.0 million at call tier 1 million tonnes and 30 pool, we believe we will get out of the $7.0 billion.
Yes.
And our adjusted EBITDA, excluding Cogs weaker for the half year was at 45% and that these are riding lawn work outlook.
For the year.
Oh, Hey here are as of August 31st 2021.
Chris.
The range and that's obviously going to do with the.
The change in the currency the exchange rate because of that.
Congrats on the U S dollar.
South African Rand was two points Cogs for Ah.
Pretty good rent.
And I have to read that too far.
Which is 15%.
And in U S dollars at just over $175 million, which is up 34% compared to last year.
I will now like to open up.
To take questions.
From a.
And from William Blair.
Yeah.
Ladies and gentlemen, if you wish you ask a question. Please press star one on your telephone and wait for your name to be announced if you wish to withdraw your question. Please press the pound or hash key please standby, while we compile the question and answer session.
Okay.
Oh.
I met him.
And that's it thank you question.
Hey can you hear me.
Yes, I can Matt.
Okay, great yeah, thanks for taking the questions and nice results guys.
Wanted to.
Dig into the impact that you're seeing from Covid on your business is it primarily isolated to the Asia region. At this time or are you continuing to see impacts in South Africa, and Europe as well.
So I think Covid is key.
Really impacting us in all our segments.
And it impacts us from one of our beliefs to manage our business in Q from the actual market price itself.
Clearly Asia is the most effective Europe is the lead.
Not as impacted as Asia, and South Africa has the least impact with at this stage.
We are up to now to really struggled in Asia.
Good news is that this week we received.
It's just taking some of our senior stocking to the Philippines, India, Indonesia, Thailand. So they all came through it all in the same week, which is declining encouraging and despite that's growing 20% in Asia.
We believe that in the U S.
Short term or near term, we can start to excel.
Accelerating that growth. So we're quite excited about the market starting to open up and we believe that the markets within six to nine months I believe the countries will learn to live with Covid.
Not sure if I'm answering your question Matt.
You did that that's helpful and then in terms of the impact of.
The social unrest in South Africa in July of Covid.
Can you just sort of help frame the magnitude because even even with that impact that region still grew really well.
So what it did for US is basically really impact with ourselves in July and in our business every day counts.
Can you doing that day, we don't even measure it in a month.
Clearly in July to ski at school.
The biggest problem. That's the case how thing the second biggest province, Isa Kwazulu Natal, we closed down all of our operations in Kwazulu Natal and we tried some operations in housing and some improved malanga.
I think all of that impacted ourselves.
Actually what it also impacted us negatively with customers that are really struggling with COVID-19 and then that will lead to it and that lift gaming telco financial agreement. So we could see that basically all week or executive in July but the spartech argue Roxy stage, we still grew at 20% and our financial metrics.
South Africa energy mines.
Correct.
That's great and just one more for me in.
In terms of the supply chain and your ability to source.
<unk> for your in vehicle devices. How are you feeling about that or are you able to get enough product to meet demand.
So clearly these delays in components, we at this point to feel comfortable that we're not gonna have programs for the next 12 months.
And we believe in our suppliers' belief that they will be able to surpass what we all do.
He's repurchasing more than what we'd normally would be and that is obviously affecting our free cash flow and.
Operationally the cash we generate from operations because of the working capital that we requiring at the moment is a bit higher to be able to carry.
The inventory, Jamie Simms CFO Greg.
Perfect. Thanks, Zack I appreciate you taking my questions.
Thank you Matt.
The next question is from Mike <unk> from Canaccord.
Great. Thanks, guys can you hear me.
Yes, I can mark.
Okay, great yes, congrats on the strong first half results. Despite all the challenges in your targeted regions.
Yes first question for you just on the on the sales hiring on these do we expect sales and marketing to continue to ramp in the second half of the year or is it more of a steady growth and it's more about getting the current sales force more efficient.
Yes.
So in South Africa.
We will do feed little hiring more sales staff regarding not be account, we need to focus in the next six to nine months on getting their head count efficient.
In Asia, but we certainly are going to start the IV now so in Asia I believe our sales force is relatively efficient, but we need to really ramp that up saying South Africa. Another increase and then we think the beginning of the next financial year, where we start to keeping a lot of focus to Europe and to ramp up now.
If it's in Europe.
Overall, South Africa, we just at this point in time, it's bigger.
<unk> gone through a little bit of consolidation to get the efficiencies right.
And say that in Asia, we cannot count on a very strong and it will get us started.
Now that we've got people getting senior managers into these countries.
Any meeting and at the end of November and real stockpiling, we've actually started buying already this month and we align it before the senior managers getting place.
Okay. Thanks, and then just my follow up question just great to see you reiterate the full year guidance.
<unk>.
Yeah.
Africa after the unrest.
Are things more efficient on a daily sales basis.
Anything embedded in there and how efficient the sales needs to be by the end of the year in terms of the continued to grow that region.
So our best month to date in the East Europe, South Africa was actually last September we had a record month in September.
We believe that will describe CRO strange distinct.
But as a feedback.
We need to focus now on efficiency and on our strategy.
We have a lot to improve it.
Order to execute on our plans.
Great. Thanks for taking my questions and great to hear South Africa, Great linkage September.
Thank you.
The next question is from Alex <unk> from Raymond James.
Hi, Jack.
In your prepared remarks alluded to the significant monetization opportunity from data I know, you're you've launched Kazuko, you've got the insurance product.
Curious how do you stack rank some of those big buckets on slide five in terms of the biggest opportunities youre, hoping to unlock in terms of addressable market on that data.
And just to make it a strong firm.
One moment please.
Okay awesome okay.
I think we can move it a lot.
Well mark with knowledge platform.
They're called Super Pro form is not crazy.
Our new visits from Covid.
No Q4, however, we are exportable broker price and that's probably true.
We.
Urgency, but in the month of October we couldn't do more raising we're gonna be goodwill to their proprietary we believe we can exponentially grow their frequency.
The insurance reimbursement.
The white with.
There was a bit of a.
The misunderstanding of the legislation around insurance and what we did in particular delivered nearly b, we are adjusting that to be able to put.
A more optimal way of executing on our plan, but maybe it relates to the other.
Some of those policies a month.
So it's really just a question of us having the right people in place with chop and deep we have got right now and you know slowly building this business.
Businesses that fit well with what.
We offer the way these things on kind of the northeast will take us a bit of fun, but I'm feeling very confident that we can do well out of these out of me.
These are very difficult in our business.
Okay, Great and then I wanted to ask about ESG and for kind of more from a customer acquisition acquisition standpoint, particularly in Europe, where there's kind of a reporting directive coming into place you added a new board member with ESG experience I'm. Just curious is that coming up in your conversations at all in terms of customers.
Meaning to better track their data and that's actually being somewhere you can lead with from a sales standpoint. Thanks.
So we've got a week.
Well you know we've got all the Boston dealing with compliance and we've done a lot of directly GDP are compliant in Europe.
<unk>, our lead independent director.
You couldn't H very familiar with the ESG and what is required.
We feel comfortable that we were able to deliver all those requirements.
Okay, great. Thank you.
Thank you.
The next question from Brian from Rebecca.
Hi, Thanks for taking my question.
I noticed this quarter in the presentation that you didn't break down sort of customers added by type so like small medium or large enterprises, just curious where the net adds in this quarter came from mostly.
Much of mix.
Cost saves I would say that overall about 65% of our business came from commercial and about 35% came from consumer.
Okay got it and then just looking at the next quarter coming up because it looks like it'll be maybe a tougher comparable year on year.
You had a good month in October how do you think that's tracking so far and what do you think will be the greatest drivers of subscriber growth in the second half of this year.
I think if we can also just we we can basically be locked into sounds like it's getting a deeply efficient.
But like I said September was already out this month and then we just opened it every month, we can improve from the previous month and we've got all the reason to be deep that we can't do that.
But having said that we've got to execute you gotta do it before we must be good at saying Oh, you know I prefer to talk about the false and what you've done.
We've made we've given an outlook and we believe we will deliver on that outlook.
Okay. Okay. My last question sorry, if.
If you could talk a little bit about the acquisition.
Made I think it was pick up I think it was and then maybe the rationale behind that.
The amount spent in all of that.
So we have a lot of our large corporates.
And what we see as a huge pickup in e-commerce and what that means is we've got a deliberate platform on so a lot of small medium enterprise customers and what they can do is they can do deliveries and they can monitor deliveries and proof of delivery and keep the tasks to be drawn as an assigned.
Parcels and how is the pick up that is that goes to prove that they're able to do that as well.
Integrates into the customers, we ounces and into the payment systems and deemed it.
The companies are able to.
Use their own vehicles used outsource drivers and also juice third party.
Korea companies or delivery companies and they're all big trucks, depending what they wanted to say, it's bringing the whole logistics, we are customer it doesn't necessarily have to rely on these unclear and can get the listing.
I bet vehicles, and we believe that's a very important point drag onto our platform.
And it's a very important important service fish, if we'd look at Infineon, Assam, where we believe the way mobility will work. So it's really about I see things today Poupon up between this time.
And we feel very comfortable with at the acquisition we've seen the monthly revenue since we bought in one month on month. So they continuously took one and we believe that business has got legs for growth.
Okay and is that I mean, I imagine you keep that kind of financials separate or is this maybe like a module you can charge additional four.
Your existing car truck customers.
So.
Now my understanding is that all the modules are in one.
So there's no like a price hurdle one five fee so.
So at this point in time, we've got everything and won the contract our platform clearly with this coming on your reported financials separately, it's a small business at this point in time.
And while we will keep the financial difference is can I do otherwise it will be a bit of spaghetti and difficult to understand our numbers also what has caused you could get a bit of momentum, which we believe by next Jake Colby. Then we also teamed it too can you split out the numbers of Cogs Zika all to pick up and say to me off.
Caught off contract, we are strategically thinking and ought to be.
Incorporate picked up into cortex platform and are the two R&D teams are talking and we will make that decision and linking it to how exactly we're going to deal with that company, we haven't quite crystallized yet.
These different groups and we're going to see each of the Bay Street and in different markets. If you want to have a different route.
Got it thanks, so much for taking my questions.
Thank you.
He is a question from Sam Geely.
And an increase in the expense associated with gross stretching resulting increasing mid subscribe or go to the bricks and the fish.
Chase and the effectiveness of the investment strategy would you be pleased at year end adjusted EBITDA margin context below the lower bound of God. This 40% to 50% for FY 'twenty two.
Are you looking to keep the same rate of the experience is good for Q3 and Q4 this financial year.
Well you know, it's quite a long question.
First thing is we believe that Alger.
Adjusted EBITDA margin will be between 40, something 50% and we sit and we will be pleased with that because that's what we budgeted for.
<unk>.
It will be.
The same growth in expenses, there will be growth in expenses Buckhead you on.
On sales it will be more in Asia at this point in time and vehicles to be bogie.
Some operational capabilities for our expansion into Asia. So there will be a continued increase in the continued investment, but we certainly believe that we will still be EBITDA margin that we've given guidance on.
Next question.
Yeah.
Yeah.
Yeah.
Our next question.
I loved that.
Chip shortage affecting telematic devices, because they have an impact on the planned great.
And I've spoken a little bit about it we don't believe that's going to have an impact on our growth in terms of subscriber growth.
Okay.
From Goldman.
The competitive environment evolved over the past 12 to 18 months across the various regions are the items themselves because of more serious competitor.
This.
So the competitive environment in the last 12.18 months, it's been under Covid I believe there hasn't been much of a change in the competitive environment in terms of the I M.
I do not see the next competitors.
We are able to collect that data from that.
And we've actually signed deals with I M.
Specifically in the last 12 months.
And we can collect data from the audience.
In different spaces.
And it's putting telematic devices, mostly to get vehicle diagnostics for maintenance and draw the psyche.
We are we able to do the same but we got more into the efficiency gains and to.
Outbound customers with other aspects of it.
The bonds that they want to play where the infrastructure team building the intersection.
As it comes with the Quanta.
Quanta enable of complexity, what we actually do.
A question from Howard.
Congrats on a single default quick from a Boston based on forecast, but let's see how many people outside the Puma project in Asia on the gallons offline, we was that year ago 24 months ago.
I haven't got the numbers in front of me.
I can always get these numbers for you.
But in terms of what I can tell you is that outgrowth in house people today in 24 months is pretty much. The same we didn't really invest in head count.
Yeah.
Margin increased.
Doing things starting to increase.
It did not that we think we've been they're going to bring in management into Thailand, Philippines and Indonesia.
Okay.
Next question from Bob <unk>.
Zach.
From a fixed capital I want to ask any plans to increase the shaping of jaycee. Thank you for taking my question.
We certainly have plans to increase our the three flight mass.
My self insured joined <unk>.
Two 7%.
So some shoes.
And cheese.
A portion of these tax liabilities during the restructuring.
I asked 11 solved any of my shares to cover their tax restructuring and are we doing things both myself in June to sell down our sheet and I think at the time, we do not need to a 67% of the business and we certainly want to join us and 50% with the business and we believe it's better for us.
Year to date.
But more will be quite true.
There's a question from David Eberle.
Yes.
Yeah.
Zach it's great to see additional investment will help in Asia any color on which countries you will be <unk> and <unk>.
To answer that.
Sure.
Yeah, great so readiness and obviously, Saudi I put a rebid arabias, obviously, a lagging indicator.
Income investment, yes, I agree with that and that is in keeping with what we promised to the market and the decline in our margins in EBITDA and adjusted EBITDA.
Something that is not coming at any surprise to us or to the market.
Keeping with our plan strategic thing.
Okay.
And that's all the questions.
I, thank everybody for attending and I look forward to talking to you in three months time.
Thank you very much bye.
Bye bye.
Ladies and gentlemen, this does conclude our conference for today. Thank you for participating you may all disconnect.
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