Q3 2022 Karooooo Ltd Earnings Call
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[music].
Welcome to <unk> limited earnings presentation for the third quarter of crews to tell them 22 financial year today that Callisto CEO al found it will be presenting to you exactly would take questions from participants after the presentation.
To try to commence with the presentation.
Okay.
Taking the time.
<unk> T.
Our Q2 results.
Cool.
Okay.
You bet.
Our Luxembourg.
Okay.
Yes.
It is a contract.
We have reached new starter to just founded in South Africa and now.
Cool.
We've had a track record of being the <unk>.
A few years.
People over time.
Before walking.
Due to R&D.
Page <unk>.
And our mission.
Mobility is.
All the ground operations.
What we see.
Mitchell.
Okay.
Right.
Paul.
Vehicles and equipment this is Jonathan.
Technology, we've gone from cheaper GPRS due to RFG.
Okay.
Our knowledge has evolved.
To be able to see a much larger opportunity.
Much stronger value for our customers. Our mission is to establish that people underground operations talent.
What we do as we solve problems, but did you transforming underground operations.
We add value to the day to day operations about that.
In that we do that.
Equipment management.
The logistics and delivery operations management.
Now customers.
Field worker.
Sure.
We do thank you.
Type C.
We seek to me ending today's H b.
One key compliance.
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Miami Fort controlling that.
We do risk mitigation.
The integration into <unk>.
To the best possible.
Customers.
It is.
We.
DCP and beat the Pike, and we will be launching sleep.
Thank you for early Q1.
We achieved operating selling more vehicles to support that bulge in beta type at this point of time.
We are sick look.
Gary.
Sure.
And.
That platform.
Chuck.
Okay.
Yes.
Okay.
Can everybody hear me.
No.
Okay.
We tend to make fee.
<unk> opened operations countless seamless operations.
Customer assistance, we can do.
Different prep in vehicle smart devices.
We also could they get from 14 in <unk>.
Smart devices.
Bridget Telematics and research community also do collect data and push that.
<unk> Q2 party system sell systems.
We take the data and are in oncology.
We view the backend analytics, we do artificial intelligence, we do understand that.
Pages of Hooper can show up.
Mr Fischer intelligence and with that can return for all fleet.
Cause that exist on.
One platform.
Okay.
Sure that we are monitoring.
<unk> the data is by the time the main competitor to our customers, we do not sell data third party.
And we see the real federal state is really how do we assist our customers and our future customers.
Please please.
We'll also be away.
Metric picked about.
April .
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We are starting to move.
<unk> based in there already to be able to unlock this value.
At this point in time, the connect as a <unk>.
Opinion data points and ecosystem is valuable data points, because the all the data points that we have.
This record is not being paid.
Paul.
Yes.
We certainly believe unless technology.
Evolves the opportunity seems to be getting bigger and we in the very early stage of this knowledge and long term growth opportunity.
Sure.
Iot systems are key to improving operations for our customers. If we look at customers customer's operations and the main pit.
A majority of it is driven around the fleet vehicles.
So any customer balances.
Underground operations.
Foreign debt vehicles are key to those operations.
Look at the market shares.
South Africa has got about 10 million vehicles at this point and can be flat at about 10% of all vehicles or.
Or now platform.
Asia, we estimated it to be at the 100 million vehicles.
We've got 133 8000 vehicles, it's really.
A very small percentage reached.
We've got a huge growth opportunity in southeast Asia.
That's the same as it is a large opportunity as well.
We believe in South Africa, we can grow relatively cost for maybe another 46 years.
In Southeast Asia, and Europe , we've created quite a long runway for growth and in Africa has got about 10 million vehicles, it's not our major focus at this point in time.
And we've got 67 hotel, it's a jeep vehicles in Africa.
Yes.
It is estimated that.
Over 40% of global GDP SP.
It's all about the underground operations and fleet and what really gets spent to be able to be able to.
Alright.
Economical value under correct.
Okay.
For the last 50 years, we've had a.
Robust and consistently profitable business model.
If you look down fast.
Growth.
Over the last few years, we've averaged around 20% we need to be in mind.
Currency fluctuations as at 14.
November 23 to $1 <unk> of November .
The exchange rate of 16 Rand to the dollar debt.
Keep quiet declined to $72 5 million U S dollars.
We have.
Just over 78 cell commercial customer list on our platform.
Our vertically integrated business model.
And all inclusive tariff software platform.
While we established infrastructure.
Expanding distribution metric.
And we certainly have proven over time that we have the ability to execute and discount.
If we just take the highlights of Q3.
Assets cargo types by 18%.
1 billion to <unk> 147 million subscribers.
Their core experiment to date.
Now that we've actually corn at this point in time over $1 5 million subscribers.
It's public information.
Our subscription revenue.
Grew by 19%.
98% of our revenue comes from.
Subscription revenue.
Our total.
They bring you closer currency grew by 3%.
If you look at all.
Historical data in terms of hedging.
You can see consistently every.
Every quarter, we Scott.
The amount of vehicles on our platform.
Subscription revenues are successful or not.
In all the quarters.
We know at $664 million range.
<unk> three <unk>.
This quarter was at $628 million say to us.
Hey Al increase.
Q3.
In terms of profitability.
Our operating profit for the quarter was $205 million compared to the previous quarter of $178 million.
And that's primarily need this course.
Q4, Q1, we invested substantially in sales and marketing.
We with Covid free we saw that we had to be kind of a little bit more prudent terrific capital allocation. So we cut back a little bit on the sales and marketing costs and we've seen it.
The increase in operating profit clearly our intention is to grow subscription revenue and subscribers and we wanted to do it.
In our financial discipline.
Yes.
If you look at our total revenue.
Our best quarter ever with <unk> printing.
<unk> for the quarter.
Consistently grow revenue every quarter historically and in terms of earnings per share.
We had full range stable between four quarter three at.
In terms of stroke.
Unit Economics, we believe we've got very strong unit economics.
We've got drove operating margins and we consistently beat from the rule of 40.
Our balance sheet and leverage and we've seen a pretty strong cash position at this point in time.
I think the most important.
The takeaway for us and strategic leave what's important for US is that we have ample capacity to increase our investment in sales and marketing and to remain profitable and I think that for US is building and we are.
The balance sheet does that asset.
Our net subscriber addition.
You can look for the nine months, we added 164000 Nit.
Subscriber additions compared to last through the first nine months interest bearing Janine I think talented.
In the prior year it was 128.
Talented.
If we look at Q3, we had 61000 net subscribers.
<unk>.
<unk> quarter, we had 71 talented.
Different states have relative modest count the subscribers in terms of gross sales.
<unk> was we had a better quarter than last quarter. However, we exited that will churn in this quarter as we come to the tail end of customers that we hadn't been billing for we didn't recognize any revenue and.
It's gone into financial.
In financial difficulty because of Covid and tweak churn discussed.
Customers in Q3.
Okay.
We are getting strong unit economics.
Lifetime value of customer relationships is very healthy and we see what the LTV to CAC of over nine times and Thats really puts us in a fee.
Good position to be able to increase our investment for growth.
It is often confused.
Lifetime value of a customer and the last time value of a subscriber.
And.
I would just go back to make the clarity on that.
A differentiator between the two customer you onboard a customer.
Solar will keep vehicles on our platform, but that was chairing the vehicles and borrowing used vehicles.
So one peso could remain with you for a few couple of years.
It is expected given our historical data that customers keep their vehicles on our platform for 61 months due to amortization of 60 months.
What <unk>, what does it cost us to acquire a subscriber and prepayments.
To our platform and that we take into account the average of a new customer and an existing customer clearly a new customer is most things have been in the existing customer.
We bundle them together to give one just one number.
And in Q3 of FY 'twenty, two towards 1981 of which 697.
<unk> trend and one.
84 gets capitalized and depreciated at 16 months or lifetime value of a subscriber.
Yes.
For Q.
Q3, FY 'twenty two six <unk>.
334.
Comparable to 6739 and that use a bit of noise because of currency, but is also because we've increased our sales and marketing and we haven't actually derive often missed the street bad yet the specific time, keeping their dreams of COVID-19 , but nevertheless, Toby healthy and CT.
<unk> operating profit margin for the period was 31%.
So we have ample.
Paul.
Profit margin to really increase in grant that fat cells.
In terms of our growth per region.
That's good for a 19% increase in subscribers Asia, 20%, Europe , 15% Africa, 8%.
I think overall, we compete given date wins and given that we are <unk>.
Fee.
Megabits.
This amount of financial discipline.
Over the quarter.
We certainly are in Facebook the long term.
Of the business and.
And for building a building a platform and building our customer base for the future if you see sales and marketing expense.
Kris.
We've increased the FY 'twenty three.
Our real increases coming R&D.
We've increased our R&D spend by 80% and a lot of that investment that we're doing today.
The benefits of that.
In the medium to long term.
In terms of G&A, we skipped.
And that discipline in that and that's gone up by 10%.
Our operating margins for the quarter was research and development, 6% very much in keeping with our long term targets that we gave when we IPO Ed in.
In April on the NASDAQ.
Sales and marketing subscription is that 12%.
People with the same quarter of last year and.
We certainly want to increase that to 17% to 19%.
And we believe that's.
It will yield good results and substantially faster growth than the current 20%.
General and administration as a percent of subscription revenue.
That 20% down from 21%.
Daily we want to see that that 12% to 16% over the long term.
Adjusted EBITDA margin as a percentage of subscription that they've been here for the quarter was 52%.
Down from the 53% of last year, and we believe long term target would be between 50, and perhaps get 5%.
So fundamentally the chains are in line with our long term financial goals set that I pointed out in this thing.
In terms of free cash flow.
Yes.
This brought our strategic investment in <unk> question.
In RMB and.
Our capital allocation during this pandemic, we still hedge what we believe is good free cash flow of $306 million range, our operating activities, we generated 700.
$10 million range, we invested in PPE $445 million and we believe given our stronger than the generation of strong earnings growth and strong cash flow. We see we believe fit our balance sheet is.
We feel very comfortable with it.
And ample capacity to final price.
Cash and eight.
We have a support savings within that range.
Right at the end of Q3 compared to $67 million range.
In the same period in the previous year.
<unk> days.
34.
34 days, which I believe he's Vinnie LLC.
And that's been quite consistent for several years.
<unk> traditionally been in debt.
The 50 50 to 35 days.
Okay.
He is clearly supported by internal systems that we manage our internal systems include the collection management all status.
Output for the year remains unchanged despite the pandemic.
The number of subscribers that.
Our initial outlook that we gave at the beginning of the financial year was $1 5 million to one six we've already support the $1 $5 million. So we feel pretty comfortable that reaching the subscription revenue.
$2, five and $2 7 billion should that should be easily accomplished and adjusted EBITA margin.
We doubt request between 45, and 50% and the year to date <unk> at 47%. So we also feel comfortable that you'll be able to meet.
Check.
All are already attained that Denver west.
276.
But youre right.
And that's also showing good growth.
I want to thank you for listening to this presentation and I'll be taking questions.
Yes.
And the first question I'll tack is from Mike from Canaccord.
Great.
Zach.
Jack I wanted to get your thoughts <unk>.
ICL in the U S market getting a premium valuation.
How do you.
Pete with them.
Do you compete with them and if you do how do you stay or head to head and maybe you can talk about how their strategy.
Different from from your strategy.
The first thing.
Okay.
I haven't really had the time, sorry, a huge discount.
The literature that upgrade.
I think I paid much claimed the same architecture as other competitors in America last year that quite a few competitors that.
We haven't really come across in the market.
But from what I read I think they will be competitor they certainly appear to be.
Really good job in terms of growing the business.
CD growth and 68%, indicating a tremendous amount of cash.
They're not profitable, but they super Tuesday, I think they have taken a lot of cash into sales and marketing, which I think is quite a good team and make it because I think the maintenance so that's good but similarity.
With OLED.
CT depicted and make the right value.
Asia.
Overall.
They grew a good job.
The valuation.
I'm not really in the competitive company.
And we've done that we will be able to flow.
Fluor tubing.
And.
I believe we will be out of COVID-19.
Thus going process.
Okay. Thanks, and then follow up question is just on the sales and marketing and investment.
How is the hiring opportunity and how should we think about modeling sales.
Sales and marketing as it ramps towards your longer term product.
17% to 19% target.
At this point in time.
Actually.
If you go and you look at Q1.
Our credit drove.
Yes.
Three to six months, so even if we look at that.
My view on that was that you already.
We're six months in the last six months of the year, we'll probably be sitting with no code with our liquids cut.
I'll go to drill.
We are going to have 12 months of <unk> at this point that we've spoken to meet their outlook.
In terms of sales and marketing what we wouldnt.
Because I've got a draw we started spending quite a lot of money on some of them, obviously and realize that we are allocating capital not to the same financial discipline that we have to add in the park.
If you look at Q2, and Q3 will be better on this.
In multiple states.
Getting the credit.
But we are in the crude wonderful experience as a 30 or 40% we'd get back to you.
But we have quite a bit when the market has been was once.
We are able to travel the abaca deploy the people were able to execute at this point confirm the effect.
Thanks Mark.
I think.
But we feel comfortable that we are doing relatively okay job.
One bookkeeping Creek unit Economics, I think there is an argument for US too we can have a unit economics and.
Great.
In the pandemic the Disney Company management.
If the value IP evaluating.
Whether we should just compromise on our unit economics, so that we think it can.
Data growth.
<unk>.
Hopefully the short term we.
We will see the pandemic.
Being less restrictive.
Okay, well congrats on keeping your full year guidance and the results despite.
Covid restrictions more than you thought, but I'll pass the line to the next caller.
Thanks for your network the next caller Alex from Raymond James.
Thanks, Zach, but last quarter, you talked about the record adds in September .
It's about if you can talk about how many already put us at the rest of the quarter and with that you called out some of the retention.
From some of the early <unk>.
Customers that you've kind of subsidize during the pandemic any update on how much of that is left.
That's basically since the first adviser estimates it really at the tail.
Even in this last Q3.
We.
In the region.
In between.
Between I haven't got the exact number but we should be cleaning even 60 intelligent vehicles that was really vehicles that we have.
Subsidizing, we hadn't been invoicing.
For the.
A good six months that we've actually switch them off.
Probably add another 20000 or so of those vehicles that you'll probably do in Q4 and beyond that I think it's business as normal.
And we want to be any of that is where we still are adding the cost of sales while we're doing it.
No revenue on the back of Covid.
Yes.
Alright.
Got it.
Okay.
Got it okay.
Okay, and then on the messaging evolution now to kind of the on the ground operation cloud what can you tell us in terms of where you're investing today and what kind of going into core telematics offerings versus kind of everything else in the platform.
And then would that longer term, how do you think about monetization of that broader platform.
So we've got great.
The es ways of looking at this.
First thing is we've got great operators.
We've got Great unit economics.
We all basically substantially more.
R&D as you could see compared to two <unk>.
A year ago, we increased R&D spending by 80%.
That's quite material.
And a lot of investment for the medium and the long term and you'll see that we'll be spending the money a lot of it youre guiding to.
The video IP.
Very good.
The creation of two customer system.
Getting to software to help our customers in terms of last mile delivery.
<unk> of.
Timing.
Correspondent focus with different customers.
Okay.
Confirm next to one and then we can distribute it for them using third party carriers.
All user accounts sourced throughout it.
We are driving at <unk>.
This towards of large retailers into the rare.
In terms of.
Management.
But on the ground in terms of the administration, where we had lots of customer input conveyor system or manually or excel helping.
Helping digitalized and hope.
First of all.
The vehicles the equipment that they're using their operation.
Good.
We do a tremendous amount of work open up back.
Management that we have traditionally done in the past, what's allowing you to do this is clearly.
When we started out in the <unk>.
Business there was there any lift in 10 CPR.
And what we can do with data today substantially more than what we could do.
So.
X months ago, when we started developing.
It's the booth that goes onto our platform.
We launched <unk>.
Our latest platform towards the end of last year, and we believe we've got a long or.
We've got a long way to go.
Or not that could be proven or offering any CX index.
For quite a long time into the future to be able to deliver a low cost product for our customer.
Yes.
Great. Thank you.
Thank you.
Thanks, Matt.
<unk> from William Blair.
Hey, guys. Thanks for taking my questions wanted to first ask about impact of micron and what you've seen so far from that in the fourth quarter.
Okay.
I think South Africa at the time, just on the economy sort of surface and what we saw at that point in time Asia started opening up the boarders approximately two weeks into the neighboring countries.
Malaysia, Philippines, Indonesia, Athena than Aussie come surface, and then it would be all geared towards the sports clubs the gate.
I have to get onto the transport, Canada South Africa.
So it did not make getting back into Singapore.
My family are supposed to come out to South Africa, we couldnt do that.
I think that's on the one side.
We'll hold the immediate reaction.
Cabinets and different policies on the ground, what we saw in South Africa is that the hospitals.
The article page this nobody asked for VA Hospital.
I'll speak to doctors.
<unk> seem to be a huge problem omnicom.
And I think that makes me feel and that's just a question of time the markets will open up again and a multiple of that.
Clearly.
Certainly our getting pretty hopeful and everything went into lockdown in the grid.
I'm not sure if I've understood.
Or to your question.
Yes, I think that does.
And you mentioned ramping up.
Sales and marketing investments is into next fiscal year, maybe you can just give us some idea about what the priorities are in terms of where you are going to allocate some of those investments.
So I think.
Repetitive.
Bit of a prudent way.
And we certainly.
For us that will biggest priorities Asia.
But you've got to be able to execute otherwise, we just do any money if it makes sense.
So we certainly edge is our top priority and certainly Europe as well.
We want to get.
We went to getting this thing because I think that the real opportunity the biggest opportunities lie with the longest runway is clearly Asia and Europe , South Africa, we've already got 11% to all the vehicles on the road with 80%. We believe we could grow really well for maybe another thoughts.
Seven years and off the bat.
We can generate good revenue guide the eastbound starting to charge for the additional vehicles on our platform.
Something that we can start looking at that probably in about two years currently has time to increase revenue and RP.
We've got.
Yeah.
Once we believe we have quite a large share of the.
Right.
Customer of that potential market that I think Asia and Europe is still very early stages with a lot of opportunities specifically Asia.
Okay, great. Thanks for taking my questions.
Okay.
From Morgan Stanley .
Thanks, just a quick question on your.
Other growth opportunities.
Thank you and maybe focusing a little bit on causing concerns recognised mobile revenue of the day.
Perhaps how profitable is that revenue recognition.
And from here, what would you expect the growth and the opportunity to be.
With the loss of that causes.
Maybe you can touch on the insurance and the acquisition of logistics acquisition as well. Thank you.
And of course, it is invasive type.
In Q2, I think we did about $1 million range revenue in Q3, we did about $24 million from <unk>.
Making that Youll, probably do over 14, beginning in Q4.
Turning to gold price.
Towards the end of Q4, we might be a little bit light.
In Q1.
And gaming will have a platform, where we can really start scaling the.
Business at this point, it's more about getting a bit crazy and it's more about us getting the model right.
In terms of processes and procedures I feel comfortable.
You're able to execute and evergreen business within three years.
On people be comfortable about that there'll be a lot of Eddy County.
I think a lot of value.
Okay.
And that that all project.
Its sense of insurance.
Okay.
Yes.
Policies.
That's perfect for that loss.
Yes.
Yes.
Q3 quarter products.
We opened two stores.
Or any of the next financial year.
And in terms of pickup we had been waiting with Zika approval over two years.
We have a lot of the subscription revenue that they were generating tends to be the core tech platform already and.
The day, we are more focused on the integration into the warehouses and into the retail stores of customers and into the account so strong and their professional careers. We know at this point in time merchant piece sort of the technology to our technology and then again.
Bringing all of that into one single platform, which is our platform at that point in time, then we obviously spent time and money investing in as paid in that business. Now believes that is an important point for the long and drawn out but what we do in terms of cash.
Customers with the operations.
Thank you Beth.
Okay.
Sure.
<unk> from.
<unk> CFO .
Hey, Thanks for taking my questions I wanted to talk about the unit economics of the business, obviously very strong today at Nymex LTV to CAC, what does that look like when you enter some of these newer markets in southeast Asia, and Europe is that typically a fair bit lower than skills over time or do you really see those.
Unit economics hold true regardless of location you are trying to acquire customers.
So that's mandated non X.
I certainly believe that we could certainly drop that when we initially start scaling but I believe if we are able to keep our unit economics.
We've taken in the past.
Away from what we find is when you start scaling is always a bit of effect and a bit of perspective, but once you are able to work out this privilege.
Zinc provided the pricing every may is really these today.
And believe we can.
Similar LTV to CAC.
Got it and then just thinking about the broader strategy here.
Underground operations, how much will tuck in acquisitions play a role in expanding the platform going forward, obviously, the pick up deal, but can we expect it to be.
Our normal cadence of a deal or two each year going forward as you widen the scope of the platform.
So.
Yes.
First the acquisition that we've done at.
Traditionally we'd be metro vertically integrate business say, even if you look at our internal systems the way we run the business internally.
<unk> proprietary software.
What led to this acquisition was that we had been working with pickup.
Yes, we know the management fee well, we know what type holding and we realized that that you are bringing into one single platform work outs, the real value that that can generate as a ton.
That's what made us buying this asset.
Integrated into one single platform.
We believe we all want it to go grow by acquisition.
Not against it.
We certainly not on the trail to do acquisitions in order to grow our belief regarding that tayo reads to be able to get there.
The growth at three one.
Organically.
I appreciate the feedback thanks again.
Thank you.
<unk> asked the question yet from Craig any.
What do you see it the launch largest challenge pure growth is it internal.
So capacity competition.
<unk> with something else.
I think.
<unk> always say the biggest challenge is normally what you done that.
And because you don't know what to do about it at this point in time, the real challenge is human capital a bulk all businesses face the same challenge, it's the human capital, whether it's for sales and marketing G&A R&D, it's never easy it's always difficult.
And <unk>.
Obviously, there are challenges that will come in what we do for the business is it's always there is always something that you can think of that is just around the corner.
But I think what's important is at the time.
We the agile team and we are able to to address the challenges as they can.
Then we've got less Joachim.
<unk>, alright, zac, given our strong and under leveraged balance sheet and healthy cash and cash equivalents can you give an indication of the company company's inorganic growth strategy, all the M&A opportunities all UPC cutting T bolt on acquisition partnerships.
So far the business.
And if so what sort of business.
On the right dose.
So I think from the main pit.
We not marketed.
Looking for big growth this quarter.
On all the M&A.
Clearly, we think that metric and so and we very realistic.
We'll certainly be.
Great opportunity to do it.
Hey at some form or another.
I don't believe that I think the market is large enough to be could it be multiple winners.
Switching to be an opportunity for M&A and if we were to occur.
Quiet any business.
It would have to be strategic and if it makes any sense.
And we've got another question from <unk>.
What that ideal customer new Clark.
Services.
Let's say this is two basis carved into what these opportunities in it.
I think fundamentally we don't really have an ideal customer.
If you look at our customer portfolio at this point in time, we've got customers ranging from consumer to large enterprises and smaller customers with one vehicle our largest customers that say several thousand vehicles in the temporal vehicles that got it guys for motorcycles.
Large trucks in mindset way 600, Fob ended 600 tons.
In terms of industries.
We've got a range of industries from tourism to logistics to oil and gas mining.
Retailers wholesalers.
You name it we've got the testing we've done Avalon deal cost can be done.
Asset and each customer is quite DB, one unique needs.
And.
At this point in time I believe we can take it to 99% of those customers' needs in terms of fleet management and we certainly all know existing faulty on fleet management to be able to assist our customers in getting more value in integrating all the data that we collect into deep dive they operate.
<unk>.
Thank you everybody for attending.
And we will see you in three months' time, thank you very much bye bye.
Yeah.
Well that does conclude our conference for today. Thank you for saving you may all disconnect.
Sure.
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