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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
10-Q
(Mark One)
☒
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended
March 31, 2024
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the transition period from
To
Commission file number:
000-31203
LESAKA TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Florida
98-0171860
(State or other jurisdiction
(IRS Employer
of incorporation or organization)
Identification No.)
President Place, 4
th
Floor
,
Cnr. Jan Smuts Avenue and Bolton Road
,
Rosebank, Johannesburg
,
2196
,
South Africa
(Address of principal executive offices, including zip code)
Registrant’s telephone number,
including area code:
27
-
11
-
343-2000
Not Applicable
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Title of each class
Trading Symbol(s)
Name of each exchange
on which registered
Common stock, par value $0.001 per share
LSAK
NASDAQ
Global Select Market
Indicate by check mark whether
the registrant (1) has filed
all reports required to be
filed by Section 13 or
15(d)
of
the
Securities
Exchange
Act
of
1934
during
the
preceding
12
months
(or
for
such
shorter
period
that
the
registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90
days.
YES
☒
NO
☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File
required
to
be
submitted
pursuant
to
Rule
405
of
Regulation
S-T
(§232.405
of
this
chapter)
during
the
preceding
12
months (or for such shorter period that the registrant was required to submit such files).
YES
☒
NO
☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated
filer, smaller
reporting company
or an
emerging growth
company. See the
definitions of
“large accelerated
filer,”
“accelerated
filer,”
“smaller
reporting
company,”
and
“emerging
growth
company”
in
Rule 12b-2
of
the
Exchange Act (check one):
☐
Large accelerated filer
☒
Accelerated filer
☐
Non-accelerated filer
☒
Smaller reporting company
☐
Emerging growth company
If an
emerging
growth company,
indicate by
check mark
if the
registrant has
elected not
to use
the extended
transition period
for complying
with any
new or
revised financial
accounting standards
provided pursuant
to
Section 13(a) of the Exchange Act.
☐
Indicate by
check mark
whether the
registrant is
a shell
company (as
defined in
Rule 12b-2
of the
Exchange
Act). YES
☐
NO
☒
As of May 6,
2024 (the latest
practicable date),
63,599,696
shares of the registrant’s
common stock, par value
$0.001 per share, net of treasury shares, were outstanding.
1
Form 10-Q
LESAKA TECHNOLOGIES, INC.
Table
of Contents
Page No.
PART
I. FINANCIAL INFORMATION
Item 1.
Financial Statements
Unaudited Condensed Consolidated Balance Sheets as of March 31, 2024 and June 30,
2023
2
Unaudited Condensed Consolidated Statements of Operations for the three and nine
months ended March 31, 2024 and 2023
3
Unaudited Condensed Consolidated Statements of Comprehensive (Loss) Income for the
three and nine months ended March 31, 2024 and 2023
4
Unaudited Condensed Consolidated Statement of Changes in Equity for the three and
nine months ended March 31, 2024 and 2023
5
Unaudited Condensed Consolidated Statements of Cash Flows for the three and nine
months ended March 31, 2024 and 2023
7
Notes to Unaudited Condensed Consolidated Financial Statements
8
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
43
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
62
Item 4.
Controls and Procedures
63
Part II. OTHER INFORMATION
Item 1A.
Risk Factors
64
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
65
Item 5.
Other Information
65
Item 6.
Exhibits
66
Signatures
67
EXHIBIT 46
EXHIBIT 47
2
Part I. Financial information
Item 1. Financial Statements
LESAKA TECHNOLOGIES, INC.
Unaudited Condensed Consolidated Balance Sheets
March 31,
June 30,
2024
2023
(A)
(In thousands, except share data)
ASSETS
CURRENT ASSETS
Cash and cash equivalents
$
55,223
$
35,499
Restricted cash related to ATM funding
and credit facilities (Note 8)
4,383
23,133
Accounts receivable, net and other receivables (Note 2)
34,331
25,665
Finance loans receivable, net (Note 2)
40,754
36,744
Inventory (Note 3)
21,789
27,337
Total current assets before settlement assets
156,480
148,378
Settlement assets
29,300
15,258
Total current assets
185,780
163,636
PROPERTY,
PLANT AND EQUIPMENT, net of accumulated depreciation of - March: $
40,276
June:
$
36,563
27,918
27,447
OPERATING LEASE RIGHT-OF-USE (Note 16)
5,533
4,731
EQUITY-ACCOUNTED INVESTMENTS
(Note 5)
159
3,171
GOODWILL (Note 6)
133,473
133,743
INTANGIBLE ASSETS, NET (Note 6)
110,798
121,597
DEFERRED INCOME TAXES
9,793
10,315
OTHER LONG-TERM ASSETS, including reinsurance assets (Note 5 and 7)
78,035
77,594
TOTAL ASSETS
551,489
542,234
LIABILITIES
CURRENT LIABILITIES
Short-term credit facilities for ATM funding (Note 8)
4,272
23,021
Short-term credit facilities (Note 8)
9,006
9,025
Accounts payable
19,018
12,380
Other payables (Note 9)
49,470
36,297
Operating lease liability - current (Note 16)
1,763
1,747
Current portion of long-term borrowings (Note 8)
3,269
3,663
Income taxes payable
1,565
1,005
Total current liabilities before settlement obligations
88,363
87,138
Settlement obligations
27,820
14,774
Total current liabilities
116,183
101,912
DEFERRED INCOME TAXES
43,878
46,840
OPERATING LEASE LIABILITY - LONG TERM (Note 16)
3,912
3,138
LONG-TERM BORROWINGS (Note 8)
132,398
129,455
OTHER LONG-TERM LIABILITIES, including insurance policy liabilities (Note 7)
2,602
1,982
TOTAL LIABILITIES
298,973
283,327
REDEEMABLE COMMON STOCK
79,429
79,429
EQUITY
COMMON STOCK (Note 10)
Authorized:
200,000,000
with $
0.001
par value;
Issued and outstanding shares, net of treasury - March:
64,466,830
June:
63,640,246
83
83
PREFERRED STOCK
Authorized shares:
50,000,000
with $
0.001
par value;
Issued and outstanding shares, net of treasury:
March:
-
June:
-
-
-
ADDITIONAL PAID-IN-CAPITAL
341,287
335,696
TREASURY SHARES, AT
COST: March:
25,297,772
June:
25,244,286
(288,445)
(288,238)
ACCUMULATED OTHER
COMPREHENSIVE LOSS (Note 11)
(195,096)
(195,726)
RETAINED EARNINGS
315,258
327,663
TOTAL LESAKA EQUITY
173,087
179,478
NON-CONTROLLING INTEREST
-
-
TOTAL EQUITY
173,087
179,478
TOTAL LIABILITIES, REDEEMABLE COMMON STOCK AND SHAREHOLDERS’ EQUITY
$
551,489
$
542,234
(A) – Derived from audited financial statements
See Notes to Unaudited Condensed Consolidated Financial Statements
LESAKA TECHNOLOGIES, INC.
Unaudited Condensed Consolidated Statements of Operations
3
Three months ended
Nine months ended
March 31,
March 31,
2024
2023
2024
2023
(In thousands, except per share
data)
(In thousands, except per share
data)
REVENUE (Note 15)
$
138,194
$
133,968
$
418,176
$
394,822
EXPENSE
Cost of goods sold, IT processing, servicing and support
107,854
105,299
329,610
314,651
Selling, general and administration
23,124
24,547
67,146
70,995
Depreciation and amortization
5,791
5,975
17,460
17,892
Transaction costs related to Adumo acquisition (Note 20)
631
-
665
-
OPERATING INCOME (LOSS)
794
(1,853)
3,295
(8,716)
REVERSAL OF ALLOWANCE FOR
DOUBTFUL EMI DEBT
RECEIVABLE
-
-
250
-
(LOSS) GAIN ON DISPOSAL OF EQUITY-ACCOUNTED
INVESTMENT (Note 5)
-
(329)
-
(193)
INTEREST INCOME
628
469
1,562
1,269
INTEREST EXPENSE
4,581
4,984
14,312
13,408
LOSS BEFORE INCOME TAX EXPENSE (BENEFIT)
(3,159)
(6,697)
(9,205)
(21,048)
INCOME TAX EXPENSE (BENEFIT) (Note 18)
931
(860)
1,881
(465)
NET LOSS BEFORE EARNINGS (LOSS) FROM EQUITY-
ACCOUNTED INVESTMENTS
(4,090)
(5,837)
(11,086)
(20,583)
EARNINGS (LOSS) FROM EQUITY-ACCOUNTED INVESTMENTS
(Note 5)
43
17
(1,319)
(2,582)
NET LOSS ATTRIBUTABLE
TO LESAKA
$
(4,047)
$
(5,820)
$
(12,405)
$
(23,165)
Net loss per share, in United States dollars
(Note 13):
Basic loss attributable to Lesaka shareholders
$
(0.06)
$
(0.09)
$
(0.20)
$
(0.37)
Diluted loss attributable to Lesaka shareholders
$
(0.06)
$
(0.09)
$
(0.20)
$
(0.37)
See Notes to Unaudited Condensed Consolidated Financial Statements
LESAKA TECHNOLOGIES, INC.
Unaudited Condensed Consolidated Statements of Comprehensive (Loss) Income
4
Three months ended
Nine months ended
March 31,
March 31,
2024
2023
2024
2023
(In thousands)
(In thousands)
Net loss
$
(4,047)
$
(5,820)
$
(12,405)
$
(23,165)
Other comprehensive (loss) income, net of taxes
Movement in foreign currency translation reserve
(5,718)
(9,775)
(450)
(19,713)
Release of foreign currency translation reserve related to
disposal of Finbond equity securities (Note 11)
-
243
1,543
342
Release of foreign currency translation reserve related to
liquidation of subsidiaries
-
-
(952)
-
Movement in foreign currency translation reserve related
to equity-accounted investments
-
216
489
2,657
Total other comprehensive
income (loss), net of
taxes
(5,718)
(9,316)
630
(16,714)
Comprehensive loss
(9,765)
(15,136)
(11,775)
(39,879)
Comprehensive loss attributable to Lesaka
$
(9,765)
$
(15,136)
$
(11,775)
$
(39,879)
See Notes to Unaudited Condensed Consolidated Financial Statements
LESAKA TECHNOLOGIES, INC.
Unaudited Condensed Consolidated Statements of Changes in Equity
5
Lesaka Technologies, Inc. Shareholders
Number of
Shares
Amount
Number of
Treasury
Shares
Treasury
Shares
Number of
shares, net of
treasury
Additional
Paid-In
Capital
Retained
Earnings
Accumulated
other
comprehensive
loss
Total
Lesaka
Equity
Non-
controlling
Interest
Total
Redeemable
common
stock
For the three months ended March 31, 2023 (dollar amounts in thousands)
Balance – January 1, 2023
88,708,191
$
83
(24,956,854)
$
(287,244)
63,751,337
$
332,537
$
345,392
$
(176,238)
$
214,530
$
-
$
214,530
$
79,429
Shares repurchased (Note 12)
(37,945)
(178)
(37,945)
-
(178)
(178)
Restricted stock granted (Note 12)
11,806
11,806
-
-
Exercise of stock options
37,500
-
37,500
114
114
114
Stock-based compensation charge
(Note 12)
-
1,667
1,667
1,667
Reversal of stock-based compensation
charge (Note 12)
(18,798)
(18,798)
(23)
(23)
(23)
Stock-based compensation charge
related to equity-accounted investment
(Note 5)
-
(9)
(9)
(9)
Net loss
-
(5,820)
(5,820)
-
(5,820)
Other comprehensive income (Note
11)
(9,316)
(9,316)
-
(9,316)
Balance – March 31, 2023
88,738,699
$
83
(24,994,799)
$
(287,422)
63,743,900
$
334,286
$
339,572
$
(185,554)
$
200,965
$
-
$
200,965
$
79,429
For the nine months ended March 31, 2023 (dollar amounts in
thousands)
Balance – July
1, 2022
87,215,613
$
83
(24,891,292)
$
(286,951)
62,324,321
$
327,891
$
362,737
$
(168,840)
$
234,920
$
-
$
234,920
$
79,429
Share repurchased (Note 12)
-
(103,507)
(471)
(103,507)
(471)
(471)
Restricted stock granted
1,394,558
1,394,558
-
-
Exercise of stock options
147,326
-
147,326
447
447
447
Stock-based compensation charge
(Note 12)
5,978
5,978
5,978
Reversal of stock-based compensation
charge (Note 12)
(18,798)
(18,798)
(23)
(23)
(23)
Stock-based compensation charge
related to equity-accounted investment
(7)
(7)
(7)
Net loss
(23,165)
(23,165)
-
(23,165)
Other comprehensive loss (Note 11)
(16,714)
(16,714)
-
(16,714)
Balance – March 31, 2023
88,738,699
$
83
(24,994,799)
$
(287,422)
63,743,900
$
334,286
$
339,572
$
(185,554)
$
200,965
$
-
$
200,965
$
79,429
See Notes to Unaudited Condensed Consolidated Financial
Statements
LESAKA TECHNOLOGIES, INC.
Unaudited Condensed Consolidated Statements of Changes in Equity
6
Lesaka Technologies, Inc. Shareholders
Number of
Shares
Amount
Number of
Treasury
Shares
Treasury
Shares
Number of
shares, net of
treasury
Additional
Paid-In
Capital
Retained
Earnings
Accumulated
other
comprehensive
loss
Total
Lesaka
Equity
Non-
controlling
Interest
Total
Redeemable
common
stock
For the three months ended March 31, 2024 (dollar amounts in thousands)
Balance – January 1, 2024
89,738,784
$
83
(25,295,261)
$
(288,436)
64,443,523
$
339,149
$
319,305
$
(189,378)
$
180,723
$
-
$
180,723
$
79,429
Shares repurchased (Note 12)
-
(2,511)
(9)
(2,511)
(9)
(9)
Restricted stock granted (Note 12)
65,525
65,525
-
-
Exercise of stock option (Note 12)
15,832
-
15,832
48
48
48
Stock-based compensation charge
(Note 12)
-
-
2,202
2,202
2,202
Reversal of stock-based compensation
charge (Note 12)
(55,539)
(55,539)
(112)
(112)
(112)
Stock-based compensation charge
related to equity-accounted investment
(Note 5)
-
-
-
Net loss
(4,047)
(4,047)
-
(4,047)
Other comprehensive loss (Note 11)
(5,718)
(5,718)
-
(5,718)
Balance – March 31, 2024
89,764,602
$
83
(25,297,772)
$
(288,445)
64,466,830
$
341,287
$
315,258
$
(195,096)
$
173,087
$
-
$
173,087
$
79,429
For the nine months ended March 31, 2024 (dollar amounts in
thousands)
Balance – July 1,
2023
88,884,532
$
83
(25,244,286)
$
(288,238)
63,640,246
$
335,696
$
327,663
$
(195,726)
$
179,478
$
-
$
179,478
$
79,429
Shares repurchased (Note 12)
(53,486)
(207)
(53,486)
(207)
(207)
Restricted stock granted
934,521
934,521
-
-
-
Exercise of stock option (Note 12)
23,217
-
23,217
71
71
71
Stock-based compensation charge
(Note 12)
-
-
5,782
5,782
5,782
Reversal of stock-based compensation
charge (Note 12)
(77,668)
(77,668)
(129)
(129)
(129)
Stock-based compensation charge
related to equity-accounted investment
(Note 5)
(133)
(133)
(133)
Net loss
(12,405)
(12,405)
-
(12,405)
Other comprehensive income (Note
11)
630
630
-
630
Balance – March 31, 2024
89,764,602
$
83
(25,297,772)
$
(288,445)
64,466,830
$
341,287
$
315,258
$
(195,096)
$
173,087
$
-
$
173,087
$
79,429
See Notes to Unaudited Condensed Consolidated Financial
Statements
LESAKA TECHNOLOGIES, INC.
Unaudited Condensed Consolidated Statements of Cash Flows
7
Three months ended
Nine months ended
March 31,
March 31,
2024
2023
2024
2023
(In thousands)
(In thousands)
Cash flows from operating activities
Net loss
$
(4,047)
$
(5,820)
$
(12,405)
$
(23,165)
Depreciation and amortization
5,791
5,975
17,460
17,892
Movement in allowance for doubtful accounts receivable
843
1,638
3,532
4,167
Fair value adjustment related to financial liabilities
(49)
(21)
(919)
123
Loss on disposal of equity-accounted investments (Note 5)
-
329
-
193
(Earnings) Loss from equity-accounted investments
(43)
(17)
1,319
2,582
Movement in allowance for doubtful loans to equity-accounted investments
-
-
(250)
-
Profit on disposal of property, plant and equipment
(89)
(145)
(288)
(466)
Movement in interest payable
1,054
1,827
1,245
3,289
Facility fee amortized
65
198
381
643
Stock-based compensation charge (Note 12)
2,090
1,644
5,653
5,955
Dividends received from equity-accounted investments
41
-
95
21
Decrease (Increase) in accounts receivable
5,687
(7,620)
(9,815)
(8,601)
Increase in finance loans receivable
(3,720)
(2,507)
(7,097)
(11,318)
Decrease (Increase) in inventory
5,000
(297)
5,506
(1,769)
Increase in accounts payable and other payables
6,463
1,030
20,566
5,421
Increase in taxes payable
904
1,349
558
1,478
Decrease in deferred taxes
(810)
(2,670)
(2,404)
(5,792)
Net cash provided by (used in) operating activities
19,180
(5,107)
23,137
(9,347)
Cash flows from investing activities
Capital expenditures
(2,943)
(4,717)
(7,950)
(13,210)
Proceeds from disposal of property, plant and equipment
395
394
1,115
1,156
Acquisition of intangible assets
(54)
(125)
(236)
(245)
Proceeds from disposal of equity-accounted investment (Note 5)
-
254
3,508
645
Loan to equity-accounted investment (Note 5)
-
-
-
(112)
Repayment of loans by equity-accounted investments
-
-
250
112
Net change in settlement assets
(3,088)
11,043
(14,368)
(972)
Net cash (used in) provided by investing activities
(5,690)
6,849
(17,681)
(12,626)
Cash flows from financing activities
Proceeds from bank overdraft (Note 8)
24,893
128,196
153,479
441,488
Repayment of bank overdraft (Note 8)
(43,380)
(135,986)
(172,221)
(448,288)
Long-term borrowings utilized (Note 8)
3,398
12,868
14,426
23,010
Repayment of long-term borrowings (Note 8)
(7,238)
(2,024)
(13,051)
(5,292)
Acquisition of treasury stock (Note 12)
(9)
(178)
(207)
(471)
Proceeds from exercise of stock options
48
114
71
447
Guarantee fee
-
-
-
(100)
Net change in settlement obligations
2,469
(10,761)
13,362
807
Net cash (used in) provided by financing activities
(19,819)
(7,771)
(4,141)
11,601
Effect of exchange rate changes on cash and cash equivalents
(1,903)
(3,475)
(341)
(7,156)
Net (decrease) increase in cash, cash equivalents and restricted cash
(8,232)
(9,504)
974
(17,528)
Cash, cash equivalents and restricted cash – beginning of period
67,838
96,776
58,632
104,800
Cash, cash equivalents and restricted cash – end of period (Note 14)
$
59,606
$
87,272
$
59,606
$
87,272
See Notes to Unaudited Condensed Consolidated Financial Statements
8
LESAKA TECHNOLOGIES, INC
Notes to the Unaudited Condensed Consolidated Financial Statements
for the three and nine months ended March 31, 2024 and 2023
(All amounts in tables stated in thousands or thousands of U.S. dollars, unless otherwise stated)
1.
Basis of Presentation and Summary of Significant Accounting
Policies
Unaudited Interim Financial Information
The accompanying
unaudited condensed
consolidated financial
statements include
all majority-owned
subsidiaries over
which
the Company exercises
control and have been
prepared in accordance with
U.S. generally accepted accounting
principles (“GAAP”)
and
the rules
and
regulations
of
the United
States Securities
and
Exchange
Commission
for
Quarterly Reports
on Form
10-Q
and
include all of the information and
disclosures required for interim financial reporting.
The results of operations for the
three and nine
months ended March 31, 2024 and
2023, are not necessarily indicative of
the results for the full year.
The Company believes that the
disclosures are adequate to make the information presented not misleading.
These
unaudited
condensed
consolidated
financial
statements
should
be
read
in
conjunction
with
the
financial
statements,
accounting policies and financial notes thereto included in the
Company’s Annual Report on Form 10-K for the fiscal year ended June
30,
2023.
In
the
opinion
of
management,
the
accompanying
unaudited
condensed
consolidated
financial
statements
reflect
all
adjustments (consisting only of normal recurring adjustments), which are necessary for a fair
representation of financial results for the
interim periods presented.
References to “Lesaka” are references
solely to Lesaka Technologies,
Inc. References to the “Company” refer
to Lesaka and its
consolidated subsidiaries, collectively,
unless the context otherwise requires.
Recent accounting pronouncements adopted
In June 2016, the Financial Accounting Standards Board (“FASB”) issued guidance regarding
Measurement of Credit Losses on
Financial Instruments
. The guidance
replaces the incurred
loss impairment
methodology in
current GAAP
with a methodology
that
reflects expected credit losses
and requires consideration of a
broader range of reasonable and
supportable information to inform credit
loss estimates.
For trade and
other receivables,
loans, and
other financial
instruments, an entity
is required
to use a
forward-looking
expected loss
model rather
than the incurred
loss model for
recognizing credit
losses, which reflects
losses that are
probable. Credit
losses relating to
available-for-sale debt securities will
also be
recorded through an
allowance for credit
losses rather than
as a
reduction
in the amortized cost basis of the securities. The guidance became effective for the Company beginning July 1, 2023. The adoption of
this guidance did not have a material impact on the Company’s
financial statements and related disclosures, refer to Note 2.
In November
2019, the
FASB
issued guidance
regarding
Financial
Instruments—Credit
Losses (Topic
326),
Derivatives and
Hedging
(Topic
815),
and
Leases
(Topic
842).
The
guidance
provides
a
framework
to
stagger
effective
dates
for
future
major
accounting
standards
and
amends
the
effective
dates
for
certain
major
new
accounting
standards
to
give
implementation
relief
to
certain types
of entities,
including Smaller
Reporting Companies.
The Company
is a Smaller
Reporting Company.
Specifically,
the
guidance changes some effective
dates for certain
new standards on
the following topics
in the FASB Codification, namely Derivatives
and Hedging
(ASC 815);
Leases (ASC
842); Financial
Instruments —
Credit Losses
(ASC 326);
and Intangibles
— Goodwill
and
Other
(ASC
350).
The
guidance
defers
the
adoption
date
of
guidance
regarding
Measurement
of
Credit
Losses
on
Financial
Instruments
by the
Company from
July 1, 2020
to July
1, 2023.
The guidance
became effective
for the
Company beginning
July 1,
2023. The
adoption of
this guidance
did not
have a
material impact
on the
Company’s
financial statements
and related
disclosures,
refer to Note 2.
The Company’s updated accounting
policy regarding allowance for credit losses is as follows:
Allowance for doubtful accounts receivable
Allowance for doubtful finance loans receivable
The Company uses historical default experience over the lifetime of loans in order to calculate a lifetime loss rate for its lending
books. The allowance for credit losses related
to Consumer finance loans receivables is calculated by multiplying the
lifetime loss rate
with
the
month-end
outstanding
lending
book.
The
allowance
for
credit
losses
related
to
Merchant
finance
loans
receivables
is
calculated
by
adding
together
actual
receivables
in
default
plus
multiplying
the
lifetime
loss
rate
with
the
month-end
outstanding
lending
book.
Prior to
July 1,
2023,
the
Company
regularly
reviewed
the ageing
of outstanding
amounts
due
from borrowers
and
adjusted its allowance based on management’s estimate of the recoverability of the finance loans
receivable. The Company writes off
microlending finance
loans receivable and
related service fees
and interest if
a borrower is
in arrears with
repayments for more
than
three months
or is
deceased. The
Company writes
off merchant
and working
capital finance
receivables and
related fees
when it
is
evident that reasonable recovery procedures, including where deemed necessary,
formal legal action, have failed.
9
1.
Basis of Presentation and Summary of Significant Accounting
Policies (continued)
Allowance for doubtful accounts receivable (continued)
Allowance for doubtful accounts receivable
The Company uses a lifetime loss rate by expressing write-off
experience as a percentage of corresponding invoice amounts (as
opposed to outstanding balances).
The allowance for credit
losses related to these
receivables has been calculated
by multiplying the
lifetime loss
rate with
recent invoice/origination amounts.
Prior to
July 1,
2023, a specific
provision is
established where it
is considered
likely that all or
a portion of
the amount due
from customers renting
safe assets, point of
sale (“POS”) equipment,
receiving support
and
maintenance
or
transaction
services
or
purchasing
licenses
or
SIM
cards
from
the
Company
will
not
be
recovered.
Non-
recoverability
is assessed
based
on a
quarterly
review
by management
of
the ageing
of outstanding
amounts,
the
location
and
the
payment history of the customer in relation to those specific amounts.
Recent accounting pronouncements not yet adopted
as of March 31, 2024
In
November
2023.
the
FASB
issued
guidance
regarding
Segment
Reporting
(Topic
280)
to
improve
reportable
segment
disclosure
requirements,
primarily
through
enhanced
disclosures
about
significant
segment
expenses.
In
addition,
the
guidance
enhances
interim disclosure requirements, clarifies circumstances in which an entity can disclose multiple segment measures of profit
or loss,
provides
new segment
disclosure
requirements
for entities
with a
single reportable
segment,
and
contains
other disclosure
requirements. This
guidance is
effective
for the
Company beginning
July 1,
2024 for
its year
ended June
30, 2025,
and for
interim
periods commencing from July
1, 2025 (i.e.
for the quarter
ended September 30, 2025).
The Company is currently
assessing the impact
of this guidance on its financial statements and related disclosures.
In
December
2023,
the
FASB
issued
guidance
regarding
Income
Taxes
(Topic
740)
to
improve
income
tax
disclosure
requirements. The guidance requires
entities, on an
annual basis, to
(1) disclose specific categories
in the income tax
rate reconciliation
and (2) provide additional information for reconciling items that meet a quantitative threshold (if the effect
of those reconciling items
is equal
to or
greater
than
five percent
of the
amount computed
by multiplying
pre-tax
income
or loss
by the
applicable
statutory
income tax rate). This guidance
is effective for the Company
beginning July 1, 2025. The Company
is currently assessing the impact
of this guidance on its financial statements and related disclosures.
2.
Accounts receivable, net and other receivables and
finance loans receivable, net
Accounts receivable, net and other receivables
The Company’s accounts receivable,
net, and other receivables as of March 31, 2024, and June 30, 2023, are presented in the
table below:
March 31,
June 30,
2024
2023
Accounts receivable, trade, net
$
12,970
$
11,037
Accounts receivable, trade, gross
13,055
11,546
Allowance for doubtful accounts receivable, end of period
85
509
Beginning of period
509
509
Reallocation to allowance for doubtful finance loans receivable
-
(418)
Reversed to statement of operations
(435)
(31)
Charged to statement of operations
828
2,005
Utilized
(819)
(1,645)
Foreign currency adjustment
2
89
Current portion of amount outstanding related to sale of interest in Carbon,
net of
allowance: March 2024: $
750
; June 2023: $
750
-
-
Current portion of total held to maturity investments
-
-
Investment in
7.625
% of Cedar Cellular Investment 1 (RF) (Pty) Ltd
8.625
% notes
-
-
Other receivables
21,361
14,628
Total accounts receivable,
net and other receivables
$
34,331
$
25,665
Trade receivables include amounts
due from customers
which generally have
a very short-term
life from
date of invoice
or service
provided to settlement. The duration
is less than a year in all cases and
generally less than 30 days in many
instances. The short-term
nature
of
these
exposures
often
results
in
balances
at
month-end
that
are
disproportionately
small
compared
to
the
total
invoiced
amounts.
The
month-end
outstanding
balance
are
more
volatile
than
the
monthly
invoice
amounts
because
they
are
affected
by
operational timing issues and
the fact that a balance
is outstanding at month-end is
not necessarily an indication of
increased risk but
rather a matter of operational timing.
10
2.
Accounts receivable, net and other receivables and
finance loans receivable, net (continued)
Accounts receivable, net and other receivables (continued)
Credit risk in respect of trade receivables are generally not
significant and the Company has not developed a sophisticated model
for these basic
credit exposures. The
Company determined to
use a lifetime
loss rate by
expressing write-off experience as
a percentage
of corresponding
invoice amounts
(as opposed
to outstanding
balances). The
allowance for credit
losses related to
these receivables
has
been
calculated
by
multiplying
the
lifetime
loss
rate
with
recent
invoice/origination
amounts.
Management
actively
monitors
performance of these
receivables over short periods
of time. Different
balances have different
rules to identify an
account in distress
but,
generally
speaking,
account
balances
in
distress
are
identified
very
early
and
specific
allowances
are
immediately
created.
Subsequent recovery from distressed accounts is generally
limited.
Current portion of amount outstanding related to sale of interest in Carbon represents the amount due from the purchaser related
to the sale of the Company’s
interest in Carbon Tech
Limited (“Carbon”), an equity-accounted investment of $
0.25
million, net of an
allowance for doubtful loans receivable of $
0.25
million as of June 30, 2023, and an amount due related to the sale of the loan, with a
face value of $
3.0
million, which was sold in
September 2022 for $
0.75
million, net of an allowance for
doubtful loans receivable of
$
0.75
million, refer
to Note 5 for
additional information.
The Company received
the outstanding $
0.25
million related to
the sale of
the equity-accounted investment in
October 2023, and has
reversed the allowance for
doubtful loans receivable of
$
0.25
million during
the nine months ended December 31, 2023. The Company has not yet received the outstanding $
0.75
million related to the sale of the
$
3.0
million loan, and continues to engage with the purchaser to recover the outstanding
balance.
Investment in
7.625
% of Cedar Cellular
Investment 1 (RF) (Pty) Ltd
8.625
% notes represents the
investment in a note which was
due to mature in August 2022 and forms part of Cell C’s
capital structure. The carrying value as of each of March 31, 2024, and June
30, 2023, respectively was $
0
(zero).
Other receivables include prepayments, deposits, income taxes receivable and
other receivables.
Contractual maturities of held to maturity investments
Summarized below is the contractual maturity of the Company’s
held to maturity investment as of March 31, 2024:
Cost basis
Estimated
fair
value
(1)
Due in one year or less
$
-
$
-
Due in one year through five years
(2)
-
-
Due in five years through ten years
-
-
Due after ten years
-
-
Total
$
-
$
-
(1) The estimated fair value of the Cedar Cellular note has been calculated utilizing the
Company’s portion of the assets held by
Cedar Cellular, namely,
Cedar Cellular’s investment in Cell C.
(2) The cost basis is zero ($
0.0
million).
11
2.
Accounts receivable, net and other receivables and
finance loans receivable, net (continued)
Finance loans receivable, net
The Company’s finance
loans receivable, net, as of March 31, 2024, and June 30, 2023, is presented in the table below:
March 31,
June 30,
2024
2023
Microlending finance loans receivable, net
$
25,246
$
20,605
Microlending finance loans receivable, gross
27,000
22,037
Allowance for doubtful finance loans receivable, end of period
1,754
1,432
Beginning of period
1,432
1,394
Reversed to statement of operations
(149)
-
Charged to statement of operations
1,692
1,452
Utilized
(1,217)
(1,214)
Foreign currency adjustment
(4)
(200)
Merchant finance loans receivable, net
15,508
16,139
Merchant finance loans receivable, gross
18,273
18,289
Allowance for doubtful finance loans receivable, end of period
2,765
2,150
Beginning of period
2,150
297
Reallocation from allowance for doubtful accounts receivable
-
418
Reversed to statement of operations
(201)
(1,268)
Charged to statement of operations
1,797
3,068
Utilized
(978)
-
Foreign currency adjustment
(3)
(365)
Total finance
loans receivable, net
$
40,754
$
36,744
Total
finance
loans
receivable,
net,
comprises
microlending
finance
loans
receivable
related
to
the
Company’s
microlending
operations
in South
Africa as
well as
its merchant
finance loans
receivable related
to Connect’s
lending activities
in South
Africa.
Certain merchant
finance loans
receivable
with an
aggregate balance
of $
15.2
million as
of March
31, 2024
have been
pledged
as
security for the Company’s
revolving credit facility (refer to Note 8).
Allowance for credit losses
Microlending finance loans receivable
Microlending finance
loans receivable
related to
the Company’s
microlending operations
in South
Africa whereby
it provides
unsecured short-term
loans to qualifying
customers. Loans to customers
have a tenor
of up to
six months
, with the majority
of loans
originated having
a tenor of
six months
. The Company
analyses this lending
book as a
single portfolio
because the
loans within the
portfolio have similar characteristics and management uses similar processes to monitor and assess
the credit risk of the lending book.
Refer to Note 4 related to the Company risk management process related to
these receivables.
The Company has operated this lending book for more than
five years
and uses historical default experience over the lifetime of
loans in order
to calculate a
lifetime loss rate
for the lending
book. The allowance
for credit losses
related to these
microlending finance
loans receivables
is calculated
by multiplying
the lifetime
loss rate
with the
month end
outstanding lending
book. The
lifetime loss
rate as of each of July 1, 2023 and March 31, 2024, was
6.50
%. The performing component (that is, outstanding loan payments not in
arrears) of the book exceeds more than
98
% of outstanding lending book as of March 31, 2024.
Merchant finance loans receivable
Merchant
finance loans
receivable related
to the
Company’s
Merchant
lending activities
in South
Africa whereby
it provides
unsecured
short-term loans
to qualifying
customers. Loans
to customers
have a
tenor of
up to
twelve months
, with
the majority
of
loans originated having a tenor of approximately
eight months
. The Company analyses this lending book as a single portfolio because
the loans within the portfolio have similar characteristics and management uses similar processes to monitor and assess the credit risk
of the lending book.
Refer to Note 4 related to the Company risk management process related to these receivables.
12
2.
Accounts receivable, net and other receivables and
finance loans receivable, net (continued)
Finance loans receivable, net (continued)
Allowance for credit losses (continued)
Merchant finance loans receivable (continued)
The
Company
has
recently
(in
the
past
two years
)
commenced
lending
to
merchant
customers
and
uses
historical
default
experience over
the lifetime of
loans generated thus
far in order
to calculate a
lifetime loss rate
for the lending
book. The allowance
for credit losses related to these merchant finance loans receivables
is calculated by adding together actual receivables in default
plus
multiplying the lifetime
loss rate with the
month-end outstanding lending
book. The lifetime loss
rate as of each
of July 1, 2023
and
March
31, 2024,
was approximately
1.18
%. The
performing
component (that
is, outstanding
loan payments
not in
arrears), under-
performing
component (that
is, outstanding
loan payments
that are
in arrears)
and non-performing
component (that
is, outstanding
loans
for
which
payments
appeared
to have
ceased)
of the
book represents
approximately
84
%,
14
% and
2
%,
respectively,
of
the
outstanding lending book as of March 31, 2024.
3.
Inventory
The Company’s inventory
comprised the following categories as of March 31, 2024, and June 30, 2023:
March 31,
June 30,
2024
2023
Raw materials
$
2,437
$
2,819
Work-in-progress
299
30
Finished goods
19,053
24,488
$
21,789
$
27,337
As of March 31,
2024 and June 30, 2023,
finished goods includes $
6.0
million and $
8.6
million, respectively,
of Cell C airtime
inventory
that was
previously classified
as finished
goods subject
to sale
restrictions.
In support
of Cell
C’s
liquidity position
and
pursuant
to
Cell
C’s
recapitalization
process,
the
Company
limited
the
resale
of
this
airtime
to
its
own
distribution
channels.
On
September 30, 2022, Cell C
concluded its recapitalization process and
the Company and Cell C
entered into an agreement under which
Cell C agreed to repurchase, from October
2023, up to ZAR
10
million of Cell C inventory from the
Company per month. The amount
to be repurchased by Cell C is calculated as ZAR
10
million less the face value of any sales made by the Company during that month.
The Company’s ability to sell this airtime has increased significantly since the acquisition of Connect because Connect is
a significant
reseller of
Cell C airtime.
As a
result, the
Company has
sold higher
volumes of
airtime through
this channel
than it
did prior
to the
Cell C
recapitalization,
however,
continued
sales at
these volumes
is dependent
on prevailing
conditions
continuing in
the airtime
market. If the Company is able to sell at least ZAR
10
million a month through this channel from October 1, 2023, then Cell C would
not be
required to
repurchase any
airtime from
the Company
during any
specific month.
The Company
has agreed
to notify
Cell C
prior to selling any of this airtime, however, there is no
restriction placed on the Company on the sale of the airtime
.
13
4.
Fair value of financial instruments
Initial recognition and measurement
Financial instruments
are recognized
when the
Company becomes
a party
to the
transaction. Initial
measurements are
at cost,
which includes transaction costs.
Risk management
The Company manages its exposure
to currency exchange, translation, interest rate,
credit, microlending credit and equity price
and liquidity risks as discussed below.
Currency exchange risk
The
Company
is
subject
to
currency
exchange
risk
because
it
purchases
components
for
its
safe
assets,
that
the
Company
assembles, and inventories that it is required to settle in other currencies, primarily the euro, renminbi, and U.S. dollar.
The Company
has
used forward
contracts
in order
to limit
its exposure
in these
transactions
to fluctuations
in exchange
rates
between
the
South
African rand (“ZAR”), on the one hand, and the U.S. dollar and the euro, on
the other hand.
Translation risk
Translation risk relates to
the risk that
the Company’s results of operations
will vary significantly
as the U.S.
dollar is its
reporting
currency,
but it earns a
significant amount of its
revenues and incurs a
significant amount of its
expenses in ZAR. The
U.S. dollar to
the ZAR
exchange rate
has fluctuated
significantly over
the past
three years.
As exchange
rates are
outside the
Company’s
control,
there can be no
assurance that future fluctuations will
not adversely affect the Company’s results of operations and
financial condition.
Interest rate risk
As a result of its
normal borrowing activities, the Company’s operating results are exposed to fluctuations in
interest rates, which
it manages primarily through regular financing activities. Interest rates in South Africa have been trending
upwards in recent quarters
but have now
stabilized and are
expected to remain
at current
levels, or perhaps
even decline moderately
over calendar 2024.
Therefore,
ignoring the impact of changes to the margin on its borrowings (refer to Note 8),
the Company expects its cost of borrowing to remain
stable,
or
even
to
decline
moderately,
in
the foreseeable
future,
however
if
the upward
trend
resumes
the Company
would
expect
higher
interest
rates
in
the
future
which
will
increase
its
cost
of
borrowing.
The
Company
periodically
evaluates
the
cost
and
effectiveness of interest rate hedging strategies
to manage this risk.
The Company generally maintains surplus cash
in cash equivalents
and held to maturity investments and has occasionally invested in marketable securities
.
Credit risk
Credit
risk
relates
to
the
risk
of
loss
that
the
Company
would
incur
as
a
result
of
non-performance
by
counterparties.
The
Company
maintains
credit
risk
policies
in
respect
of
its
counterparties
to
minimize
overall
credit
risk.
These
policies
include
an
evaluation
of
a
potential
counterparty’s
financial
condition,
credit
rating,
and
other
credit
criteria
and
risk
mitigation
tools
as
the
Company’s
management deems appropriate.
With respect
to credit risk on
financial instruments, the
Company maintains a
policy of
entering
into such
transactions only
with South
African
and European
financial institutions
that have
a credit
rating of
“B” (or
its
equivalent) or better, as determined by credit
rating agencies such as Standard & Poor’s, Moody’s
and Fitch Ratings.
Consumer microlending credit
risk
The Company
is exposed
to credit
risk in
its Consumer
microlending activities,
which provides
unsecured short-term
loans to
qualifying customers.
Credit bureau
checks as
well as
an affordability
test are
conducted as
part of
the origination
process, both
of
which are in line with local regulations. The Company considers this
policy to be appropriate because the affordability test it
performs
takes into account
a variety of
factors such
as other debts
and total expenditures
on normal household
and lifestyle expenses.
Additional
allowances may
be required
should the
ability of
its customers
to make
payments when
due deteriorate
in the
future. A
significant
amount of
judgment is required
to assess the
ultimate recoverability
of these finance
loan receivables,
including ongoing
evaluation
of the creditworthiness of each customer.
Merchant lending
The Company maintains an allowance for
doubtful finance loans receivable related to
its Merchant services segment with
respect
to short-term loans to qualifying merchant customers. The
Company’s risk management procedures include adhering to its proprietary
lending criteria which uses
an online-system loan application
process, obtaining necessary customer transaction-history
data and credit
bureau checks.
The Company considers
these procedures
to be appropriate
because it takes
into account
a variety of
factors such
as
the customer’s credit capacity and customer-specific
risk factors when originating a loan.
14
4.
Fair value of financial instruments (continued)
Risk management (continued)
Equity price and liquidity risk
Equity price risk relates to the risk of loss that the Company would incur as a result of the volatility in the exchange-traded price
of equity
securities that
it holds.
The market
price of
these securities
may fluctuate
for a
variety of
reasons and,
consequently,
the
amount that the Company may obtain in a subsequent sale of these securities may significantly differ
from the reported market value.
Equity liquidity risk
relates to the risk
of loss that the
Company would incur as
a result of the lack
of liquidity on the
exchange
on
which
those
securities
are
listed.
The
Company
may
not be
able
to
sell some
or
all
of
these
securities
at
one
time,
or
over
an
extended period of time without influencing the exchange-traded price,
or at all.
Financial instruments
The following
section describes
the valuation
methodologies the
Company uses
to measure
its significant
financial assets
and
liabilities at fair value.
In general, and where applicable, the Company uses quoted prices in
active markets for identical assets or liabilities
to determine
fair value.
This pricing
methodology would
apply to
Level 1
investments. If quoted
prices in
active markets
for identical
assets or
liabilities are
not available
to determine
fair value,
then the
Company uses
quoted
prices for
similar assets
and
liabilities or
inputs
other
than
the
quoted
prices
that
are
observable
either
directly
or
indirectly. These
investments
would
be included
in
Level
2
investments. In
circumstances
in
which
inputs
are
generally
unobservable,
values
typically
reflect
management’s
estimates
of
assumptions that market participants would use in pricing the asset or liability.
The fair values are therefore determined using model-
based techniques that include
option pricing models,
discounted cash flow models,
and similar techniques. Investments
valued using
such techniques are included in Level 3 investments.
Asset measured at fair value using significant unobservable inputs – investment
in Cell C
The Company’s
Level 3 asset represents
an investment of
75,000,000
class “A” shares in Cell
C, a significant
mobile telecoms
provider in South Africa.
The Company used a discounted cash flow model developed by the Company to determine
the fair value of
its investment in Cell C
as of March 31,
2024 and June 30, 2023,
respectively,
and valued Cell C at $
0.0
(zero) and $
0.0
(zero) as of
March 31,
2024, and
June 30,
2023, respectively.
The Company
incorporates the
payments under
Cell C’s
lease liabilities
into the
cash flow forecasts
and assumes
that Cell
C’s deferred tax assets
would be utilized
over the
forecast period. The
Company has increased
the
marketability
discount
from
10
% to
20
% and
the
minority
discount
from
15
% to
24
% due
to
the reduction
in the
Company’s
shareholding percentage from
15
% to
5
% as well as current market conditions. The Company utilized the latest revised business plan
provided by
Cell C
management for
the period
ended December
31, 2027,
for the
March 31,
2024, and
June 30,
2023, valuations.
Adjustments have been made to the WACC
rate to reflect the Company’s
assessment of risk to Cell C achieving its business plan.
The following key valuation inputs were used as of March 31, 2024
and June 30, 2023:
Weighted Average
Cost of Capital ("WACC"):
Between
20
% and
26
% over the period of the forecast
Long term growth rate:
4.5
% (
4.5
% as of June 30, 2023)
Marketability discount:
20
% (
20
% as of June 30, 2023)
Minority discount:
24
% (
24
% as of June 30, 2023)
Net adjusted external debt - March 31, 2024:
(1)
ZAR
7.4
billion ($
0.4
billion), no lease liabilities included
Net adjusted external debt - June 30, 2023:
(2)
ZAR
8.1
billion ($
0.4
billion), no lease liabilities included
(1) translated from ZAR to U.S. dollars at exchange rates applicable as of March 31,
2024.
(2) translated from ZAR to U.S. dollars at exchange rates applicable as of June 30,
2023.
The following table presents the impact on the carrying value of the Company’s
Cell C investment of a 1.0% decrease and 1.0%
increase
in
the
WACC
rate
and
the
EBITDA
margins
respectively
used
in
the
Cell
C
valuation
on
March
31,
2024,
all
amounts
translated at exchange rates applicable as of March 31, 2024:
Sensitivity for fair value of Cell C investment
1.0% increase
1.0% decrease
WACC
rate
$
-
$
553
EBITDA margin
$
1,241
$
-
The fair value of the
Cell C shares as of March
31, 2024, represented
0
% of the Company’s
total assets, including these
shares.
The Company expects to hold these shares for an extended period of time and that there will be short-term equity price volatility with
respect to these shares particularly given that Cell C remains in a turnaround
process.
15
4.
Fair value of financial instruments (continued)
Financial instruments (continued)
Derivative transactions - Foreign exchange contracts
As part
of
the
Company’s
risk
management
strategy,
the Company
enters
into
derivative
transactions
to
mitigate
exposures
to
foreign
currencies
using
foreign
exchange
contracts. These
foreign
exchange
contracts
are
over-the-counter
derivative
transactions. Substantially all of the Company’s derivative exposures are with counterparties that have long-term credit ratings of “B”
(or equivalent)
or better.
The Company
uses quoted
prices in
active markets
for similar
assets and liabilities
to determine
fair value
(Level 2). The Company has no derivatives that require fair value measurement
under Level 1 or 3 of the fair value hierarchy.
The Company had
no
outstanding foreign exchange contracts as of March 31, 2024, and June 30, 2023.
The following table presents
the Company’s
assets measured at fair value
on a recurring basis as
of March 31, 2024,
according
to the fair value hierarchy:
Quoted Price in
Active Markets
for Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
Assets
Investment in Cell C
$
-
$
-
$
-
$
-
Related to insurance
business:
Cash, cash equivalents and
restricted cash (included
in other long-term assets)
213
-
-
213
Fixed maturity
investments (included in
cash and cash equivalents)
4,963
-
-
4,963
Total assets at fair value
$
5,176
$
-
$
-
$
5,176
The following table presents the
Company’s assets measured
at fair value on a recurring basis as of
June 30, 2023, according to
the fair value hierarchy:
Quoted Price in
Active Markets
for Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
Assets
Investment in Cell C
$
-
$
-
$
-
$
-
Related to insurance business
Cash and cash equivalents
(included in other long-term
assets)
258
-
-
258
Fixed maturity investments
(included in cash and cash
equivalents)
3,119
-
-
3,119
Total assets at fair value
$
3,377
$
-
$
-
$
3,377
There have been
no
transfers in or out of Level
3 during the three and nine
months ended March 31, 2024 and 2023,
respectively.
There was
no
movement in the carrying value of assets measured at fair value on a recurring basis, and categorized within Level
3, during the nine months ended March 31, 2024 and 2023.
16
4.
Fair value of financial instruments (continued)
Summarized below is the movement in the carrying value of
assets and liabilities measured at fair value on a recurring
basis, and
categorized within Level 3, during the nine months ended March 31, 2024:
Carrying value
Assets
Balance as of June 30, 2023
$
-
Foreign currency adjustment
(1)
-
Balance as of March 31, 2024
$
-
(1) The foreign currency adjustment represents the effects of the fluctuations of the
South African rand against the U.S. dollar on
the carrying value.
Summarized below is the movement in the carrying value
of assets and liabilities measured at fair value on
a recurring basis, and
categorized within Level 3, during the nine months ended March 31, 2023:
Carrying value
Assets
Balance as of June 30, 2022
$
-
Foreign currency adjustment
(1)
-
Balance as of March 31, 2023
$
-
(1) The
foreign currency
adjustment represents the
effects of
the fluctuations
of the South
African rand
against the U.S.
dollar
on the carrying value.
Assets measured at fair value on a nonrecurring basis
The Company
measures equity
investments without
readily determinable
fair values
at fair value
on a
nonrecurring basis.
The
fair values of
these investments
are determined
based on
valuation techniques
using the best
information available
and may include
quoted market prices, market comparables, and discounted cash flow
projections. An impairment charge is recorded when the cost
of
the
asset
exceeds
its
fair
value
and
the
excess
is
determined
to
be
other-than-temporary.
Refer
to
Note
5
for
impairment
charges
recorded during the
reporting periods presented
herein. The Company
has
no
liabilities that
are measured at
fair value
on a
nonrecurring
basis.
5.
Equity-accounted investments and other long-term assets
Refer to Note 9 to the Company’s audited consolidated
financial statements included in its Annual Report on Form 10-K for the
year ended June 30, 2023, for additional information regarding its equity-accounted
investments and other long-term assets.
Equity-accounted investments
The
Company’s
ownership
percentage
in its
equity-accounted
investments
as of
March 31,
2024,
and
June 30,
2023, was
as
follows:
March 31,
June 30,
2024
2023
Finbond Group Limited (“Finbond”)
-
%
27.8
%
Sandulela Technology
(Pty) Ltd ("Sandulela")
49.0
%
49.0
%
SmartSwitch Namibia (Pty) Ltd (“SmartSwitch Namibia”)
50.0
%
50.0
%
Finbond
In December
2023, the
Company sold
its entire
remaining equity
interest in
Finbond which
comprised of
220,523,358
shares,
and which represented approximately
27.8
% of Finbond’s issued and outstanding
ordinary shares immediately prior to the sale.
17
5.
Equity-accounted investments and other long-term assets (continued)
Equity-accounted investments (continued)
Finbond (continued)
August 2023 agreement to sell entire
stake in Finbond
On
August
10,
2023,
the
Company,
through
its
wholly
owned
subsidiary
Net1
Finance
Holdings
(Pty)
Ltd,
entered
into
an
agreement with Finbond to sell its remaining shareholding to Finbond for a cash consideration of ZAR
64.2
million ($
3.5
million), or
ZAR
0.2911
per share. The transaction was subject to certain conditions, including regulatory and shareholder approvals,
which were
finalized in December 2023. The
Company did
no
t record a gain or loss on the
disposal because the sale proceeds were
equivalent to
the net carrying
value, including accumulated
reserves, of the
investment in Finbond
as of
the disposal
date. The cash
proceeds received
of ZAR
64.2
million ($
3.5
million) were used to repay capitalized interest under our borrowing facilities, refer
to Note 8.
Sale of Finbond shares during the three
and nine months ended March 31, 2023
The Company
sold
17,357,346
and
24,818,937
shares in
Finbond for
cash during
the three
and nine
months ended
March 31,
2023, respectively, and recorded a loss
of $
0.3
million and $
0.4
million, which is included
in the caption net
gain on disposal of
equity-
accounted investments in the Company’s
unaudited condensed consolidated statements of operations.
The following
table presents
the calculation
of the
loss on
disposal of
Finbond shares
during the
three and
nine months
ended
March 31, 2024 and 2023:
Three months ended
Nine months ended
March 31,
March 31,
2024
2023
2024
2023
Loss on disposal of Finbond shares:
Consideration received in cash
$
-
$
254
$
3,508
$
395
Less: carrying value of Finbond shares sold
-
(349)
(2,112)
(509)
Less: release of foreign currency translation reserve from
accumulated other comprehensive loss
-
(243)
(1,543)
(342)
Add: release of stock-based compensation charge related
to
equity-accounted investment
-
9
147
13
Loss on sale of Finbond shares
$
-
$
(329)
$
-
$
(443)
Finbond impairments recorded
during the nine months ended March 31, 2024
As noted earlier, the Company has entered into an agreement to exit its position in Finbond and the Company considered this an
impairment indicator. The
Company is required to include any foreign currency translation reserve
and other equity account amounts
in its impairment assessment if it considers exiting an equity method investment. The Company performed an impairment assessment
of its
holding in
Finbond, including
the foreign
currency translation
reserve and
other equity
account amounts,
as of September
30,
2023. The Company recorded an impairment loss of $
1.2
million during the quarter ended September 30, 2023, which represented the
difference between
the determined fair value
of the Company’s
interest in Finbond and
the Company’s
carrying value, including
the
foreign currency
translation reserve
(before the
impairment). The
Company used
the price of
ZAR
0.2911
referenced in
the August
2023 agreement referred to above to calculate the determined fair
value for Finbond.
Finbond impairments recorded
during the nine months ended March 31, 2023
The Company considered
the combination of
the ongoing losses incurred
and reported by
Finbond and its
lower share price
as
impairment indicators. The
Company performed an
impairment assessment of its
holding in Finbond
as of September 30,
2022. The
Company
recorded
an
impairment
loss
of
$
1.1
million
during
the
quarter
ended
September
30,
2022,
related
to
the
other-than-
temporary decrease in Finbond’s value, which represented the difference between the determined fair value of the Company’s interest
in Finbond and the Company’s
carrying value (before the impairment). The Company
observed continued
limited trading in Finbond
shares on the JSE during the
three months ended September 30, 2022,
because a small number of shareholders
owned approximately
80
% of
its issued
and outstanding
shares between
them. The
Company calculated
a fair
value per
share for
Finbond by
applying a
liquidity discount of
25
% to
the September 30,
2022, Finbond closing
price of
ZAR
0.49
. The
Company increased the
liquidity discount
from
15
% (used
in the
previous impairment
assessment) to
25
% as
a result
of the
ongoing limited
trading activity
observed on
the
JSE.
18
5.
Equity-accounted investments and other long-term assets (continued)
Equity-accounted investments (continued)
Carbon
In September
2022, the
Company,
through its
wholly-owned subsidiary,
Net1 Applied
Technologies
Netherlands B.V.
(“Net1
BV”),
entered
into
a binding
term
sheet
with the
Etobicoke
Limited
(“Etobicoke”)
to sell
its entire
interest, or
25
%,
in Carbon
to
Etobicoke for
$
0.5
million and
a loan
due from
Carbon, with
a face
value of
$
3.0
million, to
Etobicoke for
$
0.75
million. Both
the
equity
interest and
the loan
had a
carrying value
of $
0
(zero) at
June 30,
2022. The
parties have
agreed that
Etobicoke pledge
the
Carbon shares purchased as security for the amounts outstanding
under the binding term sheet.
The
Company
received
$
0.25
million
on
closing
and
the
outstanding
balance
due
by
Etobicoke
was
expected
to
be
paid
as
follows: (i) $
0.25
million on September 30, 2023 (the amount was received in October 2023), and (ii) the remaining amount, of $
0.75
million in March 2024 (the amount has not been received as of March 31, 2024 (refer
to Note 2)). Both amounts were included in the
caption accounts
receivable, net and
other receivables in
the Company’s
unaudited condensed
consolidated balance
sheet as of
June
30,
2023.
The
Company
has
allocated
the
$
0.25
million
received
on
closing
to
the
sale
of
the
equity
interest
and
allocated
the
subsequent funds received first to the sale of the equity interest and then to the loans.
The Company
believed that
the fair
value of
the Carbon
shares provided
as security
was $
0
(zero), which
was in
line with
the
carrying value as
of June 30, 2022,
and created an allowance
for doubtful loans receivable
related to the $
1.0
million previously due
from Etobicoke.
The Company
did not
incur any significant
transaction costs.
The Company
has included
the gain of
$
0.25
million
related to the sale of the Carbon equity interest in the caption net
gain on disposal of equity-accounted investments
in the Company’s
unaudited condensed consolidated statements of operations.
The following table presents the calculation of the gain on disposal of Carbon
in September 2022:
Three months
ended September
30,
2022
Gain on disposal of Carbon shares:
Consideration received in cash in September 2022
$
250
Less: carrying value of Carbon
-
Gain on disposal of Carbon shares:
(1)
$
250
(1) The Company does
not expect to pay taxes
related to the sale of
Carbon because the base cost
of its investment exceeds
the
sales consideration received. The Company does not believe that it will be able to utilize the
loss generated because Net1 BV does not
generate taxable income.
Summarized below is the
movement in equity-accounted investments and
loans provided to equity-accounted
investments during
the nine months ended March 31, 2024:
Finbond
Other
(1)
Total
Investment in equity
Balance as of June 30, 2023
$
3,040
$
131
$
3,171
Stock-based compensation
14
-
14
Comprehensive income:
(956)
126
(830)
Other comprehensive income
489
-
489
Equity accounted (loss) earnings
(1,445)
126
(1,319)
Share of net (loss) earnings
(278)
126
(152)
Impairment
(1,167)
-
(1,167)
Dividends received
-
(95)
(95)
Disposal of Finbond shares
(2,096)
-
(2,096)
Foreign currency adjustment
(2)
(2)
(3)
(5)
Balance as of March 31, 2024
$
-
$
159
$
159
(1) Includes Sandulela,
and SmartSwitch Namibia;
(2) The foreign currency
adjustment represents the effects
of the fluctuations
of the ZAR and Namibian
dollar, against the
U.S.
dollar on the carrying value.
19
5.
Equity-accounted investments and other long-term assets (continued)
Other long-term assets
Summarized below is the breakdown of other long-term assets as of March
31, 2024, and June 30, 2023:
March 31,
June 30,
2024
2023
Total equity investments
$
76,297
$
76,297
Investment in
5
% of Cell C (June 30, 2023:
5
%) at fair value (Note 4)
-
-
Investment in
10
% of MobiKwik (June 30, 2023:
10
%)
(1)
76,297
76,297
Investment in
87.5
% of CPS (June 30, 2023:
87.5
%) at fair value
(1)(2)
-
-
Policy holder assets under investment contracts (Note 7)
213
257
Reinsurance assets under insurance contracts (Note 7)
1,525
1,040
Total other long-term
assets
$
78,035
$
77,594
(1)
The Company
determined
that
MobiKwik
and CPS
do not
have
readily
determinable
fair
values and
therefore
elected to
record these investments
at cost minus impairment,
if any,
plus or minus changes
resulting from observable
price changes in orderly
transactions for the identical or a similar investment of the same issuer.
(2) On October 16, 2020,
the High Court of
South Africa, Gauteng Division, Pretoria
ordered that CPS be
placed into liquidation.
Summarized below
are the components
of the Company’s
equity securities without
readily determinable
fair value and
held to
maturity investments as of March 31, 2024:
Cost basis
Unrealized
holding
Unrealized
holding
Carrying
gains
losses
value
Equity securities:
Investment in MobiKwik
$
26,993
$
49,304
$
-
$
76,297
Investment in CPS
-
-
-
-
Held to maturity:
Investment in Cedar Cellular notes (Note 2)
-
-
-
-
Total
$
26,993
$
49,304
$
-
$
76,297
Summarized below are the components of the Company’s
equity securities without readily determinable fair value and held to
maturity investments as of June 30, 2023:
Cost basis
Unrealized
holding
Unrealized
holding
Carrying
gains
losses
value
Equity securities:
Investment in MobiKwik
$
26,993
$
49,304
$
-
$
76,297
Investment in CPS
-
-
-
-
Held to maturity:
Investment in Cedar Cellular notes
-
-
-
-
Total
$
26,993
$
49,304
$
-
$
76,297
20
6.
Goodwill and intangible assets, net
Goodwill
Summarized below is the movement in the carrying value of goodwill
for the nine months ended March 31, 2024:
Gross value
Accumulated
impairment
Carrying
value
Balance as of June 30, 2023
$
152,619
$
(18,876)
$
133,743
Foreign currency adjustment
(1)
(297)
27
(270)
Balance as of March 31, 2024
$
152,322
$
(18,849)
$
133,473
(1) – The foreign currency adjustment represents the effects
of the fluctuations of the South African rand against the U.S.
dollar on the carrying value.
Goodwill has been allocated to the Company’s
reportable segments as follows:
Consumer
Merchant
Carrying value
Balance as of June 30, 2023
$
-
$
133,743
$
133,743
Foreign currency adjustment
(1)
-
(270)
(270)
Balance as of March 31, 2024
$
-
$
133,473
$
133,473
(1) The foreign
currency adjustment represents
the effects
of the fluctuations
of the South
African rand
against the U.S.
dollar
on the carrying value.
Intangible assets, net
Carrying value and amortization of intangible assets
Summarized below is
the carrying value
and accumulated amortization
of intangible assets as
of March 31,
2024, and June
30,
2023:
As of March 31, 2024
As of June 30, 2023
Gross
carrying
value
Accumulated
amortization
Net
carrying
value
Gross
carrying
value
Accumulated
amortization
Net
carrying
value
Finite-lived intangible assets:
Customer relationships
$
24,927
$
(13,021)
$
11,906
$
24,978
$
(11,565)
$
13,413
Software, integrated
platform and unpatented
technology
110,914
(22,026)
88,888
110,906
(13,711)
97,195
FTS patent
2,030
(2,030)
-
2,034
(2,034)
-
Brands and trademarks
13,824
(3,820)
10,004
13,852
(2,863)
10,989
Total finite-lived
intangible
assets
$
151,695
$
(40,897)
$
110,798
$
151,770
$
(30,173)
$
121,597
Aggregate amortization
expense on the finite-lived
intangible assets for the
three months ended March
31, 2024 and 2023,
was
$
3.6
million and $
3.8
million, respectively.
Aggregate amortization
expense on the
finite-lived intangible assets
for the nine
months
ended March 31, 2024 and 2023, was $
10.8
million and $
11.6
million, respectively. Future estimated annual amortization expense for
the next five
fiscal years and
thereafter,
assuming exchange
rates that prevailed
on March
31, 2024,
is presented in
the table below.
Actual
amortization
expense
in
future
periods
could
differ
from
this
estimate
as
a
result
of
acquisitions,
changes
in
useful
lives,
exchange rate fluctuations and other relevant factors.
Fiscal 2024 (three months ended March 31, 2024)
$
3,594
Fiscal 2025
14,382
Fiscal 2026
14,382
Fiscal 2027
14,327
Fiscal 2028
14,295
Thereafter
49,818
Total future
estimated annual amortization expense
$
110,798
21
7.
Assets and policyholder liabilities under insurance and investment
contracts
Reinsurance assets and policyholder liabilities under insurance contracts
Summarized below is
the movement in reinsurance
assets and policyholder
liabilities under insurance
contracts during the
nine
months ended March 31, 2024:
Reinsurance
Assets
(1)
Insurance
contracts
(2)
Balance as of June 30, 2023
$
1,040
$
(1,600)
Increase in policy holder benefits under insurance contracts
809
(5,498)
Claims and decrease in policyholders’ benefits under insurance contracts
(319)
4,833
Foreign currency adjustment
(3)
(5)
8
Balance as of March 31, 2024
$
1,525
$
(2,257)
(1) Included in other long-term assets (refer to Note 5);
(2) Included in other long-term liabilities;
(3) Represents the effects of the fluctuations of the ZAR against the U.S. dollar.
The Company has agreements with reinsurance companies in order to limit its losses from various insurance contracts, however,
if the reinsurer is unable
to meet its obligations, the
Company retains the liability.
The value of insurance
contract liabilities is based
on the best estimate assumptions of future experience plus prescribed
margins, as required in the markets in which these
products are
offered,
namely South
Africa. The
process of
deriving the
best estimate
assumptions plus
prescribed margins
includes assumptions
related to claim reporting delays (based on average industry experience).
Assets and policyholder liabilities under investment contracts
Summarized
below
is the
movement
in assets
and
policyholder
liabilities
under investment
contracts
during
the
nine months
ended March 31, 2024:
Assets
(1)
Investment
contracts
(2)
Balance as of June 30, 2023
$
257
$
(241)
Increase in policy holder benefits under investment contracts
8
(8)
Claims and decrease in policyholders’ benefits under investment contracts
(44)
44
Foreign currency adjustment
(3)
(8)
(8)
Balance as of March 31, 2024
$
213
$
(213)
(1) Included in other long-term assets (refer to Note 5);
(2) Included in other long-term liabilities;
(3) Represents the effects of the fluctuations of the ZAR against the U.S. dollar.
The Company does not offer any investment products with guarantees
related to capital or returns.
8.
Borrowings
Refer to
Note 12
to the
Company’s
audited consolidated
financial statements
included in
its Annual
Report on
Form 10-K
for
the year ended June 30, 2023, for additional information regarding
its borrowings.
South Africa
The
amounts
below
have
been
translated
at
exchange
rates
applicable
as
of
the
dates
specified.
The
3-month
Johannesburg
Interbank
Agreed Rate
(“JIBAR”),
the
rate at
which
private sector
banks borrow
funds from
the
South
African Reserve
Bank,
on
March 31, 2024,
was
8.35
%. The prime rate,
the benchmark rate at
which private sector banks
lend to the public
in South Africa, on
March 31, 2024, was
11.75
%.
22
8.
Borrowings (borrowings)
South Africa (continued)
RMB Facilities, as amended, comprising a short-term facility (Facility E) and long-term
borrowings
Long-term borrowings - Facility G and Facility H
As of March 31, 2024, the Company had not utilized any of its ZAR
200
million Facility G revolving credit facility.
The interest
rate on this facility as of March 31, 2024, was JIBAR plus
5.50
%.
On November 24, 2023, the Company,
through its wholly owned subsidiary,
Lesaka Technologies
Proprietary Limited (“Lesaka
SA”), entered into an Amendment and Restatement Agreement (the “Amendment”), which includes an Amended and Restated Senior
Facility G Agreement (“Facility
G Agreement”) and an
Amended and Restated
Senior Facility H Agreement
(“Facility H Agreement”)
(collectively, the “Loan Documents”) with FirstRand Bank Limited (acting through its Rand Merchant Bank division) (“RMB” or the
“Lenders”).
The Loan Documents were amended to include a Look Through Leverage (“LTL”)
ratio, as defined in the Loan Documents, and
expressed as times (“x”), to calculate the margin used in the determination of the interest rate. The LTL ratio is calculated as the Total
Attributable Net Debt,
as defined in the
Loan Documents, to the
Total Attributable
EBITDA, as defined in
the Loan Documents,
for
the measurement period ending on a specified date.
Interest on
Facility G
and Facility
H is
based on
the JIBAR
in effect
from time
to time
plus a
margin, which
as a
result of
the
Amendment, from October 1, 2023,
will be calculated as: (i)
5.50
% if the LTL
ratio is greater than 3.50x; (ii)
4.75
% if the LTL
ratio
is less than 3.50x but greater than 2.75x; (iii)
3.75
% if the LTL ratio is less than 2.75x but greater than 1.75x; or (iv)
2.50
% if the LTL
ratio is less than 1.75x.
The Company used cash proceeds
of ZAR
64.2
million ($
3.5
million) received from the
sale of Finbond shares (refer
to Note 5)
during the nine months ended March 31, 2024, to repay capitalized interest under
Facility G and Facility H.
Available short-term facility -
Facility E
As of March 31, 2024,
the aggregate amount of
the Company’s
short-term South African overdraft
facility with RMB was ZAR
0.9
billion ($
47.7
million). As of March
31, 2024, the Company
had utilized ZAR
0.1
billion ($
4.3
million) of this overdraft
facility.
This overdraft facility
may only
be used to
fund ATMs and therefore the
overdraft utilized and
converted to cash
to fund the
Company’s
ATMs
is considered restricted cash. The interest rate on this facility is equal to the
prime rate.
Connect Facilities, comprising long-term borrowings and a short-term facility
As of March 31, 2024, the Connect Facilities include (i) an overdraft facility (general banking facility) of ZAR
205.0
million (of
which ZAR
170.0
million has been
utilized); (ii)
Facility A of
ZAR
700.0
million; (iii) Facility
B of ZAR
550.0
million (both
fully
utilized); and (iv) an asset-backed facility of ZAR
200.0
million (of which ZAR
154.6
million has been utilized).
CCC Revolving Credit Facility, comprising
long-term borrowings
As of March 31, 2024,
the amount of the CCC Revolving
Credit Facility was ZAR
300.0
million (of which ZAR
241.0
million
has been utilized).
Interest on the Revolving Credit Facility is payable on the last
business day of each calendar month and is based on
the South African prime rate in effect from time to time plus a margin
of
0.95
% per annum.
RMB facility, comprising indirect facilities
As of March 31, 2024,
the aggregate amount of
the Company’s
short-term South African indirect
credit facility with RMB was
ZAR
135.0
million ($
7.1
million),
which includes
facilities for
guarantees,
letters of
credit and
forward
exchange contracts.
As of
March 31, 2024 and June
30, 2023, the Company had
utilized ZAR
33.1
million ($
1.8
million) and ZAR
33.1
million ($
1.8
million),
respectively,
of its indirect
and derivative facilities
of ZAR
135.0
million (June 30,
2023: ZAR
135.0
million) to enable
the bank
to
issue guarantees, letters of credit and forward exchange contracts (refer
to Note 19).
23
8.
Borrowings (borrowings)
South Africa (continued)
Nedbank facility, comprising short-term facilities
As of March
31, 2024, the
aggregate amount of
the Company’s
short-term South African
credit facility
with Nedbank Limited
was ZAR
156.6
million ($
8.3
million). The credit facility represents indirect and derivative facilities
of up to ZAR
156.6
million ($
8.3
million), which include guarantees, letters of credit and forward exchange
contracts.
As of March 31,
2024 and June 30,
2023, the Company had
utilized ZAR
2.1
million ($
0.1
million) and ZAR
2.1
million ($
0.1
million), respectively,
of its indirect and derivative
facilities of ZAR
156.6
million (June 30, 2023: ZAR
156.6
million) to enable the
bank to issue guarantees, letters of credit and forward exchange contracts (refer
to Note 19).
Movement in short-term credit facilities
Summarized below
are the
Company’s
short-term facilities
as of
March 31,
2024, and
the movement
in the
Company’s
short-
term facilities from as of June 30, 2023 to as of March 31, 2024:
RMB
RMB
RMB
Nedbank
Facility E
Indirect
Connect
Facilities
Total
Short-term facilities available as of
March 31, 2023
$
47,680
$
7,152
$
10,860
$
8,294
$
73,986
Overdraft
-
-
10,860
-
10,860
Overdraft restricted as to use for
ATM
funding only
47,680
-
-
-
47,680
Indirect and derivative facilities
-
7,152
-
8,294
15,446
Movement in utilized overdraft
facilities:
Restricted as to use for ATM
funding only
23,021
-
-
-
23,021
No restrictions as to use
-
-
9,025
-
9,025
Balance as of June 30, 2023
23,021
-
9,025
-
32,046
Utilized
153,477
-
2
-
153,479
Repaid
(172,219)
-
(2)
-
(172,221)
Foreign currency
adjustment
(1)
(7)
-
(19)
-
(26)
Balance as of March 31, 2024
4,272
-
9,006
-
13,278
Restricted as to use for ATM
funding only
4,272
-
-
-
4,272
No restrictions as to use
$
-
$
-
$
9,006
$
-
$
9,006
Interest rate as of March 31, 2024
(%)
(2)
11.75
-
11.65
-
Movement in utilized indirect and
derivative facilities:
Balance as of June 30, 2023
$
-
$
1,757
$
-
$
112
$
1,869
Foreign currency adjustment
(1)
-
(3)
-
-
(3)
Balance as of March 31, 2024
$
-
$
1,754
$
-
$
112
$
1,866
(1) Represents the effects of the fluctuations between the
ZAR and the U.S. dollar.
(2) Facility E interest set at prime and the Connect facility at prime less
0.10
%.
24
8.
Borrowings (continued)
Movement in long-term borrowings
Summarized below is
the movement in
the Company’s
long-term borrowing from
as of as of
June 30, 2023
to as of March
31,
2024:
Facilities
G & H
A&B
CCC
Asset backed
Total
Included in current
$
-
$
-
$
-
$
3,663
$
3,663
Included in long-term
48,965
64,436
11,802
4,252
129,455
Opening balance as of June 30, 2023
48,965
64,436
11,802
7,915
133,118
Facilities utilized
8,072
-
2,915
3,439
14,426
Facilities repaid
(7,929)
-
(1,968)
(3,154)
(13,051)
Non-refundable fees paid
-
-
-
-
-
Non-refundable fees amortized
309
36
36
-
381
Capitalized interest
5,420
-
-
-
5,420
Capitalized interest repaid
(4,238)
-
-
-
(4,238)
Foreign currency adjustment
(1)
(232)
(130)
(19)
(8)
(389)
Closing balance as of March 31,
2024
50,367
64,342
12,766
8,192
135,667
Included in current
-
-
-
3,269
3,269
Included in long-term
50,367
64,342
12,766
4,923
132,398
Unamortized fees
(292)
(185)
(31)
-
(508)
Due within 2 years
-
1,656
-
3,592
5,248
Due within 3 years
50,659
6,953
12,797
1,180
71,589
Due within 4 years
-
55,918
-
108
56,026
Due within 5 years
$
-
$
-
$
-
$
43
$
43
Interest rates as of March 31, 2024 (%):
13.10
12.10
12.70
12.50
Base rate (%)
8.35
8.35
11.75
11.75
Margin (%)
4.75
3.75
0.95
0.75
Footnote number
(2)
(3)
(4)
(5)
(1) Represents the effects of the fluctuations between the ZAR and the
U.S. dollar.
(2) Interest on
Facility G and
Facility H was
calculated based on
the 3-month JIBAR
in effect
from time to
time plus a margin
of, from
January 1,
2023 to
September 30,
2023: (i)
5.50
% for
as long
as the
aggregate balance
under the
Facilities is
greater than
ZAR
800
million; (ii)
4.25
% if the
aggregate balance
under the
Facilities is equal
to or
less than ZAR
800
million, but
greater than
ZAR
350
million; or
(iii)
2.50
% if
the aggregate
balance under
the Facilities
is less
than ZAR
350
million. From
October 1,
2023,
interest
is calculated as described above.
(3) Interest on Facility A and Facility B is calculated based on JIBAR plus a margin,
of
3.75
%, in effect from time to time.
(4) Interest is charged at prime plus
0.95
% per annum on the utilized balance.
(5) Interest is charged at prime plus
0.75
% per annum on the utilized balance.
Interest expense incurred under the Company’s South African long-term borrowings and included in the
caption interest expense
on the condensed consolidated statement of operations during the three months ended March 31,
2024 and 2023, was $
4.0
million and
$
3.0
million, respectively. Prepaid facility fees amortized
included in interest expense during the three months ended March 31, 2024
and 2023, respectively,
were $
0.1
million and $
0.2
million, respectively.
Interest expense incurred
under the Company’s
K2020 and
CCC facilities
relates to
borrowings utilized
to fund
a portion of
the Company’s
merchant finance
loans receivable
and this
interest
expense
of $
0.4
million
and $
0.3
million,
respectively,
is included
in the
caption
cost of
goods
sold, IT
processing,
servicing
and
support on the condensed consolidated statement of operations for the
three months ended March 31, 2024 and 2023.
Interest
expense
incurred
during
the
nine
months
ended
March
31,
2024
and
2023,
was
$
12.1
million
and
$
5.7
million,
respectively.
Prepaid facility
fees amortized
included
in interest
expense during
the nine
months ended
March 31,
2024 and
2023,
respectively,
were
$
0.3
million
and
$
0.4
million,
respectively.
Interest
expense
incurred
under
the
Company’s
K2020
and
CCC
facilities relates to borrowings utilized to fund a portion of
the Company’s merchant finance loans receivable and this interest expense
of $
1.1
million and $
0.5
million, respectively,
is included
in the caption
cost of goods
sold, IT processing,
servicing and support
on
the condensed consolidated statement of operations for the nine months
ended March 31, 2024 and 2023.
25
9.
Other payables
Summarized below is the breakdown of other payables as of March
31, 2024, and June 30, 2023:
March 31,
June 30,
2024
2023
Clearing accounts
(1)
$
9,405
$
4,016
Vendor
wallet balances
(1)
15,506
9,492
Accruals
8,988
7,078
Provisions
5,590
7,429
Value
-added tax payable
1,344
1,247
Payroll-related payables
828
1,038
Participating merchants' settlement obligation
22
39
Other
7,787
5,958
$
49,470
$
36,297
(1) Clearing
accounts and
vendor wallet
balances (previously
defined as
transactions-switching funds
payables) as
of June
30,
2023, were previously included in Other and have been reclassified to separate captions to conform with presentation as of March 31,
2024. Clearing accounts
and vendor wallet
balances may fluctuate
due to day
(weekend or public
holiday) on which
the Company’s
quarter or year
end falls
because certain elements
of transactions
within these accounts
are not
settled over weekends
or public holidays.
Other includes deferred income, client deposits and other payables.
10.
Capital structure
Issue of shares to Connect sellers pursuant to April 2022 transaction
The total purchase consideration pursuant to the Connect
acquisition in April 2022 includes
3,185,079
shares of the Company’s
common stock. These shares of
common stock will be issued
in
three
equal tranches on each
of the first, second
and third anniversaries
of the April 14, 2022 closing. The Company legally issued
1,061,693
shares of its common stock, representing the second tranche, to
the Connect sellers
in April 2024,
and this had
no impact on
the number of
shares, net of
treasury, presented in the unaudited
condensed
consolidated
statement of
changes during
the nine
months ended
March 31,
2024 because
the
3,185,079
shares are
included in
the
number of shares, net of treasury,
as of June 30, 2023, and March 31, 2024.
Impact of non-vested equity shares on number of shares,
net of treasury
The following table presents a
reconciliation between the number of
shares, net of treasury, presented in the
unaudited condensed
consolidated statement of changes in equity during the nine months
ended March 31, 2024 and 2023, respectively,
and the number of
shares, net of treasury,
excluding non-vested equity shares that have not vested as of March 31, 2024 and 2023,
respectively:
March 31,
March 31,
2024
2023
Number of shares, net of treasury:
Statement of changes in equity
64,466,830
63,743,900
Non-vested equity shares that have not vested as of end of period
3,131,469
3,194,463
Number of shares, net of treasury,
excluding non-vested equity shares that have not
vested
61,335,361
60,549,437
11.
Accumulated other comprehensive loss
The table
below presents
the change
in accumulated
other comprehensive
loss per
component
during the
three months
ended
March 31, 2024:
Three months ended
March 31, 2024
Accumulated
foreign
currency
translation
reserve
Total
Balance as of January 1, 2024
$
(189,378)
$
(189,378)
Movement in foreign currency translation reserve
(5,718)
(5,718)
Balance as of March 31, 2024
$
(195,096)
$
(195,096)
26
11.
Accumulated other comprehensive loss (continued)
The table
below presents
the change
in accumulated
other comprehensive
loss per
component during
the three
months ended
March 31, 2023:
Three months ended
March 31, 2023
Accumulated
foreign
currency
translation
reserve
Total
Balance as of January 1, 2023
$
(176,238)
$
(176,238)
Release of foreign currency translation reserve related to disposal of Finbond
equity securities
243
243
Movement in foreign currency translation reserve related to equity-accounted
investment
216
216
Movement in foreign currency translation reserve
(9,775)
(9,775)
Balance as of March 31, 2023
$
(185,554)
$
(185,554)
The
table below
presents
the change
in
accumulated
other comprehensive
loss per
component
during
the
nine
months
ended
March 31, 2024:
Nine months ended
March 31, 2024
Accumulate
d foreign
currency
translation
reserve
Total
Balance as of July 1, 2023
$
(195,726)
$
(195,726)
Release of foreign currency translation reserve related to disposal of Finbond
equity securities
(Note 5)
1,543
1,543
Release of foreign currency translation reserve related to liquidation
of subsidiaries
(952)
(952)
Movement in foreign currency translation reserve related to equity-accounted
investment
489
489
Movement in foreign currency translation reserve
(450)
(450)
Balance as of March 31, 2024
$
(195,096)
$
(195,096)
The
table below
presents
the change
in
accumulated
other comprehensive
loss per
component
during
the
nine
months
ended
March 31, 2023:
a
Nine months ended
March 31, 2023
Accumulate
d foreign
currency
translation
reserve
Total
Balance as of July 1, 2022
$
(168,840)
$
(168,840)
Release of foreign currency translation reserve related to disposal of Finbond
equity securities
342
342
Movement in foreign currency translation reserve related to equity
-accounted investment
2,657
2,657
Movement in foreign currency translation reserve
(19,713)
(19,713)
Balance as of March 31, 2023
$
(185,554)
$
(185,554)
The movement in the
foreign currency translation reserve represents
the impact of translation
of consolidated entities which have
a functional currency (which is primarily ZAR) to the Company’s
reporting currency, which is USD.
During
the
nine
months
ended
March
31,
2024,
the
Company
reclassified
losses
of
$
1.5
million
from
accumulated
other
comprehensive loss (accumulated foreign currency translation reserve) to net loss related to the disposal of shares in Finbond (refer to
Note 5). During
the three and nine
months ended March
31, 2023, the
Company reclassified losses of
$
0.2
million and $
0.3
million,
respectively, from
accumulated other comprehensive loss (accumulated foreign currency
translation reserve) to net loss related to the
disposal
of
shares
in
Finbond.
The
Company
also
reclassified
a
gain
of
$
1.0
million
from
accumulated
other
comprehensive
loss
(accumulated foreign
currency translation reserve)
to net loss related
to the liquidation
of subsidiaries during
the nine months
ended
March 31, 2024.
27
12.
Stock-based compensation
The Company’s
Amended and Restated
2022 Stock
Incentive Plan (“20
22 Plan”)
and the vesting
terms of certain
stock-based
awards granted are described in Note 17 to the Company’s audited consolidated financial statements included in its Annual Report on
Form 10-K for the year ended June 30, 2023.
Stock option and restricted stock activity
Options
The following table summarizes stock option activity for the nine months
ended March 31, 2024 and 2023:
Number of
shares
Weighted
average
exercise
price
($)
Weighted
average
remaining
contractual
term
(in years)
Aggregate
intrinsic
value
($'000)
Weighted
average
grant date
fair value
($)
Outstanding - June 30, 2023
673,274
4.37
5.14
239
1.67
Granted - December 2023
500,000
3.50
5.17
880
1.76
Exercised
(23,217)
1.20
-
14
-
Forfeited
(195,739)
3.93
-
-
1.39
Outstanding - March 31, 2024
954,318
4.03
5.24
45
1.78
Outstanding - June 30, 2022
926,225
4.14
6.60
1,249
1.60
Exercised
(147,326)
3.04
-
190
-
Forfeited
(66,959)
3.66
-
-
-
Outstanding - March 31, 2023
711,940
4.41
5.42
670
1.64
The
Company
awarded
500,000
stock
options
to
Ali
Mazanderani,
the
Company’s
Executive
Chair,
during
the
nine
months
ended March 31, 2024. These option
s
will vest on the first anniversary of
the grant date, provided that Mr.
Mazandarani continues to
provide services as Executive Chair through the vesting
date. These options will vest immediately if Mr.
Mazanderani’s employment
is terminated by the Company without
cause on or before the
first anniversary of the grant date.
These
500,000
stock options may only
be exercised during a period commencing from
January 31, 2028 to January 31,
2029.
No
stock options were awarded during the three
months ended March 31, 2024, or during the three and nine months ended
December 31, 2022.
During the three
and nine months
ended March 31,
2024, the
Company received $
0.05
million and
$
0.07
million from the
exercise
of
15,832
and
23,217
stock options,
respectively.
During the
three and
nine months
ended March
31, 2023,
an employee
delivered
23,934
shares of the Company’s common stock to exercise
37,500
stock options with an aggregate strike price of $
0.1
million. These
23,934
shares of
common
stock have
been
included
in
the Company’s
treasury
stock. The
employee
also elected
to deliver
6,105
shares of the
Company’s common
stock to settle income
taxes arising upon exercise
of the stock options,
and these shares have
also
been included in the Company’s treasury stock. During the nine months ended March 31, 2023, the Company received approximately
$
0.4
million from the exercise of
147,326
stock options.
Employees
and a
non-employee director
forfeited an
aggregate of
8,893
and
195,739
stock options
during the
three and
nine
months ended March 31, 2024. Employees forfeited
66,959
during each of the three and nine months ended March 31, 2023.
The
fair
value
of
each
option
is
estimated
on
the
date
of
grant
using the
Cox
Ross
Rubinstein
binomial
model
that
uses the
assumptions noted in the
following table. The estimated
expected volatility is calculated
based on the Company’s
750-day volatility.
The estimated
expected life
of the
option was
determined based
on the
historical behavior
of employees
who were
granted options
with similar terms.
The table below presents the range
of assumptions used to value stock options
granted during the nine months
ended March 31,
2024 and 2023:
Nine months ended
March 31,
2024
2023
Expected volatility
56
%
0
%
Expected dividends
0
%
0
%
Expected life (in years)
5
0
Risk-free rate
2.1
%
0.0
%
28
12.
Stock-based compensation (continued)
Stock option and restricted stock activity
Options
The following table presents stock options vested and expected to vest as of
March 31, 2024:
Number of
shares
Weighted
average
exercise
price
($)
Weighted
average
remaining
contractual
term
(in years)
Aggregate
intrinsic
value
($’000)
Vested
and expecting to vest - March 31, 2024
954,318
4.03
5.24
45
These options have an exercise price range of $
3.01
to $
11.23
.
The following table presents stock options that are exercisable as of March
31, 2024:
Number of
shares
Weighted
average
exercise
price
($)
Weighted
average
remaining
contractual
term
(in years)
Aggregate
intrinsic
value
($’000)
Exercisable - March 31, 2024
425,746
4.60
5.69
45
During the
three months
ended March
31, 2024
and 2023,
respectively,
28,569
and
35,649
stock options
became exercisable.
During the
nine months ended
March 31, 2024
and 2023, respectively,
116,063
and
327,965
stock options became
exercisable. The
Company issues new shares to satisfy stock option exercises.
29
12.
Stock-based compensation (continued)
Stock option and restricted stock activity (continued)
Restricted stock
The following table summarizes restricted stock activity for the nine
months ended March 31, 2024 and 2023:
Number of
shares of
restricted stock
Weighted
average grant
date fair value
($’000)
Non-vested – June 30, 2023
2,614,419
11,869
Total granted
934,521
3,622
Granted – October 2023
333,080
1,456
Granted – October 2023, with performance conditions
310,916
955
Granted – October 2023
225,000
983
Granted – January 2024
56,330
197
Granted – February 2024
9,195
31
Total vested
(339,803)
1,274
Vested
– July 2023
(78,800)
302
Vested
– November 2023
(109,833)
429
Vested
– December 2023
(67,073)
234
Vested
– February 2024
(14,811)
53
Vested
– March 2024
(69,286)
256
Forfeitures
(77,668)
278
Non-vested – March 31, 2024
3,131,469
13,434
Non-vested – June 30, 2022
2,385,267
11,879
Total Granted
1,062,153
4,287
Granted – July 2022
32,582
172
Granted – August 2022
179,498
995
Granted – November 2022
150,000
605
Granted – December 2022
430,399
1,862
Granted – December 2022, with performance awards
257,868
596
Granted – January 2023
11,806
57
Total vested
(234,159)
1,098
Vested
– July 2022
(78,801)
410
Vested
– November 2022
(59,833)
250
Vested
– December 2022
(7,060)
29
Vested
– February 2023
(19,179)
83
Vested
– March 2023
(69,286)
326
Total granted and vested
- December 2022
-
-
Granted - December 2022
300,000
1,365
Vested
- December 2022
(300,000)
1,365
Forfeitures
(18,798)
9,235
Non-vested – March 31, 2023
3,194,463
14,822
30
12.
Stock-based compensation (continued)
Stock option and restricted stock activity (continued)
Restricted stock (continued)
Grants
In October 2023, the Company
awarded
333,080
shares of restricted stock with time-based
vesting conditions to approximately
150
employees, which
are subject to
the employees
continued employment
with the
Company through
the applicable
vesting dates.
The Company also awarded
225,000
shares of restricted stock
to an executive officer
in October 2023, which
vest on June 30, 2025,
except if the
executive officer is
terminated for cause,
in which case
the award will
be forfeited.
In January 2024,
the Company awarded
56,330
shares of restricted stock with time-based vesting conditions to an employee.
In October 2023, the Company
awarded
310,916
shares of restricted stock to
three
of its executive officers
which are subject to
a
time-based
vesting
condition
and
a
market
condition
and
vest
in
full
only
on
the
date,
if
any,
that
the
following
conditions
are
satisfied: (1)
a compounded
annual
10
% appreciation
in the
Company’s
stock price
off a
base price
of $
4.00
over the
measurement
period commencing on September 30, 2023 through November 17, 2026, and (2) the recipient is employed by the Company on a full-
time basis when the condition in (1) is met. If either of these conditions is not satisfied, then none of the shares of restricted stock will
vest and they will be forfeited. The Company’s
closing price on September 30, 2023, was $
3.90
.
The appreciation levels (times and price) and vesting percentages as of each
period ended are as follows:
●
Prior to the first anniversary of the grant date:
0
%;
●
Fiscal
2025,
the
Company’s
30-day
volume
weighted-average
stock
price
(“VWAP”)
before
November
17,
2024
is
approximately
1.10
times higher (i.e. $
4.40
or higher) than $
4.00
:
33
%;
●
Fiscal 2026, the Company’s
VWAP before
November 17, 2025 is
1.21
times higher (i.e. $
4.84
or higher) than $
4.00
:
67
%;
●
Fiscal 2027, the Company’s
VWAP before
November 1, 2026 is
1.33
times higher (i.e. $
5.32
) than $
4.00
:
100
%.
The fair value
of these shares
of restricted
stock was calculated
using a Monte
Carlo simulation. In
scenarios where
the shares
do not vest, the final vested value at maturity is zero. In scenarios where vesting occurs, the final vested value on maturity is the share
price on
vesting date.
In its calculation
of the
fair value
of the
restricted stock,
the Company
used an
equally weighted
volatility of
48.3
% for
the closing
price (of
$
4.37
), a
discounting based
on U.S.
dollar overnight
indexed swap
rates for
the grant
date, and
no
future dividends. The equally weighted volatility was extracted from the time series for closing prices as the standard deviation of log
prices for the
three years
preceding the grant date.
In July 2022,
December 2022 and January
2023, the Company
awarded
32,582
,
430,399
, and
11,806
shares of restricted stock,
respectively,
to
employees
and
an
executive
officer
which
have
time-based
vesting
conditions.
In
December
2022,
the
Company
awarded
257,868
shares
of
restricted
stock
to
executive
officers
which
contained
time
and
performance-based
(market
conditions
related to share price performance) vesting conditions. The Company also agreed to match, on a
one
-for-one basis, (1) an employee’s
purchase of
up to $
1.0
million worth of
the Company’s
shares of common
stock in open
market purchases,
and in August
2022, the
Company granted
179,498
shares of restricted stock to the employee, and (2) another employee’s purchase of up to
150,000
shares of
the Company’s common stock, and
in November 2022,
the Company granted
150,000
shares of restricted
stock to the
employee. These
shares of
restricted
stock contain
time-based
vesting
conditions. The
Company
awarded
300,000
shares to
an executive
officer
on
December 31, 2022, which vested on the date of the award.
The
257,868
shares of restricted stock
awarded to executive officers
are subject to a
time-based vesting condition
and a market
condition and vest
in full only
on the date,
if any, that the
following conditions are
satisfied: (1) a
compounded annual
10
% appreciation
in
the
Company’s
stock
price
off
a
base
price
of
$
4.94
over
the
measurement
period
commencing
on
December
1,
2022
through
December 1, 2025, and (2) the recipient is employed by the Company on a full-time basis when the condition in (1) is
met. If either of
these conditions is not satisfied, then none of the shares of
restricted stock will vest and they will be
forfeited. The Company’s closing
price on December 1, 2022, was $
4.08
.
The appreciation levels (times and price) and vesting percentages as of each
period ended are as follows:
●
Prior to the first anniversary of the grant date:
0
%;
●
Fiscal 2024, stock price as of December 1, 2023 is
1.1
times higher (i.e. $
5.43
or higher) than $
4.94
:
33
%;
●
Fiscal 2025, stock price as of December 1, 2024 is
1.21
times higher (i.e. $
5.97
or higher) than $
4.94
:
67
%;
●
Fiscal 2026, stock price as of December 1, 2025 is
1.331
times higher (i.e. $
6.57
) than $
4.94
:
100
%.
The fair value
of these shares
of restricted
stock was calculated
using a Monte
Carlo simulation. In
scenarios where
the shares
do not vest, the final vested value at maturity is zero. In scenarios where vesting occurs, the final vested value on maturity is the share
price on
vesting date.
In its calculation
of the
fair value
of the
restricted stock,
the Company
used an
equally weighted
volatility of
50.1
% for
the closing
price (of
$
4.08
), a
discounting based
on U.S.
dollar overnight
indexed swap
rates for
the grant
date, and
no
future dividends. The equally weighted volatility was extracted from the time series for closing prices as the standard deviation of log
prices for the three years preceding the grant date.
31
12.
Stock-based compensation (continued)
Stock option and restricted stock activity (continued)
Restricted stock (continued)
As fully described in Note 17 to
the Company’s audited consolidated financial statements included in its Annual Report on Form
10-K for
the year ended
June 30, 2023,
the Company
granted a
further
12,962
and
32,405
shares to
an advisor
during the
three and
nine months
ended March
31, 2023,
respectively,
which were
ineligible for
transfer until
the earlier
of December
31, 2022,
or the
occurrence of the agreed event.
Vesting
In July 2023,
78,800
shares of restricted stock
granted to Mr.
Meyer vested. In November,
December 2023, February
2024 and
March 2024,
an aggregate
of
261,003
shares of
restricted stock
granted to
employees vested.
Certain employees
elected for
53,486
shares to be withheld to satisfy
the withholding tax liability on the vesting
of their shares. These
53,486
shares have been included in
the Company’s treasury
shares.
In July
2022,
78,801
shares of restricted
stock granted
to Mr.
Meyer vested
and he elected
for
35,460
shares to
be withheld
to
satisfy the withholding tax liability on the vesting of these shares.
In November, December 2022, February
2023 and March 2023, an
aggregate of
155,358
shares of
restricted stock granted
to employees vested.
Certain employees
elected for
38,008
shares to
be withheld
to satisfy the withholding tax liability on the vesting of these shares.
These
73,468
(
35,460
plus
38,008
) shares have been included in
our treasury shares.
Forfeitures
During the three and
nine months ended
March 31, 2024,
respectively, employees forfeited
55,539
and
77,668
shares of restricted
stock
following
their
termination
of
employment
with
the
Company.
During
the
three
and
nine
months
ended
March
31,
2023,
employees forfeited
18,798
shares of restricted stock following their termination of employment with the
Company.
Stock-based compensation charge and unrecognized compensation
cost
The Company recorded a stock-based
compensation charge, net during the three
months ended March 31,
2024 and 2023, of
$
2.1
million and $
1.6
million, respectively, which
comprised:
Total
charge
Allocated to cost
of goods sold, IT
processing,
servicing and
support
Allocated to
selling, general
and
administration
Three months ended March 31, 2024
Stock-based compensation charge
$
2,202
$
-
$
2,202
Reversal of stock compensation charge related to stock
options and restricted stock forfeited
(112)
-
(112)
Total - three months
ended March 31, 2024
$
2,090
$
-
$
2,090
Three months ended March 31, 2023
Stock-based compensation charge
$
1,667
$
-
$
1,667
Reversal of stock compensation charge related to stock
options and restricted stock forfeited
(23)
-
(23)
Total - three months
ended March 31, 2023
$
1,644
$
-
$
1,644
32
12.
Stock-based compensation (continued)
Stock-based compensation charge and unrecognized compensation
cost (continued)
The Company recorded a stock-based compensation charge, net during the nine months ended March 31,
2024 and 2023, of $
5.7
million and $
6.0
million respectively, which
comprised:
a
Total
charge
Allocated to cost
of goods sold, IT
processing,
servicing and
support
Allocated to
selling, general
and
administration
Nine months ended March 31, 2024
Stock-based compensation charge
$
5,782
$
-
$
5,782
Reversal of stock compensation charge related to stock
options forfeited
(129)
-
(129)
Total - nine months
ended March 31, 2024
$
5,653
$
-
$
5,653
Nine months ended March 31, 2023
Stock-based compensation charge
$
5,978
$
-
$
5,978
Reversal of stock compensation charge related to stock
options and restricted stock forfeited
(23)
-
(23)
Total - nine months
ended March 31, 2023
$
5,955
$
-
$
5,955
The stock-based compensation charges
have been allocated to selling,
general and administration based
on the allocation of the
cash compensation paid to the relevant employees.
As of March 31, 2024,
the total unrecognized compensation
cost related to stock options
was $
0.6
million, which the Company
expects to recognize over
two years
. As of March
31, 2024, the total
unrecognized compensation cost related to
restricted stock awards
was $
5.9
million, which the Company expects to recognize over
two years
.
As of
March
31, 2024,
and June
30, 2023,
respectively,
the Company
recorded a
deferred tax
asset of
$
1.1
million
and $
0.6
million, related to the
stock-based compensation charge
recognized related to employees
of Lesaka. As of
March 31, 2024, and
June
30, 2023, respectively, the Company
recorded a valuation allowance of $
1.1
million and $
0.6
million, related to the deferred tax asset
because it does
not believe that
the stock-based compensation deduction
would be utilized
as it
does not anticipate
generating sufficient
taxable income
in the
United States.
The Company
deducts the
difference
between the
market value
on the
date of
exercise by
the
option recipient and the exercise price from income subject to taxation
in the United States.
13.
(Loss) Earnings per share
The Company
has issued redeemable
common stock
which is redeemable
at an amount
other than
fair value.
Redemption of
a
class of
common stock
at other
than fair
value increases
or decreases
the carrying
amount of
the redeemable
common stock
and is
reflected in basic earnings
per share using the two-class
method. There were
no
redemptions of common stock, or
adjustments to the
carrying value of the redeemable
common stock during the three
and nine months ended March 31, 2024
and 2023. Accordingly,
the
two-class
method
presented
below
does
not
include
the
impact
of
any
redemption.
The Company’s
redeemable
common
stock
is
described in Note 14 to the Company’s
audited consolidated financial statements included in its Annual Report on Form 10-K
for the
year ended June 30, 2023.
Basic (loss) earnings per share
includes shares of restricted stock that
meet the definition of a
participating security because these
shares are eligible
to receive non
-forfeitable dividend
equivalents at the
same rate as
common stock.
Basic (loss) earnings
per share
has been
calculated using
the two-class
method and
basic (loss)
earnings per
share for
the three
and nine
months ended
March 31,
2024 and
2023, reflects
only undistributed
earnings. The
computation below
of basic
(loss) earnings
per share
excludes the
net loss
attributable
to
shares
of
unvested
restricted
stock
(participating
non-vested
restricted
stock)
from
the
numerator
and
excludes
the
dilutive impact of these unvested shares of restricted stock from the denominator.
Diluted (loss)
earnings
per share
has been
calculated
to give
effect
to the
number
of shares
of additional
common
stock that
would have
been outstanding
if the
potential dilutive
instruments had
been issued
in each
period. Stock
options are
included in
the
calculation of diluted (loss) earnings per share utilizing the treasury
stock method and are not considered to be
participating securities,
as the
stock options
do not
contain non-forfeitable
dividend rights.
The Company
has excluded
employee stock
options to
purchase
42,770
and
185,902
shares of common
stock from the
calculation of diluted
loss per share
during the
nine months ended
March 31,
2024 and 2023, because the effect would be antidilutive.
The
calculation
of diluted
(loss) earnings
per
share
includes the
dilutive
effect
of
a portion
of the
restricted
stock granted
to
employees
as
these
shares
of
restricted
stock
are
considered
contingently
returnable
shares
for
the
purposes
of
the
diluted
(loss)
earnings per share calculation and the vesting conditions in respect of
a portion of the restricted stock had been satisfied.
33
13.
(Loss) Earnings per share (continued)
The vesting conditions for all awards made are discussed in Note 17 to the Company’s audited consolidated financial statements
included in its Annual Report on Form 10-K for the year ended June
30, 2023.
The
following
table
presents
net
loss
attributable
to
Lesaka
and
the
share
data
used
in
the
basic
and
diluted
loss
per
share
computations using the two-class method:
Three months ended
Nine months ended
March 31,
March 31,
2024
2023
2024
2023
(in thousands except
(in thousands except
percent and
percent and
per share data)
per share data)
Numerator:
Net loss attributable to Lesaka
$
(4,047)
$
(5,820)
$
(12,405)
$
(23,165)
Undistributed loss
(4,047)
(5,820)
(12,405)
(23,165)
Percent allocated to common shareholders
(Calculation 1)
96%
96%
95%
96%
Numerator for loss per share: basic and diluted
$
(3,868)
$
(5,605)
$
(11,816)
$
(22,130)
Denominator
Denominator for basic (loss) earnings per share:
weighted-average common shares outstanding
60,990
61,492
60,134
60,102
Effect of dilutive securities:
Denominator for diluted (loss) earnings
per share: adjusted weighted average
common shares outstanding and assuming
conversion
60,990
61,492
60,134
60,102
Loss per share:
Basic
$
(0.06)
$
(0.09)
$
(0.20)
$
(0.37)
Diluted
$
(0.06)
$
(0.09)
$
(0.20)
$
(0.37)
(Calculation 1)
Basic weighted-average common shares
outstanding (A)
60,990
61,492
60,134
60,102
Basic weighted-average common shares
outstanding and unvested restricted shares
expected to vest (B)
63,805
63,854
63,134
62,913
Percent allocated to common shareholders
(A) / (B)
96%
96%
95%
96%
Options
to purchase
742,543
shares of
the Company’s
common
stock at
prices ranging
from $
3.50
to $
11.23
per share
were
outstanding during
the three months
ended March
31, 2024,
but were not
included in
the computation
of diluted
(loss) earnings
per
share
because
the
options’
exercise
price
was greater
than
the
average
market
price
of the
Company’s
common
stock.
Options
to
purchase
293,949
shares of the Company’s
common stock at prices
ranging from $
4.87
to $
11.23
per share were outstanding
during
the three
months ended
March 31,
2023, respectively,
but were
not included
in the
computation of
diluted (loss)
earnings per
share
because the
options’ exercise
price was greater
than the average
market price of
the Company’s
common stock.
The options, which
expire at various dates through February 3, 2032, were still outstanding
as of March 31, 2024.
14.
Supplemental cash flow information
The following table presents supplemental cash flow disclosures for the three and nine months ended March 31, 2024 and 2023:
Three months ended
Nine months ended
March 31,
March 31,
2024
2023
2024
2023
Cash received from interest
$
624
$
465
$
1,551
$
1,260
Cash paid for interest
$
3,464
$
3,157
$
12,697
$
10,120
Cash paid for income taxes
$
88
$
436
$
3,498
$
3,495
34
14.
Supplemental cash flow information (continued)
Disaggregation of cash, cash equivalents and restricted
cash
Cash, cash equivalents and restricted
cash included on the Company’s unaudited condensed consolidated statement of
cash flows
includes restricted cash
related to cash
withdrawn from the
Company’s
debt facilities to
fund ATMs.
This cash may
only be used
to
fund ATMs
and is
considered restricted
as to
use and
therefore is
classified as
restricted cash.
Cash, cash
equivalents and
restricted
cash also includes cash in certain bank accounts that has
been ceded to Nedbank. As this cash has been pledged
and ceded it may not
be drawn
and is
considered
restricted as
to use
and therefore
is classified
as restricted
cash as
well. Refer
to Note
8 for
additional
information regarding the
Company’s facilities. The following
table presents the
disaggregation of cash,
cash equivalents and
restricted
cash as of March 31, 2024 and 2023, and June 30, 2023:
March 31,
2024
March 31,
2023
June 30, 2023
Cash and cash equivalents
$
55,223
$
49,423
$
35,499
Restricted cash
4,383
37,849
23,133
Cash, cash equivalents and restricted cash
$
59,606
$
87,272
$
58,632
Leases
The following table presents supplemental
cash flow disclosure related to leases
for the three and nine months
ended March 31,
2024 and 2023:
Three months ended
Nine months ended
March 31,
March 31,
2024
2023
2024
2023
Cash paid for amounts included in the measurement of
lease liabilities
Operating cash flows from operating leases
$
853
$
695
$
2,225
$
2,256
Right-of-use assets obtained in exchange for lease
obligations
Operating leases
$
718
$
61
$
2,601
$
61
15.
Revenue recognition
Disaggregation of revenue
The
following
table
presents
the
Company’s
revenue
disaggregated
by
major
revenue
streams,
including
a
reconciliation
to
reportable segments for the three months ended March 31, 2024:
Merchant
Consumer
Total
Processing fees
$
28,682
$
6,353
$
35,035
South Africa
27,155
6,353
33,508
Rest of world
1,527
-
1,527
Technology
products
1,795
8
1,803
South Africa
1,751
8
1,759
Rest of world
44
-
44
Telecom products
and services
87,585
83
87,668
South Africa
82,484
83
82,567
Rest of world
5,101
-
5,101
Lending revenue
-
6,229
6,229
Interest from customers
1,553
-
1,553
Insurance revenue
-
3,178
3,178
Account holder fees
-
1,560
1,560
Other
675
493
1,168
South Africa
622
493
1,115
Rest of world
53
-
53
Total revenue, derived
from the following geographic locations
120,290
17,904
138,194
South Africa
113,565
17,904
131,469
Rest of world
$
6,725
$
-
$
6,725
35
15.
Revenue recognition (continued)
Disaggregation of revenue (continued)
The
following
table
presents
the
Company’s
revenue
disaggregated
by
major
revenue
streams,
including
a
reconciliation
to
reportable segments for the three months ended March 31, 2023:
Merchant
Consumer
Total
Processing fees
$
27,541
$
6,438
$
33,979
South Africa
26,240
6,438
32,678
Rest of world
1,301
-
1,301
Technology
products
4,322
298
4,620
South Africa
4,254
298
4,552
Rest of world
68
-
68
Telecom products
and services
83,420
7
83,427
South Africa
79,308
7
79,315
Rest of world
4,112
-
4,112
Lending revenue
-
5,052
5,052
Interest from customers
1,555
-
1,555
Insurance revenue
-
2,584
2,584
Account holder fees
-
1,419
1,419
Other
1,254
78
1,332
South Africa
1,205
78
1,283
Rest of world
49
-
49
Total revenue, derived
from the following geographic locations
118,092
15,876
133,968
South Africa
112,562
15,876
128,438
Rest of world
$
5,530
$
-
$
5,530
The
following
table
presents
the
Company’s
revenue
disaggregated
by
major
revenue
streams,
including
a
reconciliation
to
reportable segments for the nine months ended March 31, 2024:
Merchant
Consumer
Total
Processing fees
$
87,246
$
18,261
$
105,507
South Africa
82,903
18,261
101,164
Rest of world
4,343
-
4,343
Technology
products
7,035
39
7,074
South Africa
6,901
39
6,940
Rest of world
134
-
134
Telecom products
and services
266,857
176
267,033
South Africa
252,000
176
252,176
Rest of world
14,857
-
14,857
Lending revenue
-
17,188
17,188
Interest from customers
4,526
-
4,526
Insurance revenue
-
8,686
8,686
Account holder fees
-
4,430
4,430
Other
2,321
1,411
3,732
South Africa
2,169
1,411
3,580
Rest of world
152
-
152
Total revenue, derived
from the following geographic locations
367,985
50,191
418,176
South Africa
348,499
50,191
398,690
Rest of world
$
19,486
$
-
$
19,486
36
15.
Revenue recognition (continued)
Disaggregation of revenue (continued)
The
following
table
presents
the
Company’s
revenue
disaggregated
by
major
revenue
streams,
including
a
reconciliation
to
reportable segments for the nine months ended March 31, 2023:
Merchant
Consumer
Total
Processing fees
$
83,121
$
19,696
$
102,817
South Africa
79,175
19,696
98,871
Rest of world
3,946
-
3,946
Technology
products
16,057
584
16,641
South Africa
15,871
584
16,455
Rest of world
186
-
186
Telecom products
and services
241,352
13
241,365
South Africa
228,860
13
228,873
Rest of world
12,492
-
12,492
Lending revenue
-
14,332
14,332
Interest from customers
4,254
-
4,254
Insurance revenue
-
7,118
7,118
Account holder fees
-
4,240
4,240
Other
3,724
331
4,055
South Africa
3,583
331
3,914
Rest of world
141
-
141
Total revenue, derived
from the following geographic locations
348,508
46,314
394,822
South Africa
331,743
46,314
378,057
Rest of world
$
16,765
$
-
$
16,765
16.
Leases
The
Company
has
entered
into leasing
arrangements
classified
as operating
leases under
accounting
guidance.
These leasing
arrangements relate primarily
to the lease of
its corporate head office,
administration offices and
branch locations through
which the
Company operates
its consumer
business in
South Africa.
The Company’s
operating leases
have remaining
lease terms
of between
one and
five years
. The Company also operates parts
of its consumer business from
locations which it leases for a period
of less than
one year
. The Company’s
operating lease expense
during the three
months ended March
31, 2024 and
2023 was $
0.9
million and $
0.7
million, respectively.
The Company’s operating
lease expense during the nine
months ended March 31, 2024 and 2023
was $
2.2
million and $
2.3
million, respectively.
The
Company
has
also
entered
into
short-term
leasing
arrangements,
primarily
for
the
lease
of
branch
locations
and
other
locations,
to operate its consumer
business in South Africa.
The Company’s
short-term lease expense during
the three months ended
March 31, 2024 and 2023, was $
0.9
million and $
1.0
million, respectively. The Company’s
short-term lease expense during the nine
months ended March 31, 2024 and 2023, was $
2.8
million and $
3.0
million, respectively.
The following table presents supplemental balance
sheet disclosure related to the
Company’s right-of-use assets and its operating
lease liabilities as of March 31, 2024 and June 30, 2023:
March 31,
June 30,
2024
2023
Right of use assets obtained in exchange for lease obligations:
Weighted average
remaining lease term (years)
3.4
1.8
Weighted average
discount rate (percent)
10.1
9.7
37
16.
Leases (continued)
The maturities of the Company’s
operating lease liabilities as of March 31, 2024, are presented below:
Maturities of operating lease liabilities
Year
ended June 30,
2024 (excluding nine months to March 31, 2024)
$
639
2025
2,070
2026
1,543
2027
1,318
2028
1,173
Thereafter
120
Total undiscounted
operating lease liabilities
6,863
Less imputed interest
1,188
Total operating lease liabilities,
included in
5,675
Operating lease liability - current
1,763
Operating lease liability - long-term
$
3,912
17.
Operating segments
Operating segments
The Company discloses segment information as reflected in the management
information systems reports that its chief operating
decision maker uses in making decisions and to report certain entity-wide disclosures about products and services, and the countries in
which the entity holds material assets or reports material revenues. A description of the Company’s operating segments is contained in
Note 21 to
the Company’s
audited consolidated
financial statements
included in
its Annual Report
on Form 10-K
for the year
ended
June 30, 2023.
The
Company
analyzes
its
business
and
operations
in
terms
of
two
inter-related
but
independent
operating
segments:
(1) Consumer Division (“Consumer”) and (2) Merchant Division (“Merchant”).
The reconciliation of the reportable segment’s revenue to revenue from external customers for the three months ended March 31,
2024 and 2023, is as follows:
Revenue
Reportable
Segment
Inter-
segment
From
external
customers
Merchant
$
121,013
$
723
$
120,290
Consumer
17,904
-
17,904
Total for the three
months ended March 31, 2024
$
138,917
$
723
$
138,194
Merchant
$
118,092
$
-
$
118,092
Consumer
15,876
-
15,876
Total for the three
months ended March 31, 2023
$
133,968
$
-
$
133,968
38
17.
Operating segments (continued)
Operating segments (continued)
The reconciliation of the reportable segment’s revenue to revenue from external customers for the nine months ended March 31,
2024 and 2023, is as follows:
Revenue
Reportable
Segment
Inter-
segment
From
external
customers
Merchant
$
370,244
$
2,259
$
367,985
Consumer
50,191
-
50,191
Total for the nine
months ended March 31, 2024
$
420,435
$
2,259
$
418,176
Merchant
$
348,508
$
-
$
348,508
Consumer
46,314
-
46,314
Total for the nine
months ended March 31, 2023
$
394,822
$
-
$
394,822
The
Company
evaluates
segment
performance
based
on
segment
earnings
before
interest,
tax,
depreciation
and
amortization
(“EBITDA”), adjusted for items mentioned in the next sentence (“Segment Adjusted EBITDA”), the Company’s reportable segments’
measure of
profit or
loss. The
Company does
not allocate
once-off items,
stock-based compensation
charges, certain
lease expenses
(“Lease adjustments”), depreciation
and amortization, impairment of
goodwill or other intangible
assets, other items (including
gains
or losses on disposal of investments, fair value adjustments to equity securities), interest income, interest expense, income tax expense
or (earnings) loss from equity-accounted investments to its reportable segments. Group costs
generally include: employee related costs
in relation to employees specifically hired for group roles and related directly to managing the US-listed entity; expenditures related to
compliance with the Sarbanes-Oxley Act of 2002; non-employee directors’ fees; legal fees; group and US-listed
related audit fees; and
directors
and
officer’s
insurance
premiums.
Once-off
items
represents
non-recurring
expense
items,
including
costs
related
to
acquisitions and transactions consummated or ultimately
not pursued. Unrealized loss FV for currency adjustments
represents foreign
currency mark-to-market adjustments
on certain intercompany
accounts. The Lease adjustments reflect
lease expenses and the Stock-
based compensation
adjustments reflect
stock-based
compensation expense
and are
both excluded
from the
calculation of
Segment
Adjusted EBITDA
and are
therefore reported
as reconciling items
to reconcile
the reportable
segments’ Segment
Adjusted EBITDA
to the Company’s loss before
income tax expense.
The reconciliation of the reportable segments’ measure of profit or loss to loss before income taxes for the three and
nine months
ended March 31, 2024 and 2023, is as follows:
Three months ended
Nine months ended
March 31,
March 31,
2024
2023
2024
2023
Reportable segments' measure of profit or loss
$
12,752
$
9,939
$
34,934
$
26,136
Operating loss: Group costs
(2,199)
(2,293)
(6,032)
(6,849)
Once-off costs
(907)
(1,141)
(169)
(1,858)
Unrealized Loss FV for currency adjustments
(121)
(43)
(101)
(43)
Lease adjustments
(850)
(696)
(2,224)
(2,255)
Stock-based compensation charge adjustments
(2,090)
(1,644)
(5,653)
(5,955)
Depreciation and amortization
(5,791)
(5,975)
(17,460)
(17,892)
Reversal of allowance of EMI doubtful debt
-
-
250
-
Gain on disposal of equity-accounted investments
-
(329)
-
(193)
Interest income
628
469
1,562
1,269
Interest expense
(4,581)
(4,984)
(14,312)
(13,408)
Loss before income tax expense
$
(3,159)
$
(6,697)
$
(9,205)
$
(21,048)
39
17.
Operating segments (continued)
Operating segments (continued)
The following
tables summarize
supplemental
segment information
for the
three and
nine months
ended March
31, 2024
and
2023:
Three months ended
Nine months ended
March 31,
March 31,
2024
2023
2024
2023
Revenues
Merchant
$
121,013
$
118,092
$
370,244
$
348,508
Consumer
17,904
15,876
50,191
46,314
Total reportable segment
revenue
138,917
133,968
420,435
394,822
Segment Adjusted EBITDA
Merchant
(1)
8,394
8,290
25,148
25,303
Consumer
(1)
4,358
1,649
9,786
833
Total Segment Adjusted
EBITDA
12,752
9,939
34,934
26,136
Depreciation and amortization
Merchant
2,050
1,898
6,169
5,522
Consumer
179
288
527
811
Subtotal: Operating segments
2,229
2,186
6,696
6,333
Group costs
3,562
3,789
10,764
11,559
Total
5,791
5,975
17,460
17,892
Expenditures for long-lived assets
Merchant
2,797
3,020
7,638
10,545
Consumer
146
1,697
312
2,665
Subtotal: Operating segments
2,943
4,717
7,950
13,210
Group costs
-
-
-
-
Total
$
2,943
$
4,717
$
7,950
$
13,210
(1)
Segment
Adjusted
EBITDA
for
Consumer
includes
retrenchment
costs of
$
0.01
million
(ZAR
0.1
million)
for
the
three
months
ended
March
31,
2024.
Segment
Adjusted
EBITDA
for
Merchant
includes
retrenchment
costs
of
$
0.2
million
(ZAR
4.7
million) and Consumer includes retrenchment costs of $
0.2
million (ZAR
2.9
million) for the nine months ended March 31, 2024.
The segment
information as
reviewed by
the chief operating
decision maker
does not include
a measure of
segment assets per
segment as all of
the significant assets are
used in the operations
of all, rather than
any one, of the segments.
The Company does
not
have dedicated assets
assigned to a
particular operating segment.
Accordingly,
it is not meaningful
to attempt an arbitrary
allocation
and segment asset allocation is therefore not presented.
18.
Income tax
Income tax in interim periods
For the purposes of interim
financial reporting, the Company
determines the appropriate income
tax provision by first
applying
the effective
tax rate
expected to
be applicable
for the
full fiscal
year to
ordinary income.
This amount
is then
adjusted for
the tax
effect
of
significant
unusual
items,
for
instance,
changes
in
tax
law,
valuation
allowances
and
non-deductible
transaction-related
expenses that
are reported
separately,
and have an
impact on the
tax charge.
The cumulative effect
of any change
in the enacted
tax
rate, if and when applicable, on the opening balance of deferred tax assets
and liabilities is also included in the tax charge as a discrete
event in the interim period in which the enactment date occurs.
For the three and
nine months ended March 31,
2024, the Company’s effective tax rate was
impacted by the tax expense
recorded
by
the
Company’s
profitable
South
African
operations,
non-deductible
expenses,
the
on-going
losses
incurred
by
certain
of
the
Company’s
South African
businesses and
the associated
valuation
allowances created
related to
the deferred
tax assets
recognized
regarding net operating losses incurred by these entities.
For the three
and nine months
ended March 31,
2023, the Company’s effective tax
rate was impacted
by a reduction
in the
enacted
South African corporate income
tax rate from
28
% to
27
% from January
2023 (but backdated
to July 1,
2022), the tax
expense recorded
by
the
Company’s
profitable
South
African
operations,
non-deductible
expenses,
the
on-going
losses
incurred
by
certain
of
the
Company’s
South African
businesses and
the associated
valuation
allowances created
related to
the deferred
tax
assets recognized
regarding net operating losses incurred by these entities.
40
18.
Income tax (continued)
Uncertain tax positions
The
Company
had
no
significant
uncertain
tax
positions
during
the
three
months
ended
March
31,
2024,
and
therefore,
the
Company had
no
accrued interest related to uncertain tax positions
on its balance sheet. The Company does
no
t expect changes related
to its unrecognized tax benefits will have a significant impact on its results of operations
or financial position in the next 12 months.
The Company
has
no
unrecognized tax benefits.
The Company
files income tax
returns mainly
in South Africa,
Botswana and
in the U.S. federal jurisdiction. As
of March 31, 2024, the Company’s
South African subsidiaries are no longer
subject to income tax
examination by the South
African Revenue Service for
periods before June 30, 2019.
The Company is subject to
income tax in other
jurisdictions outside South Africa, none of which are individually material to its financial position, statement
of cash flows, or results
of operations.
19.
Commitments and contingencies
Guarantees
The South African
Revenue Service and
certain of the
Company’s customers,
suppliers and other
business partners have
asked
the Company
to provide
them with
guarantees, including
standby letters
of credit,
issued by
South African
banks. The
Company is
required to procure these guarantees for these third parties to operate
its business.
RMB has
issued
guarantees
to
these
third
parties
amounting
to
ZAR
33.1
million
($
1.8
million,
translated
at
exchange
rates
applicable
as of
March 31,
2024) thereby
utilizing part
of the
Company’s
short-term
facilities. The
Company
pays commission
of
between
3.42
% per annum to
3.44
% per annum of the face
value of these guarantees and does
not recover any of the commission
from
third parties.
Nedbank has
issued guarantees
to these
third parties
amounting to
ZAR
2.1
million ($
0.1
million, translated
at exchange
rates
applicable
as of
March 31,
2024) thereby
utilizing part
of the
Company’s
short-term
facilities. The
Company
pays commission
of
between
0.47
% per annum to
1.84
% per annum of the face
value of these guarantees and does
not recover any of the commission
from
third parties.
The Company
has not
recognized any
obligation related
to these
guarantees in
its consolidated
balance sheet
as of
March 31,
2024. The maximum
potential amount that
the Company could
pay under these
guarantees is ZAR
35.2
million ($
1.9
million, translated
at exchange rates applicable as
of March 31, 2024). As
discussed in Note 8, the
Company has ceded and
pledged certain bank accounts
to
Nedbank
as security
for
the guarantees
issued
by them
with
an
aggregate
value
of ZAR
2.1
million
($
0.1
million,
translated
at
exchange rates applicable as
of March 31, 2024). The guarantees
have reduced the amount available
under its indirect and derivative
facilities in the Company’s short-term
credit facilities described in Note 8.
Contingencies
The
Company
is
subject
to
a
variety
of
insignificant
claims
and
suits
that
arise
from
time
to
time
in
the
ordinary
course
of
business. Management
currently believes
that the
resolution of
these other
matters, individually
or in
the aggregate,
will not
have a
material adverse impact on the Company’s
financial position, results of operations or cash flows.
20.
Subsequent events
April 2024
acquisition of Touchsides
In February 2024, the Company
announced that it had entered into a
Sale and Purchase Agreement with Heineken
International
B.V. to acquire all of the outstanding equity of Touchsides (Pty) Ltd (“Touchsides”). The transaction was subject to
customary closing
conditions
and
the
final
conditions
were
satisfied
in
April
2024.
The
transaction
closed
on
April
30,
2024.
The
total
purchase
consideration was
ZAR
42.4
million ($
2.3
million, translated
at exchange
rates applicable
as of
April 30,
2024). The
Company has
commenced the purchase price allocation
related to this transaction
however the process had
not been completed as
of the date of
filing
this Quarterly
Report
on Form
10-Q
on
May 8,
2024.
The Company
expects
to
include its
preliminary
allocation
of the
purchase
consideration related
to this acquisition
in its audited
financial statements to
be included
in its Annual
Report on Form
10-K for
the
year ended June 30, 2024.
The Company incurred transaction
related expenditures of $
0.1
million (ZAR
1.9
million) during the nine
months to March 31, 2024, related to the acquisition of Touchsides.
These transaction related expenditures are included in the caption
selling, general and administration in the Company’s unaudited condensed
consolidated statements of operations.
The Company does
not expect to incur any significant expenditure related to the transaction
during the three months ended June 30, 2024.
41
20.
Subsequent events (continued)
April 2024
acquisition of Touchsides
(continued)
Touchsides
is a leading data
analytics and insights company,
and highly complementary
with the Company’s
Kazang business.
The acquisition
significantly expands
Kazang’s
footprint in
the informal
market by
adding an
established solution
that has
a strong
presence in
the licensed
tavern market.
Touchsides
has an
installed base
of over
10,000
active POS terminals
across South
Africa’s
licensed taverns, and processes more than
1.5
million transactions per day. The business
provides platform-as-a-service (“PaaS”) and
software-as-a-service
(“SaaS”)
solutions
to
licensed
tavern
outlets,
enabling
the
measurement
of
sales
activity
in
real-time,
management of stock levels and informing commercial decisions, such as pricing
and promotional offers.
The data and insights gathered from these terminals carries significant value and potential to be monetized through relationships
with
a
range
of
clients
including
fast-moving
consumer
goods
companies,
retailers,
wholesalers,
route-to-market
suppliers,
and
financiers.
Touchsides has been
allocated to our Merchant operating segment.
May 2024
offer to acquire Adumo
On May 7, 2024,
the Company entered into
a Sale and Purchase Agreement
(the “Sale Agreement”) with
Lesaka SA”), and the
Sellers (as defined
in the Sale
Agreement). Pursuant
to the Sale
Agreement and
subject to its
terms and conditions,
Lesaka, through
its subsidiary, Lesaka SA, agreed to
acquire, and the Sellers agreed to sell, all of the outstanding equity interests and certain claims in
the Adumo (RF) Proprietary Limited (“Adumo”).
The
purchase
consideration
will
be
settled
through
the
combination
of
an
issuance
of
17,279,803
shares
of
the
Company’s
common stock and
a ZAR
232
million ($
12.5
million, translated at
the prevailing rate
of $1: ZAR 18.5
as of May 7,
2024) payment
in cash. The share issuance was based off of the Base Purchase
Consideration, as defined in the Sale Agreement, of ZAR
1.59
billion
($
85.9
million), less the ZAR
232
million cash payment, implying a value per
share of $
4.25
((ZAR
1.59
billion – ZAR
0.232
billion)/
17,279,803
/ ZAR 18.5).
The Sale Agreement includes customary covenants from the Sellers, including
(i) to conduct the business in the ordinary course
during the period between
the execution of the Sale
Agreement and the closing
of the transactions contemplated
thereby, and
(ii) not
to engage in certain kinds of transactions during such period.
The closing of the transaction is subject to customary closing conditions, including (i) approval from the competition authorities
of South Africa and Namibia; (ii) exchange control approval from the financial surveillance department of the South African Reserve
Bank;
(iii)
the
Company
obtaining
confirmation
from
RMB
that
it
has
sufficient
funds
to
settle
the
cash
portion
of
the
purchase
consideration;
(iv)
approval
of
Adumo
shareholders
(including
preference
shareholders)
with
respect
to
entering
into
and
implementation
of the
Sale
Agreement,
and
all other
agreements
and
transactions
contemplated
in the
Sale
Agreement
by June
6,
2024; (v)
obtaining the
consent of
Adumo’s
lender regarding
Adumo entering
into and
implementing the
Sale Agreement,
and all
other agreements and transactions contemplated in the Sale Agreement by June 5, 2024, (vi) the release of certain Seller’s shares held
as security by such bank; (vi) obtaining
the consent of the lender of one
of Adumo’s shareholders
regarding Adumo entering into the
transaction by June 6, 2024; (vii) the Company obtaining all necessary regulatory and shareholder approval to issue the Consideration
Shares
to
the
Sellers;
(viii)
on
or
before
June
6,
2024,
the
Company
signing
a
written
addendum
to
the
Policy
Agreement
with
International Finance Corporation that provides for
the inclusion of the
Consideration Shares attributable to certain
Seller shareholders
in the definition of “Put Shares” under the Policy Agreement, and related changes;
and (ix) obtaining certain third-party consents.
In addition, the closing of the transaction is subject to either: (i) on or before July 6, 2024, the direct and/or indirect shareholders
of one of the
Sellers providing written
unconditional undertakings to
purchase all of certain
of its shareholders
pro rata
entitlements
to the Consideration
Shares in consideration
for an aggregate
amount equal
to ZAR
285,772,238
($
14.0
million) (the “Replacement
Cash Component”); or
(ii) if the foregoing
does not occur
in a timely manner
then, on or before
October 31, 2024,
Lesaka SA (or
is
nominee) will enter into a written unconditional agreement with Crossfin SPV in
relation to the acquisition of all
of such entitlements
in respect of
all such Consideration
Shares (other than
those which are
required to be
liquidated in order to
satisfy cash tax
obligations),
provided that the
aggregate consideration for
such entitlements will
be equal to
the Replacement Cash
Component and provided
further
that (i) Lesaka SA (or its nominee) has provided a bank guarantee from RMB or other South African registered
bank in respect of the
settlement of
such aggregate
consideration and
(ii) that,
to the
extent applicable,
Lesaka SA’s
nominee has,
prior to
the conclusion
thereof, obtained all approvals as may be required to conclude and implement
such agreement.
42
20.
Subsequent events (continued)
May 2024
offer to acquire Adumo (continued)
The
Company
has
agreed
to file
a
resale
registration
statement
with
the
United
States
Securities
and
Exchange
Commission
(“SEC”) covering
the resale
of the
Consideration
Shares by
the Sellers
following
the closing
of the
transaction. The
Company has
undertaken to use its commercially reasonable efforts to
have the resale registration statement declared effective by
the SEC following
its filing.
The Company incurred transaction-related expenditures of $
0.6
million and $
0.7
million during the three and nine months ended
March 31,
2024, related
to the
process to
acquire Adumo.
The Company
expects to
incur a further
$
2.2
million in
transaction costs
over the remainder of the 2024 calendar year.
43
Item 2. Management’s Discussion and Analysis of Financial
Condition and Results of Operations
The following discussion should be read in conjunction with our Annual Report on Form 10-K for the year
ended June 30, 2023,
and the unaudited condensed consolidated financial statements and
the accompanying notes included in this Form 10-Q.
U.S. securities laws
require that when
we publish any
non-GAAP measures, we
disclose the reason
for using these
non-GAAP
measures
and
provide
reconciliations
to
the
most
directly
comparable
GAAP
measures.
We
discuss
why
we
consider
it
useful
to
present these non
-GAAP measures and
the material risks
and limitations of
these measures, as
well as a
reconciliation of these
non-
GAAP measures
to the
most directly
comparable GAAP
financial measure
below at
“—Results of
Operations—Use of
Non-GAAP
Measures” below.
Forward-looking statements
Some of the statements in this Form 10-Q constitute forward-looking
statements. These statements relate to future events or our
future financial performance
and involve known
and unknown
risks, uncertainties and
other factors that
may cause
our or our
industry’s
actual results,
levels of
activity,
performance
or achievements
to be
materially
different
from
any future
results, levels
of
activity,
performance or achievements expressed,
implied or inferred by these
forward-looking statements. Such factors
include, among other
things, those
listed under Item
1A.—“Risk Factors” in
our Annual
Report on Form
10-K for
the year ended
June 30, 2023.
In some
cases,
you
can
identify forward-looking
statements
by terminology
such as
“may,”
“will,” “should,”
“could,”
“would,”
“expects,”
“plans,” “intends,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of such
terms and other
comparable terminology.
Although we believe
that the expectations
reflected in the
forward-looking statements are
reasonable, we do
not know whether
we can
achieve positive
future results,
levels of
activity,
performance, or
goals. Actual
events or
results may
differ
materially.
We
undertake no obligation to update any of the forward-looking statements after the date of this Form 10-Q to conform those statements
to reflect the occurrence of unanticipated events, except as required by applicable
law.
You
should read this Form 10-Q and the documents that we reference herein and the documents we have filed as exhibits hereto
and thereto
and which we
have filed with
the United States
Securities and
Exchange Commission
(“SEC”) completely
and with
the
understanding that our
actual future results,
levels of activity,
performance and achievements
may be materially
different from
what
we expect. We
qualify all of our forward-looking statements by these cautionary
statements.
Recent Developments
As of the date hereof, we have been successfully executing on our strategic objectives in building a leading fintech platform and
consolidating Southern
African fintech. We
experienced continued improvement
in our financial
performance in the
third quarter of
fiscal 2024 with year-on-year revenue and profitability
improvements in both Merchant and Consumer divisions.
Operating income of $0.8 million (ZAR 15.0 million) improved
145% in ZAR, compared with an operating loss of $1.9 million
(ZAR 33.2 million) during the third quarter of fiscal 2023.
Group
Adjusted
EBITDA, a
non-GAAP
measure,
of $9.7
million
(ZAR 183.3
million) this
quarter,
a 47%
increase
in
ZAR,
compared to $7.0 million (ZAR 124.6 million) in the third
quarter of fiscal 2023. The continued resilience of our business model
in a
challenging environment for our merchant and consumer customers demonstrates
the value our customers place on our services.
Our mission at Lesaka is
to enable merchants to compete and
grow, and to improve the lives of
South Africa’s grant beneficiaries
by providing access
to innovative financial
technology and value
creating solutions. We
achieve this through our
vision to build
and
operate the
leading full-service
fintech platform
in Southern
Africa, offering
cash management,
payment processing,
Value
Added
Services (“VAS”),
capital and financial services to merchants and underserved consumers.
Merchant Division
The year-on-year growth achieved by our Merchant Division
is supported by the robust secular trends underpinning financial
inclusion, cash management and digitalization for micro, small and medium
enterprises (“MSMEs”), especially in the micro-
merchant sector of South Africa, where we have a leading market position.
Performance in our Merchant division has been driven by:
●
Kazang,
our VAS
and supplier payments
business, continues to see
adoption by micro-merchants,
with a 12% year-on-year
growth in the number of devices deployed.
o
We
had approximately 80,250
devices deployed as of
March 31, 2024, compared
to approximately 71,800 devices
one year ago, and approximately
79,000 devices at the
end of the second quarter
of fiscal 2024. Core
to our device
placement strategy is
the decision to focus
on quality business and
optimizing our existing fleet,
which is reflected
in a healthy throughput and margin per device.
44
o
As
previously
communicated,
our
product
mix
for
VAS
sales
has
changed
with
low-margin
money
transfers
reducing
significantly
due
to
a
change
in
the
regulatory
environment
impacting
the
industry
as a
whole.
Money
transfers
currently
comprise approximately
5% of
VAS
throughput, compared
to approximately
25% a
year ago.
This change has had limited impact on profitability as money transfers are
a very low margin product.
o
VAS
throughput, excluding
the low-margin
money transfers, increased
36% year-on-year
and was flat
quarter-on-
quarter,
as
expected,
which
is
due
to
seasonality,
with
second
quarter
of
our
fiscal
year
being
traditionally
our
strongest quarter due to higher activity over the year-end festive
season benefitting certain product lines.
o
Whilst we saw
growth in
our traditional VAS
products of
electricity,
airtime and gaming,
much of the
growth has
been driven by the uptake of our supplier payments platform by micro-merchants.
As we bring more suppliers onto
our
platform,
we
should
see
these
volumes
continue
growing.
Supplier
payment
throughput
volumes
increased
approximately 100%
in the
third quarter
compared to
a year ago
and now
accounts for
approximately 35%
of our
VAS
throughput volumes, compared to approximately 20% a year ago.
●
We provide
card acquiring solutions to
micro-merchants via Kazang Pay
and to small and medium
merchants through Card
Connect. Card-enabled POS devices increased to
approximately 50,200 as of March 31,
2024, a year-on-year growth of 21%.
Throughput on deployed devices increased 21% year-on-year
to R3.9 billion.
●
Our
current
Merchant
Credit
offering
through
Capital
Connect
in
the
SME
market.
Kazang
Pay
Advance
in
the
micro-
merchant sector remains
suspended as we
reported in the
previous quarter. Capital Connect
disbursed ZAR 219
million during
this quarter, compared to ZAR 194 million
in the comparable period last year, representing a 13% increase.
●
Our digital cash management
offerings, Cash Connect and Kazang
Vaults, effectively “puts the bank” in approximately 4,460
merchants’ stores, compared to approximately 4,370 merchants’ stores a year ago. We provide robust cash vaults in the
SME
sector and
is building
a presence
in the
micro-merchant sector,
which enables
our merchant
customer base
to significantly
mitigate their operational risks pertaining to cash management and
security.
Acquisition of Touchsides
In February 2024 we announced the
acquisition of Touchsides
(Pty) Ltd (“Touchsides”).
With closing conditions
now satisfied,
the deal closed
on April 30,
2024. Touchsides
is a leading
data analytics and
insights company,
and highly complementary
with our
Kazang business.
The acquisition significantly
expands Kazang’s
footprint in the informal
market by adding an
established solution
that has a strong presence in
the licensed tavern market. Touchsides
has an installed base of over 10,000
active POS terminals across
South Africa’s licensed taverns, and processes more
than 1.5 million transactions
per day. The business provides platform-as-a-service
(“PaaS”) and
software-as-a-service (“SaaS”)
solutions to
licensed tavern
outlets, enabling
the measurement
of sales
activity in
real-
time, management of stock levels and informing commercial decisions,
such as pricing and promotional offers. The
data and insights
gathered
from
these terminals
carries
significant
value
and potential
to be
monetized
through relationships
with
a range
of clients
including fast-moving
consumer goods
companies, retailers,
wholesalers, route-to-market
suppliers, and
financiers. Touchsides
has
been allocated to our Merchant operating segment.
Acquisition of Adumo
In May 2024
we announced the
acquisition of Adumo
RF (Pty) Ltd, subject
to shareholder and
regulatory approvals. Adumo’s
serves approximately 23,000
active merchants. Its primary
operations include card acquiring,
integrated payments and reconciliation
services processing more than ZAR 24 billion in throughput per year. The company’s corporate card services cover over 245,000 card
holders supporting payroll, incentives, rewards, and expense management. Adumo ISV,
also known as GAAP,
is the largest POS and
Software-as-a-Service solutions provider to the hospitality sector in
Southern Africa.
The acquisition
continues Lesaka’s
consolidation in
the Southern
African fintech
sector.
The Lesaka
ecosystem will
serve 1.7
million active consumers, 119,000
merchants, and processes over ZAR
250 billion in throughput (cash, card
and VAS)
per year. The
Group will have over 3,300 employees operating on the
ground in 5 countries: South Africa, Namibia, Botswana, Zambia,
and Kenya.
The acquisition enhances Lesaka's strengths in both the consumer
and merchant markets.
The purchase
consideration will
be settled
through the
combination of
an issuance
of 17,279,803
shares of
our common
stock
and a ZAR 232 million ($12.5
million, translated at the prevailing rate of
$1: ZAR 18.5 as of
May 6, 2024) payment in cash.
The share
issuance
was
based
off
of
the
Base
Purchase
Consideration,
as
defined
in
the
transaction
agreement,
of
ZAR
1.59
billion
($85.9
million),
less
the
ZAR
232
million
cash
payment,
implying
a
value
per
share
of
$4.25
((ZAR
1.59
billion
–
ZAR
0.232
billion)/
17,279,803
/ ZAR
18.5).
Adumo
shareholders
include Apis
Growth
Fund I,
a
private
equity fund
managed
by Apis
Partners
LLP
(“Apis”), African
Rainbow Capital
(“ARC”), the
largest shareholder
of Crossfin
Holdings (RF)
Pty Ltd
(“Crossfin”), as
well as
the
International Finance Corporation and Adumo management.
The transaction is expected
to close in the
third calendar quarter of
2024 and is subject
to shareholder and regulatory
approvals
and satisfaction of customary closing conditions.
45
Consumer Division
We
continue
to deliver
against our
strategic focus
areas underpinning
our growth
strategy in
our Consumer
Division and
our
mission
to
improve
the
lives
of
South
Africa’s
grant
beneficiaries.
Progress
made
on
these
levers:
(i)
growing
active
EasyPay
Everywhere
(“EPE”)
account
numbers,
(ii)
increasing
average
revenue
per
user
(“ARPU”)
through
cross-selling
and
(iii)
cost
optimization,
and
(iv)
enhancing
our
product
and
service
offering,
resulted
in
revenue
and
profitability
growth
in
the
Consumer
Division in third quarter of fiscal 2024.
The progress on our key initiatives is as follows:
●
Driving customer acquisition
o
Gross EPE account activations,
for the permanent base, during
our current quarter showed significant
year-on-year
improvement due to various strategic
initiatives. We achieved approximately 63,000 gross account activations in
the
third quarter, compared
to approximately 38,000 in the
third quarter of fiscal 2023.
After accounting for churn, net
active account growth for the quarter
was approximately 28,000 accounts, compared to approximately 1,000
in third
quarter of fiscal 2023.
o
Our total
active EPE
transactional account
base stood
at approximately
1.46 million
at the end
of March
2024, of
which approximately
1.28 million
(or approximately
87%) are
permanent grant
recipients. The
balance comprises
Social Relief of Distress
(“SRD”) grant recipients, which was
introduced during the COVID pandemic and
extended
in calendar year 2023.
o
Our priority
is to grow
our permanent
grant recipient
customers base,
where we
can build
deeper relationships
by
offering other products such as insurance and lending. We do not offer the same breadth of service to the SRD grant
base due to the temporary nature of the grant.
●
Progress on cross
selling
EasyPay Loans
o
We
originated
approximately 266,000
loans during
the quarter
with our
consumer loan
book, before
allowances,
increasing 28% to ZAR 509 million as at March 31, 2024, compared to ZAR 397
million as of March 31, 2023.
o
We have not
amended our credit scoring or other lending criteria and the growth is reflective of the demand
for our
tailored
loan
product
for
this
market,
growth
in
EPE
bank
account
customer
base
and
improved
cross-selling
capabilities.
o
The
loan
conversion
rate
continues
to
improve
following
the
implementation
of
a
number
of
targeted
consumer
lending campaigns and encouraging results from our digital channels during
the current quarter.
o
The portfolio loss ratio,
calculated as the loans
written off during the
period as a percentage
of the total loan book,
remained at approximately 6% on an annualized basis, in line with the first and
second quarter of fiscal 2024.
EasyPay Insurance
o
Our funeral
insurance product continued
its strong growth
and is a
material contributor
to the improvement
in our
overall ARPU. We have been able to improve customer penetration to more than 30% of
our active permanent grant
account base as of March
31, 2024, compared to
approximately 28% as of March
31, 2023. Approximately 46,000
new policies were written in the quarter, compared to approximately
36,000 in the comparable period in
fiscal 2023.
The total
number of
active policies
has grown
by 34%
to approximately
414,000 policies
as of
March 31,
2024,
compared to March 31, 2023.
ARPU
o
ARPU for
our permanent
client base
has increased
to approximately
ZAR 90
for the
third quarter
of fiscal
2024,
from approximately ZAR 78 in the third quarter of fiscal 2023.
Leadership Changes
On February 29, 2024 Mr. Chris Meyer completed his tenure
as Group CEO of Lesaka, a
position he held since July 1,
2021. Mr.
Ali Mazanderani
took
over
the majority
of
Mr.
Meyer’s
responsibilities
as Executive
Chairman
of Lesaka
on
March 1,
2024.
Ali
Mazanderani has been
integral to the
development of Lesaka’s
strategy and has
been a Non-Executive
Director since
2020. As part
of the
change in
leadership, Mr.
Kuben Pillay,
step down
as our
Chairman on
January 31,
2024, and
commenced his
role as
Lead
Independent Director of Lesaka on February 1, 2024.
46
Critical Accounting Policies
Our unaudited condensed consolidated
financial statements have been
prepared in accordance with U.S.
GAAP,
which requires
management
to
make
estimates
and
assumptions
about
future
events
that
affect
the
reported
amount
of
assets
and
liabilities
and
disclosure
of
contingent
assets and
liabilities.
As future
events
and
their
effects
cannot be
determined
with
absolute
certainty,
the
determination
of
estimates
requires
management’s
judgment
based
on
a
variety
of
assumptions
and
other
determinants
such
as
historical experience, current and expected market conditions and certain scientific evaluation techniques. Critical accounting policies
are those
that reflect
significant judgments
or uncertainties
and may
potentially result
in materially
different
results under
different
assumptions
and
conditions.
We
have
identified
the
following
critical
accounting
policies that
are
described
in
more
detail
in
our
Annual Report on Form 10-K for the year ended June 30, 2023:
●
Business Combinations and the Recoverability of Goodwill;
●
Intangible Assets Acquired Through Acquisitions;
●
Revenue recognition – principal versus agent considerations;
●
Valuation
of investment in Cell C;
●
Recoverability of equity securities and equity-accounted investments;
●
Deferred Taxation;
●
Stock-based Compensation;
●
Accounts Receivable and Allowance for Doubtful Accounts Receivable;
and
●
Lending.
Recent accounting pronouncements adopted
Refer to Note
1 to
our unaudited condensed
consolidated financial statements
for a full
description of accounting
pronouncements
adopted, including the dates of adoption and the effects on
our unaudited condensed consolidated financial statements.
Recent accounting pronouncements not yet adopted
as of March 31, 2024
Refer
to
Note
1
to
our
unaudited
condensed
consolidated
financial
statements
for
a
full
description
of
recent
accounting
pronouncements not yet adopted as
of March 31, 2024, including
the expected dates of adoption
and effects on our financial
condition,
results of operations and cash flows.
Currency Exchange Rate Information
Actual exchange rates
The actual exchange rates for and at the end of the periods presented were
as follows:
Table 1
Three months ended
Nine months ended
Year
ended
March 31,
March 31,
June 30,
2024
2023
2024
2023
2023
ZAR : $ average exchange rate
18.7313
17.7506
18.7536
17.4641
17.7641
Highest ZAR : $ rate during period
19.4568
18.6008
19.4568
18.6008
19.7558
Lowest ZAR : $ rate during period
18.2076
16.7978
17.6278
16.2035
16.2034
Rate at end of period
18.8760
17.7936
18.8760
17.7936
18.8376
47
Translation exchange
rates for financial reporting purposes
We are required
to translate our results of operations from ZAR to U.S. dollars on a monthly
basis. Thus, the average rates used
to translate this data for the three and six months
ended March 31, 2024 and 2023, vary slightly
from the averages shown in the table
above.
Except
as
described
below,
the
translation
rates
we
use
in
presenting
our
results
of
operations
are
the
rates
shown
in
the
following table:
Three months ended
Nine months ended
Year
ended
Table 2
March 31,
March 31,
June 30,
2024
2023
2024
2023
2023
Income and expense items: $1 = ZAR
18.8780
17.9318
18.7571
17.4037
17.9400
Balance sheet items: $1 = ZAR
18.8760
17.7936
18.8760
17.7936
18.8376
We
have translated the
results of operations and
operating segment information
for the three and
nine months ended March
31,
2024, provided in
the tables below using
the actual average exchange
rates per month (i.e.
for each of
January 2024, February
2024,
and March 2024
for the third
quarter of fiscal
2024) between the
USD and ZAR
in order to
reduce the reconciliation
of information
presented to our chief
operating decision maker.
The impact of using this method
compared with the average
rate for the quarter and
year to date
is not significant,
however, it
does result in
minor differences.
We
believe that presentation
using the average
exchange
rates
per
month
compared
with
the
average
exchange
rate
per
quarter
and
year
to
date
improves
the
accuracy
of
the
information
presented
in
our
external
financial
reporting
and
leads
to
fewer
differences
between
our
external
reporting
measures
which
are
supplementally presented in ZAR, and our internal management information,
which is also presented in ZAR.
Results of Operations
The discussion
of our
consolidated overall
results of
operations is
based on
amounts as
reflected
in our
unaudited condensed
consolidated financial
statements which
are prepared
in accordance
with U.S.
GAAP.
We
analyze our
results of
operations both
in
U.S. dollars, as presented in the unaudited condensed consolidated
financial statements, and supplementally in ZAR, because ZAR is
the functional
currency of
the entities
which contribute
the majority
of our
results and
is the
currency in
which the
majority of
our
transactions
are
initially
incurred
and
measured.
Presentation
of our
reported
results
in ZAR
is a
non-GAAP
measure.
Due
to
the
significant impact of currency
fluctuations between the U.S.
dollar and ZAR on
our reported results and because
we use the U.S.
dollar
as our reporting
currency,
we believe that
the supplemental presentation
of our results
of operations in
ZAR is useful
to investors to
understand the changes in the underlying trends of our business.
48
Our
operating
segment
revenue
presented
in
“—Results
of
operations
by
operating
segment”
represents
total
revenue
per
operating segment before intercompany
eliminations. A reconciliation between
total operating segment revenue and
revenue, as well
as
the
reconciliation
between
our
segment
performance
measure
and
net
loss
before
tax
(benefits)
expense,
is
presented
in
our
unaudited condensed
consolidated financial
statements in
Note 17
to those
statements. Our
chief operating
decision maker
was our
Group Chief Executive
Officer until February 29,
2024 and is
our Executive Chairman
from March 1,
2024, and each
of them evaluates
segment performance based
on segment earnings
before interest, tax,
depreciation and amortization
(“EBITDA”), adjusted for
items
mentioned in
the next
sentence (“Segment
Adjusted EBITDA”)
for each
operating segment.
We
do not
allocate once-off
items (as
defined below), stock-based compensation charges,
depreciation and amortization, impairment of goodwill or other
intangible assets,
certain lease expenses (“Lease expenses”), other items (including gains or losses on disposal of investments, fair value adjustments to
equity securities, fair
value adjustments to
currency options), interest
income, interest expense,
income tax expense
or loss from
equity-
accounted investments to
our reportable segments.
Once-off items represents
non-recurring expense items,
including costs related
to
acquisitions and transactions consummated
or ultimately not pursued.
The Lease expenses reflect lease
expenses (refer to Note
16 to
our
unaudited
condensed
consolidated
financial
statements)
and
the
Stock-based
compensation
adjustments
reflect
stock-based
compensation
expense
and
are
both
excluded
from
the
calculation
of
Segment
Adjusted
EBITDA
and
are
therefore
reported
as
reconciling items to reconcile the reportable segments’ Segment Adjusted
EBITDA to our loss before income tax expense.
Group Adjusted
EBITDA represents
Segment
Adjusted EBITDA
after deducting
Lease expenses
and group
costs. Refer
also
“Results of Operations—Use of Non-GAAP Measures” below.
Connect is included for the entire year to date of fiscal 2024 and 2023.
We analyze our business and operations in terms of two
inter-related but independent operating segments: (1) Merchant Division
and (2)
Consumer Division.
In addition,
corporate activities
that are
impracticable to
allocate directly
to the
operating segments,
as
well as any inter-segment eliminations, are included in Group costs. Inter-segment revenue eliminations are included
in Eliminations.
Third quarter of fiscal 2024 compared to third quarter
of fiscal 2023
The following
factors had
a significant
impact on
our results
of operations
during the
third quarter
of fiscal
2024 as
compared
with the same period in the prior year:
●
Higher revenue:
Our revenues
increased 9%
in ZAR, primarily
due to an
increase in low
margin prepaid
airtime sales and
other value-added services, as well
as higher transaction, insurance and lending revenues,
which was partially offset by lower
hardware sales revenue in our POS hardware distribution business given the
lumpy nature of bulk sales;
●
Operating income generated:
Operating profitability
continues to improve
as a result of
the increase in
the trading activity
as noted above off of a stable selling, general and administration base;
●
Lower net
interest charge:
The net
interest charge
decreased to
$4.0 million
(ZAR 74.6
million) from
$4.5 million
(ZAR
81.0 million) primarily due to higher interest rates; and
●
Foreign exchange
movements:
The U.S.
dollar
was 5%
stronger against
the ZAR
during
the third
quarter of
fiscal 2024
compared to the prior period, which adversely impacted our U.S. dollar
reported results.
49
Consolidated overall results of operations
This discussion is based on the amounts prepared in accordance with U.S. GAAP.
The following tables show the changes in the items comprising our statements of operations,
both in U.S. dollars and in ZAR:
Table 3
In United States Dollars
Three months ended March 31,
2024
2023
%
$ ’000
$ ’000
change
Revenue
138,194
133,968
3%
Cost of goods sold, IT processing, servicing and support
107,854
105,299
2%
Selling, general and administration
23,124
24,547
(6%)
Depreciation and amortization
5,791
5,975
(3%)
Transaction costs related to Adumo acquisition
631
-
nm
Operating income (loss)
794
(1,853)
nm
Loss on disposal of equity-accounted investments
-
329
nm
Interest income
628
469
34%
Interest expense
4,581
4,984
(8%)
Loss before income tax expense (benefit)
(3,159)
(6,697)
(53%)
Income tax expense (benefit)
931
(860)
nm
Net loss before earnings from equity-accounted investments
(4,090)
(5,837)
(30%)
Earnings from equity-accounted investments
43
17
153%
Net loss attributable to us
(4,047)
(5,820)
(30%)
Table 4
In South African Rand
Three months ended March 31,
2024
2023
%
ZAR ’000
ZAR ’000
change
Revenue
2,609,913
2,402,288
9%
Cost of goods sold, IT processing, servicing and support
2,036,881
1,888,201
8%
Selling, general and administration
436,746
440,172
(1%)
Depreciation and amortization
109,379
107,143
2%
Transaction costs related to Adumo acquisition
11,915
-
nm
Operating income (loss)
14,992
(33,228)
nm
Loss on disposal of equity-accounted investments
-
5,900
nm
Interest income
11,861
8,410
41%
Interest expense
86,504
89,372
(3%)
Loss before income tax expense (benefit)
(59,651)
(120,090)
(50%)
Income tax expense (benefit)
17,575
(15,422)
nm
Net loss before earnings from equity-accounted investments
(77,226)
(104,668)
(26%)
Earnings from equity-accounted investments
811
305
166%
Net loss attributable to us
(76,415)
(104,363)
(27%)
Revenue increased
by $4.2
million (ZAR
0.2 billion),
or 3.2% (in
ZAR, 8.6%),
primarily due
to the
increase in
the number
of
low-margin
prepaid
airtime
vouchers
sold
and
an
increase
in
volume
of
other
value-added
services
provided,
as
well
as
higher
transaction volumes processed, insurance premiums collected
and lending revenues following an increase in loan originations,
which
was partially offset
by a lower
number of
hardware sales in
our POS hardware
distribution business
given the
lumpy nature of
bulk
sales. Refer to discussion above at “—Recent Developments”
for a description of key trends impacting our revenue this quarter.
Cost of goods
sold, IT processing, servicing
and support increased
by $2.6 million
(ZAR 0.1 billion), or
2.4% (in ZAR, 7.9%),
primarily due to
the increase in low
margin prepaid airtime
sales and higher
insurance-related claims, which
were partially offset
by
the lower cost of goods sold related to fewer hardware sales.
Selling, general and administration expenses decreased
by $1.4 million (ZAR 3.4 million),
or 5.8% (in ZAR 0.8%). The modest
decrease in
ZAR was
primarily due
to lower
general and
administration expenses,
which were
partially offset
by higher
employee-
related expenses, higher
stock-based compensation charges
and the
year-over-year impact of
inflationary increases on
certain expenses.
50
Depreciation and amortization expense
decreased by $0.2 million, or 3.1%
,
and in ZAR increased by
ZAR 2.2 million or 2.1%.
In the ZAR, the increase was due to an increase in depreciation expense related
to additional POS devices deployed.
Transaction costs related to Adumo
acquisition includes fees
paid to external
service providers associated
with legal, commercial,
financial and tax due diligence activities performed and other legal
and advisory services procured.
Our operating income (loss) margin for
the third quarter of fiscal 2024 and 2023 was 0.6% and(1.4)
%, respectively. We
discuss
the components of operating loss margin under “—Results of operations
by operating segment.”
We did not record any changes in the fair
value of equity interests in MobiKwik and
Cell C during the third
quarter of fiscal 2024
or 2023, respectively. We
continue to carry our investment in Cell
C at $0 (zero). Refer to Note
4 for the methodology and inputs used
in the fair value calculation for Cell C.
We
recorded
a
loss
of
$0.3
million
during
the
third
quarter
of
fiscal
2023
related
to
the
disposal
of
a
minor
portion
of
our
investment in Finbond.
Interest
on surplus
cash increased
to $0.6
million
(ZAR 11.9
million)
from $0.5
million (ZAR
8.4
million),
primarily
due
to
higher interest rates.
Interest expense
decreased to
$4.6 million
(ZAR 86.5
million) from
$5.0 million
(ZAR 89.4
million), primarily
as a
result of
lower interest
expense incurred
on certain
of our
borrowing for
which we
were able
to negotiate
lower rates
of interest
towards the
end of
calendar 2023,
which was partially
offset by
higher overall
base interest rates
and higher
overall borrowings
during the third
quarter of fiscal 2024 compared with comparable period in the prior quarter.
Fiscal 2024 tax
expense was $0.9
million (ZAR 17.6 million)
compared to a tax
benefit of $(0.9) million
(ZAR (15.4) million)
in
fiscal
2023.
Our
effective
tax
rate
for
fiscal
2024
was
impacted
by
the
tax
expense
recorded
by
our
profitable
South
African
operations, a
deferred tax
benefit related
to acquisition-related
intangible asset
amortization, non-deductible
expenses, the
on-going
losses incurred by certain
of our South African businesses and
the associated valuation allowances created
related to the deferred tax
assets recognized regarding net operating losses incurred by these entities.
Our effective tax
rate for fiscal 2023
was impacted by a
reduction in the enacted
South African corporate
income tax rate from
28% to 27% from January 2023 (but backdated to July 1, 2022), the tax expense recorded by our profitable South African operations,
a deferred tax
benefit related to
acquisition-related intangible asset
amortization, non-deductible expenses, the
on-going losses incurred
by certain of our
South African businesses and
the associated valuation allowances
created related to the
deferred tax assets recognized
regarding net operating losses incurred by these entities.
Finbond is
listed on
the Johannesburg
Stock Exchange
and reports
its six-month
results during
our first
quarter and
its annual
results during
our fourth quarter.
We
sold our
entire remaining
interest in
Finbond during the
third quarter
of fiscal
2024. The
table
below presents the relative (loss) earnings from our equity-accounted investments:
Table 5
Three months ended March 31,
2024
2023
$ %
$ ’000
$ ’000
change
Other
43
17
153%
Total
loss from equity-accounted investments
43
17
153%
51
Results of operations by operating segment
The composition of revenue and the contributions of our business activities to operating
loss are illustrated below:
Table 6
In United States Dollars
Three months ended March 31,
2024
% of
2023
% of
% change
Operating Segment
$ ’000
total
$ ’000
total
Consolidated revenue:
Merchant
121,013
88%
118,092
88%
2%
Consumer
17,904
13%
15,876
12%
13%
Subtotal: Operating segments
138,917
101%
133,968
100%
4%
Eliminations
(723)
(1%)
-
-
nm
Total
consolidated revenue
138,194
100%
133,968
100%
3%
Group Adjusted EBITDA:
Merchant
(1)
8,394
87%
8,290
119%
1%
Consumer
(1)
4,358
45%
1,649
24%
164%
Lease expenses
(2)
(850)
(9%)
(696)
(10%)
22%
Group costs
(2,199)
(23%)
(2,293)
(33%)
(4%)
Group Adjusted EBITDA (non-GAAP)
(3)
9,703
100%
6,950
100%
40%
(1) Segment Adjusted EBITDA Consumer includes retrenchment
costs of $0.01 million for the third quarter of fiscal 2024.
(2) Lease expenses which
were previously excluded
from the calculation of
Group Adjusted EBITDA
have now been included
in the calculation. This change is
in response to comments received from
the staff of the SEC in
March 2024 regarding our non-GAAP
financial reporting. Comparative information has been adjusted to conform
with the updated presentation.
(3) Group Adjusted EBITDA
is a non-GAAP measure, refer
to reconciliation below at
“—Results of Operations—Use of
Non-
GAAP Measures”.
Table 7
In South African Rand
Three months ended March 31,
2024
% of
2023
% of
% change
Operating Segment
ZAR ’000
total
ZAR ’000
total
Consolidated revenue:
Merchant
2,285,394
88%
2,117,602
88%
8%
Consumer
338,170
13%
284,686
12%
19%
Subtotal: Operating segments
2,623,564
101%
2,402,288
100%
9%
Eliminations
(13,651)
(1%)
-
-
nm
Total
consolidated revenue
2,609,913
100%
2,402,288
100%
9%
Group Adjusted EBITDA:
Merchant
(1)
158,524
86%
148,655
119%
7%
Consumer
(1)
82,330
45%
29,570
24%
178%
Lease expenses
(2)
(16,059)
(9%)
(12,481)
(10%)
29%
Group costs
(41,529)
(23%)
(41,118)
(33%)
1%
Group Adjusted EBITDA (non-GAAP)
(3)
183,266
100%
124,626
100%
47%
(1) Segment Adjusted EBITDA
for Consumer includes retrenchment
costs of ZAR
0.1 million for the
third quarter of
fiscal 2024.
(2) Lease expenses which
were previously excluded
from the calculation of
Group Adjusted EBITDA
have now been included
in the calculation. This change is
in response to comments received from
the staff of the SEC in
March 2024 regarding our non-GAAP
financial reporting. Comparative information has been adjusted to conform
with the updated presentation.
(3) Group Adjusted EBITDA
is a non-GAAP measure, refer
to reconciliation below at
“—Results of Operations—Use of
Non-
GAAP Measures”.
Merchant
Segment revenue increased due to the increase in prepaid airtime vouchers
sold and other value-added services provided, which
was partially offset
by a lower
number of
hardware sales in
our POS hardware
distribution business
given the
lumpy nature of
bulk
sales as
well as
lower revenue
generated
from a
decrease
in certain
valued-added
services transaction
volumes processed
(such
as
international money transfers). In ZAR, the increase in Segment Adjusted EBITDA is
primarily due to the higher sales activity, which
was partially offset by lower
hardware sales. Connect records
a significant proportion of
its airtime sales in
revenue (see further below)
and cost of sales,
while only earning
a relatively small margin.
This significantly depresses
the Segment Adjusted
EBITDA margins
shown by the business.
52
Our Segment Adjusted
EBITDA margin (calculated
as Segment Adjusted EBITDA
divided by revenue) for
the third quarter of
fiscal 2024 and 2023 was 6.9% and 7.0%, respectively.
Prepaid airtime sales
In South Africa and other countries, mobile network operators (“MNOs”) offer prepaid or contract (or postpaid) services to their
customers to telephony
services using a
mobile telephony network
or networks. MNOs
also offer similar
products (prepaid or
postpaid)
for mobile data
which uses other
wireless network protocols
such as wireless
fidelity (“wifi”).
We
use the term
“prepaid airtime”
to
include both of these prepaid products.
Generally speaking, the difference between the two
models is that prepaid is
paid for upfront by the
customer and contract is
paid
in arrears. MNOs sell prepaid products directly to their customers and also indirectly
to their customers through distribution
channels
(which include wholesalers, retailers and other parties, including ourselves).
We sell
a variety of products through our
distribution channels, including prepaid airtime,
prepaid electricity,
gaming vouchers.
We refer to these
products collectively as VAS.
In order to “load” airtime onto
a mobile device an MNOs customer
requires a prepaid airtime voucher. A unique code is
assigned
to each prepaid
airtime voucher and
is required to
activate the prepaid
airtime on a
mobile device. Like
certain tangible goods,
once
sold, our
customers cannot
return prepaid
airtime vouchers
to us (except
of course
if there is
a defect
in the
service provided
by us,
which rarely occurs).
We
can either
purchase an
agreed quantity
of prepaid
airtime vouchers
upfront directly
from
wholesalers or
other parties
(so
called “Pinned airtime” - these electronic vouchers are stored
on a server owned and maintained by us and we treat
these vouchers as
inventory)
or
we
can
“interface”
directly
into
a
wholesaler
and
deliver
the
airtime
voucher
directly
to
our
customers
(typically
merchants) as the airtime is sold by the merchant to MNOs customers (so called Pinless airtime).
Consumer
Segment
revenue
increased
primarily
due
to
higher
transaction
fees
generated
from
the
higher
EPE
account
holders
base,
insurance premiums collected and lending revenues following an increase in loan originations.
This increase in revenue has translated
into improved profitability,
which was partially
offset by higher
insurance-related claims and
higher employee-related
expenses and
the year-over-year impact of inflationary increases on certain expenses.
Our Segment Adjusted EBITDA margin for the
third quarter of fiscal 2024 and 2023 was 24.3%
and 10.4%, respectively.
Group costs
Our group
costs primarily
include employee
related costs
in relation
to employees
specifically hired
for group
roles and
costs
related
directly
to
managing
the
US-listed
entity;
expenditures
related
to
compliance
with
the
Sarbanes-Oxley
Act
of
2002;
non-
employee directors’ fees; legal fees; group and US-listed related audit
fees; and directors’ and officers’ insurance premiums.
Our group
costs for
fiscal 2024
decreased modestly
compared with
the prior
period due
to lower
external audit,
legal fees and
lower provision
for executive bonuses,
which was partially
offset by
higher employee
(base salary) costs,
consulting fees and
travel
expenses.
Year
to date fiscal 2024 compared to year to date fiscal 2023
The following factors
had a significant
impact on our
results of operations
during the year
to date fiscal
2024 as compared
with
the same period in the prior year:
●
Higher revenue:
Our revenues increased 14% in
ZAR, primarily due to an increase
in low margin prepaid airtime
sales and
other value-added services, as well
as higher transaction, insurance and lending revenues,
which was partially offset by lower
hardware sales revenue in our POS hardware distribution business given the
lumpy nature of bulk sales;
●
Operating
income
generated:
Operating
profitability
was
achieved
following
years
of
operating
losses
as
a
result
of the
various cost reduction initiatives in Consumer implemented in prior periods as well as the contribution
from Connect;
●
Higher net interest charge:
The net interest charge increased to
$12.8 million (ZAR 239.0 million) from
$12.1 million (ZAR
211.3 million) primarily due to higher interest
rates; and
●
Foreign
exchange
movements:
The
U.S.
dollar
was
8%
stronger
against
the
ZAR
during
the
year
to
date
fiscal
2024
compared to the prior period, which adversely impacted our U.S. dollar
reported results.
53
Consolidated overall results of operations
This discussion is based on the amounts prepared in accordance with U.S. GAAP.
The following tables show the changes in the items comprising our statements of
operations, both in U.S. dollars and in ZAR:
Table 8
In United States Dollars
Nine months ended March 31,
2024
2023
%
$ ’000
$ ’000
change
Revenue
418,176
394,822
6%
Cost of goods sold, IT processing, servicing and support
329,610
314,651
5%
Selling, general and administration
67,146
70,995
(5%)
Depreciation and amortization
17,460
17,892
(2%)
Transaction costs related to Adumo acquisition
665
-
nm
Operating income (loss)
3,295
(8,716)
nm
Reversal of allowance for EMI doubtful debt receivable
250
-
nm
Net loss on disposal of equity-accounted investments
-
193
nm
Interest income
1,562
1,269
23%
Interest expense
14,312
13,408
7%
Loss before income tax expense (benefit)
(9,205)
(21,048)
(56%)
Income tax expense (benefit)
1,881
(465)
nm
Net loss before loss from equity-accounted investments
(11,086)
(20,583)
(46%)
Loss from equity-accounted investments
1,319
2,582
(49%)
Net loss attributable to us
(12,405)
(23,165)
(46%)
Table 9
In South African Rand
Nine months ended March 31,
2024
2023
%
ZAR ’000
ZAR ’000
change
Revenue
7,842,078
6,871,364
14%
Cost of goods sold, IT processing, servicing and support
6,181,076
5,476,091
13%
Selling, general and administration
1,259,415
1,235,576
2%
Depreciation and amortization
327,408
311,387
5%
Transaction costs related to Adumo acquisition
12,550
-
nm
Operating income (loss)
61,629
(151,690)
nm
Reversal of allowance for EMI doubtful debt receivable
4,741
-
nm
Net loss on disposal of equity-accounted investments
-
3,359
nm
Interest income
29,309
22,085
33%
Interest expense
268,262
233,349
15%
Loss before income tax expense (benefit)
(172,583)
(366,313)
(53%)
Income tax expense (benefit)
35,245
(8,093)
nm
Net loss before loss from equity-accounted investments
(207,828)
(358,220)
(42%)
Loss from equity-accounted investments
25,041
44,936
(44%)
Net loss attributable to us
(232,869)
(403,156)
(42%)
Revenue increased by $23.4 million (ZAR 1.0 billion), or 5.9% (in ZAR, 14.1%), primarily
due to the increase in the number of
low-margin
prepaid
airtime
vouchers
sold
and
an
increase
in
volume
of
other
value-added
services
provided,
as
well
as
higher
transaction volumes processed, insurance premiums collected
and lending revenues following an increase in loan
originations, which
was partially offset
by a lower
number of
hardware sales in
our POS hardware
distribution business
given the
lumpy nature of
bulk
sales.
Cost of goods sold, IT processing, servicing and
support increased by $15.0 million (ZAR
0.7 billion), or 4.8% (in ZAR,
12.9%),
primarily due to
the increase in low
margin prepaid airtime
sales, which were
partially offset by
the lower cost of
goods sold related
to fewer hardware sales.
Selling, general and administration expenses decreased by $3.8 million, or 5.4%, and in ZAR increased by ZAR 23.8 million, or
1.9%.
In ZAR,
the modest
increase
was primarily
due
to higher
employee-related
expenses related
to
the expansion
of our
senior
management team and
the year-over-year impact of
inflationary increases on employee
-related expenses, which were
partially offset
by the benefits of various cost reduction initiatives in Consumer.
54
Depreciation and amortization expense decreased by $0.4 million, or 2.4%, and in ZAR increased by ZAR 16.0 million or 5.1%.
In the ZAR, the increase was due to an increase in depreciation expense related to
additional POS devices deployed.
Transaction costs related to Adumo
acquisition includes fees
paid to external
service providers associated
with legal, commercial,
financial and tax due diligence activities performed and other legal
and advisory services procured.
Our operating income (loss) margin for the year to date fiscal 2024 and 2023 was 0.8% and (2.2)%, respectively. We
discuss the
components of operating loss margin under “—Results of operations
by operating segment.”
We
did not record
any changes in the
fair value of
equity interests in MobiKwik
and Cell C during
the year to
date fiscal 2024
or 2023, respectively.
During the year to date fiscal 2024, we received an outstanding amount of $0.3
million related to the sale Carbon in fiscal 2023,
which resulted
in the
reversal of
an allowance
for doubtful
loans receivable
of $0.3
million recorded
in fiscal
2023.
We
recorded a
gain of $0.3 million
related to the disposal
of our entire interest
in Carbon during the
year to date fiscal
2023. Refer to Note
5 to our
unaudited condensed consolidated financial statements for additional
information regarding this disposal.
We recorded a net
loss of
$0.2 million
comprising a loss
of $0.4
million related to
the disposal
of a
minor portion
of our
investment
in Finbond and a $0.25 million gain related to the disposal of our entire interest in Carbon during the year to
date fiscal 2023. Refer to
Note 5 to our unaudited condensed consolidated financial statements for
additional information regarding this disposal.
Interest on
surplus cash
increased to
$1.6 million
(ZAR 29.3
million) from
$1.3 million
(ZAR 22.1
million), primarily
due to
higher interest rates.
Interest expense increased
to $14.3 million
(ZAR 268.3 million)
from $13.4 million
(ZAR 233.3 million),
primarily as a
result
of higher overall interest rates and higher overall borrowings
during the year to date fiscal 2024 compared with
comparable period in
the prior
year to
date, which
was partially
offset by
lower interest
expense incurred
on certain
of our
borrowing for
which we
were
able to negotiate lower rates of interest during the latter half of fiscal 2023
and again towards the end of calendar 2023.
Fiscal 2024 tax expense was $1.9 million (ZAR 35.2 million) compared to a tax benefit of $(0.5) million (ZAR (8.1) million) in
fiscal 2023. Our effective tax
rate for fiscal
2024 was impacted by
the tax expense
recorded by our profitable
South African operations,
a deferred tax
benefit related to
acquisition-related intangible asset
amortization, non-deductible expenses, the
on-going losses incurred
by certain of our
South African businesses and
the associated valuation allowances
created related to the
deferred tax assets
recognized
regarding net operating losses incurred by these entities.
Our effective tax
rate for fiscal 2023
was impacted by a
reduction in the enacted
South African corporate
income tax rate from
28% to 27% from January 2023 (but backdated to July 1, 2022), the tax expense recorded by our profitable South African operations,
a deferred tax
benefit related to
acquisition-related intangible asset
amortization, non-deductible expenses, the
on-going losses incurred
by certain of our
South African businesses and
the associated valuation allowances
created related to the
deferred tax assets recognized
regarding net operating losses incurred by these entities.
Finbond is listed on the Johannesburg Stock
Exchange and reports its six-month results during
our first half and its
annual results
during our fourth quarter. The table
below presents the relative (loss) earnings from our equity-accounted
investments:
Table 10
Nine months ended March 31,
2024
2023
$ %
$ ’000
$ ’000
change
Finbond
(1,445)
(2,631)
(45%)
Share of net loss
(278)
(1,521)
(82%)
Impairment
(1,167)
(1,110)
5%
Other
126
49
157%
(1,319)
(2,582)
(49%)
55
Results of operations by operating segment
The composition of revenue and the contributions of our business activities to operating
loss are illustrated below:
Table 11
In United States Dollars
Nine months ended March 31,
2024
% of
2023
% of
% change
Operating Segment
$ ’000
total
$ ’000
total
Consolidated revenue:
Merchant
370,244
89%
348,508
88%
6%
Consumer
50,191
12%
46,314
12%
8%
Subtotal: Operating segments
420,435
101%
394,822
100%
6%
Eliminations
(2,259)
(1%)
-
-
nm
Total
consolidated revenue
418,176
100%
394,822
100%
6%
Group Adjusted EBITDA:
Merchant
(1)
25,148
94%
25,303
149%
(1%)
Consumer
(1)
9,786
37%
833
5%
1,075%
Lease expenses
(2)
(2,224)
(8%)
(2,255)
(13%)
(1%)
Group costs
(6,032)
(23%)
(6,849)
(40%)
(12%)
Group Adjusted EBITDA (non-GAAP)
(3)
26,678
100%
17,032
100%
57%
(1) Segment Adjusted EBITDA for Merchant includes retrenchments costs of $0.2 million and Consumer includes retrenchment
costs of $0.2 million for year to date fiscal 2024.
(2) Lease expenses which
were previously excluded
from the calculation of
Group Adjusted EBITDA
have now been included
in the calculation. This change is
in response to comments received from
the staff of the SEC in
March 2024 regarding our non-GAAP
financial reporting. Comparative information has been adjusted to conform
with the updated presentation.
(3) Group Adjusted EBITDA
is a non-GAAP measure, refer
to reconciliation below at
“—Results of Operations—Use of
Non-
GAAP Measures”.
Table 12
In South African Rand
Nine months ended March 31,
2024
% of
2023
% of
% change
Operating Segment
ZAR ’000
total
ZAR ’000
total
Consolidated revenue:
Merchant
6,942,910
89%
6,065,329
88%
14%
Consumer
941,566
12%
806,035
12%
17%
Subtotal: Operating segments
7,884,476
101%
6,871,364
100%
15%
Eliminations
(42,398)
(1%)
-
-
nm
Total
consolidated revenue
7,842,078
100%
6,871,364
100%
14%
Group Adjusted EBITDA:
Merchant
(1)
471,640
94%
440,366
149%
7%
Consumer
(1)
183,857
37%
14,497
5%
1,168%
Lease expenses
(2)
(41,739)
(8%)
(39,245)
(13%)
6%
Group costs
(113,172)
(23%)
(119,198)
(40%)
(5%)
Group Adjusted EBITDA (non-GAAP)
(3)
500,586
100%
296,420
100%
69%
(1)
Segment
Adjusted
EBITDA
for
Merchant
includes
retrenchments
costs
of
ZAR
4.7
million
and
Consumer
includes
retrenchment costs of ZAR 2.9 million for year to date fiscal 2024.
(2) Lease expenses which
were previously excluded
from the calculation of
Group Adjusted EBITDA
have now been included
in the calculation. This change is
in response to comments received from
the staff of the SEC in
March 2024 regarding our non-GAAP
financial reporting. Comparative information has been adjusted to conform
with the updated presentation.
(3) Group Adjusted EBITDA
is a non-GAAP measure, refer
to reconciliation below at
“—Results of Operations—Use of
Non-
GAAP Measures”.
56
Merchant
Segment revenue increased due to the increase in prepaid
airtime vouchers sold and other value-added services provided, which
was partially offset
by a lower
number of
hardware sales in
our POS hardware
distribution business
given the
lumpy nature of
bulk
sales as
well as
lower revenue
generated
from a
decrease
in certain
valued-added
services transaction
volumes processed
(such
as
international money transfers). In ZAR, the increase in Segment Adjusted EBITDA
is primarily due to the higher sales activity, which
was partially offset by lower hardware sales
Our Segment Adjusted EBITDA margin for the year
to date fiscal 2024 and 2023 was 6.8% and 7.3%, respectively.
Consumer
Segment revenue increased
primarily due to
more transaction fees
generated from the
higher EPE account
holders base, higher
insurance revenues, and an increase
in lending revenue as
a result of an
increase in loan originations.
This increase in revenue,
together
with the cost reduction
initiatives initiated in fiscal
2022 and through
fiscal 2023, have
translated into a turnaround
in the Consumer
Division and the
realization of sustained
positive Segment Adjusted
EBITDA in year
to date fiscal 2024
compared with year
to date
fiscal 2023.
Consumer Segment Adjusted EBITDA during the year to date fiscal 2024 was also impacted by higher credit losses (as a
result of an
increase in originations)
and higher insurance-related
claims (as
a result
of a
higher number of
insurance policies) compared
with the year to date fiscal 2023.
Our Segment Adjusted EBITDA margin for the year
to date fiscal 2024 and 2023 was 19.5% and 1.8%, respectively.
Group costs
Our group costs for
fiscal 2024 decreased compared
with the prior period
due to lower external
audit, legal and consulting
fees
and lower provision for executive bonuses, which was partially offset
by higher employee costs and travel expenses.
Use of Non-GAAP Measures
U.S. securities laws
require that when
we publish any
non-GAAP measures, we
disclose the reason
for using these
non-GAAP
measures and provide reconciliations to the most directly comparable GAAP measures. The presentation of Group Adjusted EBITDA
is
a
non-GAAP
measure.
We
provide
this
non-GAAP
measure
to
enhance
our
evaluation
and
understanding
of
our
financial
performance
and
trends.
We
believe
that
this
measure
is
helpful
to
users
of
our
financial
information
understand
key
operating
performance and
trends in our
business because
it excludes certain
non-cash expenses
(including depreciation
and amortization
and
stock-based compensation charges) and income
and expenses that we consider once-off in nature.
Non-GAAP Measures
Group
Adjusted
EBITDA
is
earnings
before
interest,
tax,
depreciation
and
amortization
(“EBITDA”),
adjusted
for
non-
operational transactions (including loss on disposal
of equity-accounted investments, gain related to
fair value adjustments to currency
options), (earnings)
loss from
equity-accounted investments,
stock-based compensation
charges and
once-off
items. Once-off
items
represents non-recurring income and
expense items, including
costs related to
acquisitions and transactions consummated
or ultimately
not pursued.
Lease expenses
which were
previously excluded
from the
calculation of
Group Adjusted
EBITDA have
now been
included in
the calculation. This
change is in response
to comments received from
the staff of the
SEC in March 2024
regarding our non-GAAP
financial reporting. Comparative information has been adjusted to conform
with the updated presentation.
57
The table below presents the reconciliation between GAAP net loss attributable
to Lesaka to Group Adjusted EBITDA:
Table 13
Three months ended
March 31,
Nine months ended
March 31,
2024
2023
2024
2023
$ ’000
$ ’000
$ ’000
$ ’000
Loss attributable to Lesaka - GAAP
(4,047)
(5,820)
(12,405)
(23,165)
(Earnings) loss from equity accounted investments
(43)
(17)
1,319
2,582
Net loss before (earnings) loss from equity-accounted investments
(4,090)
(5,837)
(11,086)
(20,583)
Income tax (benefit) expense
931
(860)
1,881
(465)
Loss before income tax expense
(3,159)
(6,697)
(9,205)
(21,048)
Interest expense
4,581
4,984
14,312
13,408
Interest income
(628)
(469)
(1,562)
(1,269)
Reversal of allowance for doubtful EMI loan receivable
-
-
(250)
-
Net gain on disposal of equity-accounted investment
-
329
-
193
Operating income (loss)
794
(1,853)
3,295
(8,716)
PPA amortization
(amortization of acquired intangible assets)
3,562
3,789
10,762
11,559
Depreciation and amortization
2,229
2,186
6,698
6,333
Stock-based compensation charges
2,090
1,644
5,653
5,955
Once-off items
(1)
907
1,141
169
1,858
Unrealized loss FV for currency adjustments
121
43
101
43
Group Adjusted EBITDA - Non-GAAP
9,703
6,950
26,678
17,032
(1) The table below presents the components of once-off
items for the periods presented:
Table 14
Three months ended
March 31,
Nine months ended
March 31,
2024
2023
2024
2023
$ ’000
$ ’000
$ ’000
$ ’000
Transaction costs
276
470
456
792
Transaction costs related to Adumo acquisition
631
-
665
-
(Income recognized) Expenses incurred related to closure of legacy
businesses
-
-
(952)
395
Indirect taxes provision
-
438
-
438
Separation of employee expense
-
183
-
183
Employee misappropriation of company funds
-
50
-
50
Total once-off
items
907
1,141
169
1,858
Once-off items are non-recurring in nature, however, certain
items may be reported in
multiple quarters. For instance, transaction
costs include costs incurred related to acquisitions and
transactions consummated or ultimately not pursued. The transactions can span
multiple
quarters,
for
instance in
fiscal
2022 we
incurred
significant
transaction
costs related
to
the acquisition
of Connect
over
a
number of quarters, and the transactions are generally non-recurring.
(Income
recognized)
Expenses
incurred
related
to
closure
of
legacy
businesses
represents
(i)
gains
recognized
related
to
the
release of
the foreign
currency translation
reserve on
deconsolidation of
a subsidiaries
and (ii)
costs incurred
related to
subsidiaries
which we are
in the process of
deregistering/ liquidation and
therefore we consider
these costs non-operational
and ad hoc in
nature.
Indirect tax provision
includes non-recurring indirect
taxes which have been
provided related to
prior periods following an
on-going
investigation from a tax authority. We incurred separation costs related to the termination of certain senior-level employees, including
an executive officer and
senior managers, during the
period and we
consider these specific terminations
to be of
a non-recurring nature.
Employee misappropriation of company funds represents a once-off
loss incurred.
58
Liquidity and Capital Resources
As of March 31, 2024, our cash and cash equivalents were
$55.2 million and comprised of U.S. dollar-denominated
balances of
$3.4 million, ZAR-denominated balances
of ZAR 942.2
million ($49.9 million), and
other currency deposits, primarily
Botswana pula,
of $2.0 million,
all amounts translated
at exchange rates
applicable as of
March 31, 2024.
The increase in
our unrestricted cash
balances
from June 30,
2023, was primarily
due to a
positive contribution from
our Merchant and Consumer
operations and utilization
of our
borrowings facilities
to fund
certain components
of our
operations,
which was
partially offset
by the
utilization of
cash reserves
to
fund certain
scheduled and
other repayments
of our
borrowings, purchase
ATMs
and vaults, and
to make an
investment in
working
capital.
We generally
invest any surplus cash held by our
South African operations in overnight
call accounts that we maintain at
South
African banking institutions,
and any surplus
cash held by
our non-South African
companies in
U.S. dollar-denominated money market
accounts.
Historically,
we have financed
most of our
operations, research and
development, working capital,
and capital expenditures,
as
well
as
acquisitions
and
strategic
investments,
through
internally
generated
cash
and
our
financing
facilities.
When
considering
whether to borrow under our financing
facilities, we consider the cost
of capital, cost of financing, opportunity cost
of utilizing surplus
cash and
availability of
tax efficient
structures to
moderate financing
costs. For
instance, in
fiscal 2022,
we obtained
loan facilities
from RMB
to fund
a portion
of our
acquisition of
Connect. Following
the acquisition
of Connect,
we now
utilize a
combination of
short
and
long-term
facilities to
fund our
operating
activities and
a long-term
asset-backed
facility to
fund
the acquisition
of POS
devices
and
vaults.
Refer
to
Note
12
to
our
consolidated
financial
statements
for
the
year
ended
June
30,
2023,
for
additional
information related to our borrowings.
Available short-term
borrowings
Summarized below are our short-term facilities available and utilized as of
March 31, 2024:
Table 15
RMB Facility E
RMB Indirect
RMB Connect
Nedbank
$ ’000
ZAR ’000
$ ’000
ZAR ’000
$ ’000
ZAR ’000
$ ’000
ZAR ’000
Total
short-term facilities
available, comprising:
Overdraft
-
-
-
-
10,860
205,000
-
-
Overdraft restricted as to
use
(1)
47,680
900,000
-
-
-
-
-
-
Total overdraft
47,680
900,000
-
-
10,860
205,000
-
-
Indirect and derivative
facilities
(2)
-
-
7,152
135,000
-
-
8,294
156,556
Total
short-term
facilities available
47,680
900,000
7,152
135,000
10,860
205,000
8,294
156,556
Utilized short-term
facilities:
Overdraft
-
-
-
-
9,006
170,000
-
-
Overdraft restricted as to
use
(1)
4,272
80,634
-
-
-
-
-
-
Indirect and derivative
facilities
(2)
-
-
1,754
33,107
-
-
112
2,110
Total
short-term
facilities available
4,272
80,634
1,754
33,107
9,006
170,000
112
2,110
Interest
rate,
based
on
South African prime rate
11.75%
11.65%
(1) Overdraft may only be used to fund ATMs
and upon utilization is considered restricted cash.
(2) Indirect and derivative facilities may only be used for guarantees, letters of credit and forward
exchange contracts to support
guarantees issued by RMB and Nedbank to various third parties on our behalf.
59
Long-term borrowings
We have aggregate long-term borrowing outstanding of ZAR 2.6 billion ($135.7 million translated at
exchange rates as of March
31, 2024)
as described
in Note
8. These
borrowings include
outstanding
long-term borrowings
obtained by
Lesaka SA
of ZAR
1.0
billion,
including
accrued
interest,
which
was
used
to
partially
fund
the
acquisition
of
Connect.
The
Lesaka
SA
borrowing
arrangements
were amended
in March
2023 to
include
a ZAR
200
million
revolving
credit facility.
We
used this
revolving
credit
facility during the nine
months ended March
31, 2024, and
settled all drawn
in full as
of March 31,
2024, with the
full balance available
for utilization
in the future.
In contemplation
of the Connect
transaction, Connect
obtained total facilities
of ZAR 1.3
billion, which
were utilized to
repay its existing
borrowings, to fund
a portion of
its capital expenditures
and to settle
obligations under the transaction
documents, and which has subsequently been upsized for its operational requirements and has an outstanding balance as of March 31,
2024,
of ZAR
1.2 billion,
We
also have
a revolving
credit facility,
of ZAR
300.0 million
which is
utilized to
fund a
portion of
our
merchant finance loans receivable book.
Restricted cash
We
have credit
facilities with RMB
in order
to access cash
to fund
our ATMs
in South Africa.
Our cash, cash
equivalents and
restricted cash
presented in
our consolidated
statement of
cash flows
as of
March 31,
2024, includes
restricted cash
of $4.4
million
related to cash withdrawn from our debt facility to
fund ATMs. This cash may only be used to fund ATMs and is considered restricted
as to use and therefore is classified as restricted cash on our consolidated
balance sheet.
We have
also entered into cession and pledge
agreements with Nedbank related to
our Nedbank indirect credit facilities
and we
have ceded and pledged
certain bank accounts to
Nedbank. The funds included
in these bank accounts
are restricted as they
may not
be withdrawn without the express
permission of Nedbank. Our cash,
cash equivalents and restricted
cash presented in our consolidated
statement of cash flows as of March 31, 2024, includes restricted cash of $0.1 million
that has been ceded and pledged.
Cash flows from operating activities
Third quarter
Net cash provided by
operating activities during the
third quarter of fiscal
2024 was $19.2 million
(ZAR 362.1 million) compared
to net cash used in operating
activities of $5.1 million (ZAR 91.6
million) during the third quarter of
fiscal 2023. Excluding the impact
of
income
taxes,
our
cash
provided
by
operating
activities
during
the
third
quarter
of
fiscal
2024
was
positively
impacted
by
the
contribution
from
Merchant
and
Consumer,
which
was
partially
offset
by
growth
in
our
consumer
and
merchant
finance
loans
receivable
books
and
temporary
working
capital
movements
within
our
merchant
business
as
a
result
of
quarter-end
transaction
processing activities
closing on
a Sunday,
and further
impacted by a
public holiday
on April 1,
2024, and
which were
settled in the
following week.
We didn’t pay any significant taxes during the
third quarter of fiscal
2024. During the third quarter
of fiscal 2023, we
paid second
provisional South African
tax payments of $0.3
million (ZAR 5.1
million) related to certain
Connect entities’ 2023
tax year that had
not yet been aligned with ours.
Taxes paid during
the third quarter of fiscal 2024 and 2023 were as follows:
Table 16
Three months ended March 31,
2024
2023
2024
2023
$
$
ZAR
ZAR
‘000
‘000
‘000
‘000
First provisional payments
1
-
18
-
Second provisional payments
36
280
691
5,090
Tax refund received
(7)
-
(128)
-
Total South African
taxes paid
30
280
581
5,090
Foreign taxes paid
58
156
1,072
2,759
Total
tax paid
88
436
1,653
7,849
60
Year
to date
Net cash provided by operating activities during the year to
date of fiscal 2024 was $23.1 million (ZAR 434.0 million)
compared
to net cash used
in operating activities of
$9.3 million (ZAR 162.7 million)
during the year to
date of fiscal 2023.
Excluding the impact
of
income
taxes,
our
cash
provided
by
operating
activities
during
the
third
quarter
of
fiscal
2024
was
positively
impacted
by
the
contribution
from
Merchant
and
Consumer,
which
was
partially
offset
by
growth
in
our
consumer
and
merchant
finance
loans
receivable
books
and
temporary
working
capital
movements
within
our
merchant
business
as
a
result
of
quarter-end
transaction
processing activities
closing on
a Sunday,
and further
impacted by a
public holiday
on April 1,
2024, and
which were
settled in the
following week.
During the year to date of
fiscal 2024, we paid first provisional
South African tax payments of
$2.7 million (ZAR 49.5 million)
related to our 2024 tax year and South African tax
payments related to prior years of $0.6
million (ZAR 12.2 million). During the year
to date of fiscal 2023, we paid first provisional South African
tax payments of $3.0 million (ZAR 50.8 million) related to our 2023 tax
year,
and additional
second provisional
South African
tax payments
of $0.5
million (ZAR
8.5 million)
related to
our 2022
tax year
and as discussed above.
Taxes paid during
the year to date of fiscal 2024 and 2023 were as follows:
Table 17
Nine months ended March 31,
2024
2023
2024
2023
$
$
ZAR
ZAR
‘000
‘000
‘000
‘000
First provisional payments
2,663
2,955
49,534
50,798
Second provisional payments
36
471
691
8,461
Taxation paid related
to prior years
641
10
12,187
180
Tax refund received
(38)
(198)
(768)
(3,540)
Total South African
taxes paid
3,302
3,238
61,644
55,899
Foreign taxes paid
196
257
3,677
4,534
Total
tax paid
3,498
3,495
65,321
60,433
Cash flows from investing activities
Third quarter
Cash used
in investing
activities for
the third
quarter
of fiscal
2024
included
capital expenditures
of $2.9
million (ZAR
55.6
million), primarily due to the acquisition of vaults and POS devices.
Cash used
in
investing
activities for
the third
quarter
of fiscal
2023
included
capital
expenditures
of $4.7
million
(ZAR 84.6
million), primarily due to
the acquisition of vaults and
POS devices.
During the third quarter of
fiscal 2023, we received proceeds
of
$0.3 million related to the sale of minor positions in Finbond.
Year
to date
Cash used
in investing
activities for
the year
to date
of fiscal
2024
included capital
expenditures of
$8.0 million
(ZAR 149.1
million), primarily due
to the acquisition
of vaults and
POS devices. During
the year to date
of fiscal 2024,
we received proceeds
of
$3.5 million
related to the
sale of remaining
interest in Finbond
and $0.25 million
related to the
second (and final)
tranche from the
disposal of our entire equity interest in Carbon.
Cash used
in investing
activities for
the year
to date
of fiscal
2023 included
capital expenditures
of $13.2
million (ZAR 229.9
million), primarily
due to
the acquisition
of vaults,
POS devices
and computer
equipment. During
the year
to date
fiscal 2023,
we
received proceeds
of $0.25
million related
to the
first tranche
(of two)
from the
disposal of
our entire
equity interest
in Carbon
and
$0.4 million related to the sale of minor positions in Finbond.
61
Cash flows from financing activities
Third quarter
During the third
quarter of fiscal 2024
,
we utilized $24.9 million
from our South
African overdraft facilities
to fund our
ATMs
and our cash management business through Connect, and repaid
$43.4 million of those facilities. We utilized $3.4 million of our long-
term borrowings to fund
the acquisition of certain
capital expenditures and for
working capital requirements.
We repaid
$7.2 million
of
long-term
borrowings
in
accordance
with
our
repayment
schedule
as
well
as
to
settle
a
portion
of
our
revolving
credit
facility
utilized.
During the third quarter of fiscal 2023,
we utilized $128.2 million from our South African overdraft facilities to fund
our ATMs
and our
cash management business
through Connect,
and repaid $136.0
million of those
facilities. We
utilized approximately
$12.9
million of our long-term borrowings to fund our merchant
finance loans receivable business, to fund the acquisition
of certain capital
expenditures and for working
capital requirements. We repaid approximately $2.0 million of long-term borrowings
in accordance with
our repayment schedule. We
received $0.1 million from the exercise of stock options. We
also paid $0.2 million to repurchase shares
from employees in order for the employees to settle taxes due related to the vesting of shares of restricted stock and to settle the strike
price due and taxes due related to the exercise of stock options.
Year
to date
During the year to date
of fiscal 2024, we utilized
$153.5 million from our
South African overdraft facilities to
fund our ATMs
and our
cash management
business through
Connect, and
repaid $172.2
million of
those facilities. We
utilized $14.4
million of
our
long-term borrowings
to fund
the acquisition
of certain
capital expenditures
and for
working capital
requirements. We
repaid $13.1
million of long-term borrowings
in accordance with
our repayment schedule as
well as to
settle a portion
of our revolving
credit facility
utilized. We
also paid $0.2
million to repurchase
shares from employees
in order for
the employees to
settle taxes due
related to the
vesting of shares of restricted stock.
During the year to date
of fiscal 2023, we utilized
$441.5 million from our South
African overdraft facilities to fund
our ATMs
and our
cash management business
through Connect,
and repaid $448.3
million of those
facilities. We
utilized approximately
$23.0
million of our long-term borrowings to fund our merchant
finance loans receivable business, to fund the acquisition
of certain capital
expenditures and for working
capital requirements. We repaid approximately $5.3 million of long-term borrowings
in accordance with
our repayment schedule. We
received $0.4 million from the exercise of stock options. We
also paid $0.5 million to repurchase shares
from employees in order for the employees to settle taxes due related to the vesting of shares of restricted stock and to settle the strike
price due and taxes due related to the exercise of stock options.
Off-Balance Sheet Arrangements
We have no off
-balance sheet arrangements.
Capital Expenditures
We
expect capital
spending for
the fourth
quarter of
fiscal 2024
to primarily
include spending
for acquisition
of POS
devices,
vaults,
computer software, computer and office equipment, as well as for
our ATM infrastructure and branch network in South Africa.
Our capital expenditures for the third quarter of fiscal 2024 and 2023 are discussed under “—Liquidity
and Capital Resources—Cash
flows from investing activities.” All
of our capital expenditures for
the past three fiscal
years were funded through internally
generated
funds, or,
following the
Connect acquisition,
our asset-backed
borrowing arrangement.
We
had outstanding
capital commitments
as
of March 31, 2023, of $0.2 million. We
expect to fund these expenditures through internally generated funds and available
facilities.
62
Item 3. Quantitative and Qualitative Disclosures About
Market Risk
In addition to the tables below, see
Note 4 to the unaudited condensed consolidated financial statements for
a discussion of
market risk.
We
have
short and
long-term borrowings
in South
Africa which
attract interest
at rates
that fluctuate
based on
changes in
the
South African prime
and 3-month JIBAR
interest rates. The
following table illustrates
the effect on
our annual expected
interest charge,
translated at exchange
rates applicable as
of March 31,
2024, as a
result of changes
in the South
African prime and
3-month JIBAR
interest rates, using
our outstanding short
and long-term borrowings
as of March
31, 2024. The
effect of a
hypothetical 1% (i.e.
100
basis points)
increase
and
a
1% decrease
in
the
interest
rates
applicable
to
the
borrowings
as of
March
31,
2024,
are shown.
The
selected 1% hypothetical change does not reflect what could be considered the
best- or worst-case scenarios.
Table 18
As of March 31, 2024
Annual expected
interest charge
($ ’000)
Hypothetical
change in
interest rates
Estimated annual
expected interest
charge after
hypothetical change
in interest rates
($ ’000)
Interest on South African borrowings
18,644
1%
20,139
(1%)
17,150
63
Item 4. Controls and Procedures
Under
the
supervision
and
with
the
participation
of
our
management,
including
our
executive
chairman
and
our
group
chief
financial officer, we conducted
an evaluation of our disclosure controls and procedures, as such term is defined
under Rule 13a-15(e)
promulgated under the Securities Exchange Act of
1934, as amended, as of March
31, 2024. Management recognizes that any controls
and procedures,
no matter how
well designed
and operated, can
provide only reasonable
assurance of achieving
their objectives and
management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on
this evaluation,
the executive
chairman
and the
group chief
financial officer
concluded that
our disclosure
controls and
procedures
were effective as of March 31, 2024.
Changes in Internal Control over Financial Reporting
There have not been any changes in our internal control over financial reporting during the fiscal quarter ended March 31, 2024,
that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
64
Part II. Other Information
Item 1A. Risk Factors
See “Item
1A RISK
FACTORS”
in Part
I of
our Annual
Report on
Form 10-K
for the
fiscal year
ended June
30, 2023,
for a
discussion
of
risk
factors
relating
to
(i)
our
business,
(ii)
operating
in
South
Africa
and
other
foreign
markets,
(iii) government
regulation, and (iv) our common stock. Except
as set forth below, there have been no material
changes from the risk factors previously
disclosed in our Annual Report on Form 10-K for the fiscal year ended June 30,
2023.
Failure
to
complete,
or
delays
in
completing,
the
Adumo
acquisition,
could
materially
and
adversely
affect
our
results of
operations and stock price.
The completion
of the
Adumo acquisition
is subject to
a number of
conditions precedent,
including receipt
of shareholder
and
regulatory approvals and certain third-party consents. Some of these conditions
are outside our control.
We
will
need
to
obtain
approval
from
our
shareholders
to
issues
shares
of
our
common
stock
to
the
Adumo
sellers
as
part
consideration of the purchase price. Under the terms of the of the transaction agreement we need to obtained
this approval by no later
than October
31, 2024.
We
will need
to prepare
and provide
certain materials
to our
shareholders in
order for
them to
approve the
issuance of
the shares to
the Adumo sellers.
We
will need to
engage external
service providers
to assist us
with the
preparation and
distribution of these materials.
The transaction may fail if
we are unable to prepare
these materials in a timely manner
and obtain the
necessary shareholder approvals.
To
complete
the
acquisition,
we
must
make
certain
filings
with
and
obtain
certain
consents
and
approvals
from
various
governmental and regulatory authorities.
The regulatory approval processes may
take a lengthy period of time to complete,
and there
can be no assurance
as to the outcome
of the approval processes,
including the undertakings
and conditions that
may be required for
approval, or whether the regulatory approvals will be obtained at all.
In addition,
the completion
of the
acquisition is
conditional
on, among
other things,
no action
or circumstance
occurring that
would result in a material adverse effect on the Adumo’s
business operations or financial results.
We cannot
provide any assurance regarding if or
when all conditions precedent to the acquisition
will be satisfied or waived. If,
for any reason, the acquisition is
not completed, or its completion is materially
delayed and/or the transaction agreement is terminated,
the market price of our common stock may be materially and adversely
affected.
In addition, if the acquisition is not completed for any reason, there are risks that (i) the announcement of the acquisition and (ii)
the dedication
of management’s
attention and other
of our resources
to the completion
thereof, could
have a negative
impact on our
relationships with our stakeholders
and could have a material
adverse effect on
our current and future operations,
financial condition
and prospects.
We may not realize some
or all of the anticipated benefits from the Adumo acquisition.
Even if we complete the
Adumo acquisition, we may experience
unforeseen events, changes or
circumstances that may adversely
affect us. For example, we may incur unexpected costs, charges or expenses
resulting from the transaction, including charges to future
earnings if Adumo’s business
does not perform as expected. Our expectations regarding
Adumo’s business and prospects may not
be
realized,
including
as a
result
of
changes
in
the
financial
condition
of the
markets
that
Adumo
serves.
In
addition,
there
are
risks
associated with
Adumo’s
product and
service offerings
or results
of operations,
including the
risk of
failing to
comply with
certain
regulatory rules required to operate its business.
Further, there are
numerous challenges, risks
and costs
involved with integrating
the operations
of Adumo with
ours. For
example,
integrating Adumo into
our company will require
significant attention from our
senior management which
may divert their attention
from
our
day-to-day
business.
The
difficulties
of
integration
may
also
be
increased
by
cultural
differences
between
our
two
organizations and the necessity of retaining and integrating personnel,
including Adumo’s key employees.
Our Sarbanes-Oxley
Act of
2002 (“Sarbanes”)
management certification
and auditor
attestation regarding
the effectiveness
of
our internal
control over
financial reporting
as of
June 30,
2024, will
likely exclude
the operations
of Adumo,
as we
only expect
to
close the transaction in fiscal 2025.
The requirement to evaluate and report on our internal controls
also applies to companies that we
acquire. As a group of South
African private companies, Adumo is not required to
comply with Sarbanes prior to the
time we acquired
it.
The
integration
of
Adumo
into
our
internal
control
over
financial
reporting would
be
expected
to
require
significant
time
and
resources
from
our
management
and
other
personnel
and
is
expected
to
increase
our
compliance
costs.
If
we
fail
to
successfully
integrate the operations of Adumo into our internal control over
financial reporting for fiscal 2025, our internal control over financial
reporting may not be effective.
If some or all
of the aforementioned or
other risks materialize, our
ability to realize the
anticipated benefits of
Adumo could be
materially impaired, and as a result, our financial condition, results of operations,
cash flows and stock price could suffer.
65
Item 2. Unregistered Sales of Equity Securities and
Use of Proceeds
The table below presents information relating to purchases of shares of our
common stock during the third quarter of fiscal
2024:
Table 19
(a)
(b)
(c)
(d)
Period
Total
number
of shares
purchased
Average price
paid per share
(US dollars)
Total
number of shares
purchased as part of publicly
announced plans or
programs
Maximum dollar value of
shares that may yet be
purchased under the plans
or programs
Jan-24
-
-
100,000,000
Feb-24
(1)
2,511
3.68
-
100,000,000
Mar-24
(1)
-
-
100,000,000
Total
2,511
-
(1) Relates to the delivery of shares of our common
stock to us by certain of our employees to settle their income
tax liabilities.
These shares do not reduce the repurchase authority under the share repurchase
program.
Item 5. Other Information
Our Section 16 officers and directors, as defined in Rule 16a-1(f) of the Securities
Exchange Act of 1934 (the “Exchange Act”),
may from time to time
enter into plans for the
purchase or sale of our
common stock that are
intended to satisfy the affirmative defense
conditions of
Rule 10b5-1(c)
of the
Exchange Act.
During the
quarter ended
March 31, 2024,
no officers
or directors, as
defined in
Rule 16a-1(f),
adopted
, modified, or
terminated
a “Rule 10b5-1 trading arrangement” or a “
non-Rule
10b5-1
trading arrangement,” as
defined in Item 408 of Regulation S-K.
66
Item 6. Exhibits
The following exhibits are filed as part of this Form 10-Q:
Incorporated by Reference Herein
Exhibit
No.
Description of Exhibit
Included
Herewith
Form
Exhibit
Filing Date
10.46
Letter of Amendment, dated January 22, 2024, among
Lesaka Proprietary Limited and FirstRand Bank Limited
(acting through its Rand Merchant Bank division), as
lender, related to the amendment to the Senior Facility E
Agreement
8-K
10.1
January 23, 2024
10.47
Consulting Agreement, dated as of March 1, 2024, between
Lesaka Technologies, Inc. and Chris Meyer
X
31.1
Certification of Principal Executive Officer pursuant to
Rule 13a-14(a) under the Exchange Act
X
31.2
Certification of Principal Financial Officer pursuant to Rule
13a-14(a) under the Exchange Act
X
32
Certification pursuant to 18 USC Section 1350
X
101.INS
XBRL Instance Document
X
101.SCH
XBRL Taxonomy
Extension Schema
X
101.CAL
XBRL Taxonomy
Extension Calculation Linkbase
X
101.DEF
XBRL Taxonomy
Extension Definition Linkbase
X
101.LAB
XBRL Taxonomy
Extension Label Linkbase
X
101.PRE
XBRL Taxonomy
Extension Presentation Linkbase
X
104
Cover
page
formatted
as
Inline
XBRL
and
contained
in
Exhibit 101
67
SIGNATURES
Pursuant to
the requirements
of the
Securities Exchange
Act of
1934, the
registrant has
caused this
report to
be signed
on its
behalf by the undersigned, thereunto duly authorized, on May 8, 2024.
LESAKA TECHNOLOGIES, INC.
By: /s/ Ali Mazanderani
Ali Mazanderani
Executive Chairman
By: /s/ Naeem E. Kola
Naeem E. Kola
Group Chief Financial Officer,
Treasurer and Secretary