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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
September 30, 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 November
4, 2024 (the
latest practicable date),
78,018,643
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 September 30, 2024 and June
30, 2024
2
Unaudited Condensed Consolidated Statements of Operations for the three months ended
September 30, 2024 and 2023
3
Unaudited Condensed Consolidated Statements of Comprehensive (Loss) Income for the
three months ended September 30, 2024 and 2023
4
Unaudited Condensed Consolidated Statement of Changes in Equity for the three months
ended September 30, 2024 and 2023
5
Unaudited Condensed Consolidated Statements of Cash Flows for the three months
ended September 30, 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
35
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
53
Item 4.
Controls and Procedures
54
Part II. OTHER INFORMATION
Item 1A.
Risk Factors
55
Item 5.
Other Information
56
Item 6.
Exhibits
57
Signatures
58
EXHIBIT 2.2
EXHIBIT 39
EXHIBIT 40
EXHIBIT 41
2
Part I. Financial information
Item 1. Financial Statements
LESAKA TECHNOLOGIES, INC.
Unaudited Condensed Consolidated Balance Sheets
September 30,
June 30,
2024
2024
(A)
(In thousands, except share data)
ASSETS
CURRENT ASSETS
Cash and cash equivalents
$
49,687
$
59,065
Restricted cash related to ATM funding
and credit facilities (Note 8)
122
6,853
Accounts receivable, net and other receivables (Note 2)
29,825
36,667
Finance loans receivable, net (Note 2)
47,017
44,058
Inventory (Note 3)
20,194
18,226
Total current assets before settlement assets
146,845
164,869
Settlement assets
20,469
22,827
Total current assets
167,314
187,696
PROPERTY,
PLANT AND EQUIPMENT, net of accumulated depreciation of - September: $
50,532
June:
$
49,762
34,481
31,936
OPERATING LEASE RIGHT-OF-USE (Note 16)
7,411
7,280
EQUITY-ACCOUNTED INVESTMENTS
(Note 5)
245
206
GOODWILL (Note 6)
146,577
138,551
INTANGIBLE ASSETS, NET (Note 6)
114,052
111,353
DEFERRED INCOME TAXES
3,734
3,446
OTHER LONG-TERM ASSETS, including equity securities (Note 5 and 7)
78,075
77,982
TOTAL ASSETS
551,889
558,450
LIABILITIES
CURRENT LIABILITIES
Short-term credit facilities for ATM funding (Note 8)
-
6,737
Short-term credit facilities (Note 8)
9,895
9,351
Accounts payable
12,815
16,674
Other payables (Note 9)
45,923
56,051
Operating lease liability - current (Note 16)
2,600
2,343
Current portion of long-term borrowings (Note 8)
3,841
3,878
Income taxes payable
1,488
654
Total current liabilities before settlement obligations
76,562
95,688
Settlement obligations
19,899
22,358
Total current liabilities
96,461
118,046
DEFERRED INCOME TAXES
39,345
38,128
OPERATING LEASE LIABILITY - LONG TERM (Note 16)
4,968
5,087
LONG-TERM BORROWINGS (Note 8)
144,679
139,308
OTHER LONG-TERM LIABILITIES, including insurance policy liabilities (Note 7)
2,790
2,595
TOTAL LIABILITIES
288,243
303,164
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 - September:
64,301,943
June:
64,272,243
83
83
PREFERRED STOCK
Authorized shares:
50,000,000
with $
0.001
par value;
Issued and outstanding shares, net of treasury:
September:
-
June:
-
-
-
ADDITIONAL PAID-IN-CAPITAL
346,016
343,639
TREASURY SHARES, AT
COST: September:
25,563,808
June:
25,563,808
(289,733)
(289,733)
ACCUMULATED OTHER
COMPREHENSIVE LOSS (Note 11)
(177,830)
(188,355)
RETAINED EARNINGS
305,681
310,223
TOTAL LESAKA EQUITY
184,217
175,857
NON-CONTROLLING INTEREST
-
-
TOTAL EQUITY
184,217
175,857
TOTAL LIABILITIES, REDEEMABLE COMMON STOCK AND SHAREHOLDERS’ EQUITY
$
551,889
$
558,450
(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
September 30,
2024
2023
(In thousands, except per
share data)
REVENUE (Note 15)
$
145,546
$
136,089
EXPENSE
Cost of goods sold, IT processing, servicing and support
110,887
107,490
Selling, general and administration
26,726
22,515
Depreciation and amortization
6,276
5,856
Transaction costs related to Adumo acquisition (Note 20)
1,702
-
OPERATING (LOSS) INCOME
(45)
228
REVERSAL OF (ALLOWANCE) OF EMI
DOUBTFUL DEBT (Note 2 and 5)
-
250
INTEREST INCOME
586
449
INTEREST EXPENSE
5,032
4,909
LOSS BEFORE INCOME TAX EXPENSE
(4,491)
(3,982)
INCOME TAX EXPENSE (Note 18)
78
264
NET LOSS BEFORE EARNINGS (LOSS) FROM EQUITY-ACCOUNTED INVESTMENTS
(4,569)
(4,246)
EARNINGS (LOSS) FROM EQUITY-ACCOUNTED INVESTMENTS (Note 5)
27
(1,405)
NET LOSS
$
(4,542)
$
(5,651)
Net loss per share, in United States dollars
(Note 13):
Basic loss attributable to Lesaka shareholders
$
(0.07)
$
(0.09)
Diluted loss attributable to Lesaka shareholders
$
(0.07)
$
(0.09)
See Notes to Unaudited Condensed Consolidated Financial Statements
LESAKA TECHNOLOGIES, INC.
Unaudited Condensed Consolidated Statements of Comprehensive (Loss) Income
4
Three months ended
September 30,
2024
2023
(In thousands)
Net loss
$
(4,542)
$
(5,651)
Other comprehensive income (loss), net of taxes
Movement in foreign currency translation reserve
10,525
(844)
Movement in foreign currency translation reserve related to equity-accounted
investments
-
489
Total other comprehensive
income (loss), net of taxes
10,525
(355)
Comprehensive income (loss)
5,983
(6,006)
Add comprehensive loss attributable to non-controlling interest
-
-
Comprehensive income (loss) attributable to Lesaka
$
5,983
$
(6,006)
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 September 30, 2023 (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
Exercise of stock options
6,793
-
6,793
21
21
21
Stock-based compensation charge
(Note 12)
-
1,768
1,768
1,768
Reversal of stock-based compensation
charge (Note 12)
(8,127)
(8,127)
(9)
(9)
(9)
Stock-based compensation charge
related to equity-accounted investment
(Note 5)
-
14
14
14
Net loss
-
(5,651)
(5,651)
-
(5,651)
Other comprehensive loss (Note 11)
(355)
(355)
-
(355)
Balance – September 30, 2023
88,883,198
$
83
(25,244,286)
$
(288,238)
63,638,912
$
337,490
$
322,012
$
(196,081)
$
175,266
$
-
$
175,266
$
79,429
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 September 30, 2024 (dollar amounts
in thousands)
Balance – July 1, 2024
89,836,051
$
83
(25,563,808)
$
(289,733)
64,272,243
$
343,639
$
310,223
$
(188,355)
$
175,857
$
-
$
175,857
$
79,429
Restricted stock granted (Note 12)
32,800
32,800
-
-
Stock-based compensation charge
(Note 12)
-
-
2,377
2,377
2,377
Reversal of stock-based compensation
charge (Note 12)
(3,100)
(3,100)
-
-
-
Net loss
(4,542)
(4,542)
-
(4,542)
Other comprehensive income (Note
11)
10,525
10,525
-
10,525
Balance – September 30, 2024
89,865,751
$
83
(25,563,808)
$
(289,733)
64,301,943
$
346,016
$
305,681
$
(177,830)
$
184,217
$
-
$
184,217
$
79,429
LESAKA TECHNOLOGIES, INC.
Unaudited Condensed Consolidated Statements of Cash Flows
7
Three months ended
September 30,
2024
2023
(In thousands)
Cash flows from operating activities
Net loss
$
(4,542)
$
(5,651)
Depreciation and amortization
6,276
5,856
Movement in allowance for doubtful accounts receivable and finance loans receivable
1,499
1,525
(Earnings) Loss from equity-accounted investments (Note 5)
(27)
1,405
Movement in allowance for doubtful loans to equity-accounted investments
-
(250)
Fair value adjustment related to financial liabilities
190
(34)
Interest payable
1,693
1,764
Facility fee amortized
69
227
Profit on disposal of property, plant and equipment
(27)
(36)
Stock-based compensation charge (Note 12)
2,377
1,759
Decrease (Increase) in accounts receivable and other receivables
7,692
(2,345)
Increase in finance loans receivable
(1,590)
(488)
Increase in inventory
(889)
(479)
(Decrease) Increase in accounts payable and other payables
(17,177)
375
Increase in taxes payable
765
308
Decrease in deferred taxes
(446)
(562)
Net cash (used in) provided by operating activities
(4,137)
3,374
Cash flows from investing activities
Capital expenditures
(3,965)
(2,809)
Proceeds from disposal of property, plant and equipment
850
284
Acquisition of intangible assets
(173)
(135)
Net change in settlement assets
3,570
(11,237)
Net cash provided by (used in) investing activities
282
(13,897)
Cash flows from financing activities
Proceeds from bank overdraft (Note 8)
23,893
59,574
Repayment of bank overdraft (Note 8)
(31,028)
(62,793)
Long-term borrowings utilized (Note 8)
774
2,471
Repayment of long-term borrowings (Note 8)
(5,472)
(2,629)
Proceeds from exercise of stock options
-
21
Net change in settlement obligations
(3,648)
10,696
Net cash (used in) provided by financing activities
(15,481)
7,340
Effect of exchange rate changes on cash
3,226
(443)
Net decrease in cash, cash equivalents and restricted cash
(16,110)
(3,626)
Cash, cash equivalents and restricted cash – beginning of period
65,919
58,632
Cash, cash equivalents and restricted cash – end of period (Note 14)
$
49,809
$
55,006
See Notes to Unaudited Condensed Consolidated Financial Statements
8
LESAKA TECHNOLOGIES, INC
Notes to the Unaudited Condensed Consolidated Financial Statements
for the three months ended September 30, 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 months
ended
September 30,
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,
2024.
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 November 2023, the
Financial Accounting Standards
Board (“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).
Recent accounting pronouncements not yet adopted
as of September 30, 2024
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.
9
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 September 30, 2024, and June 30, 2024, are presented in
the table below:
September 30,
June 30,
2024
2024
Accounts receivable, trade, net
$
11,083
$
13,262
Accounts receivable, trade, gross
12,569
14,503
Allowance for doubtful accounts receivable, end of period
1,486
1,241
Beginning of period
1,241
509
Reversed to statement of operations
(50)
(511)
Charged to statement of operations
307
1,305
Utilized
(87)
(67)
Foreign currency adjustment
75
5
Current portion of amount outstanding related to sale of interest in Carbon,
net of
allowance: September 2024: $
750
; June 2024: $
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
18,742
23,405
Total accounts receivable,
net and other receivables
$
29,825
$
36,667
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.
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.
Once balances
in distress are
identified, specific
allowances are immediately
created. Subsequent
recovery from distressed
accounts
is not significant.
Current portion
of amount
outstanding related
to sale
of interest
in Carbon
represents an
amount due
related to
the sale
of the
loan in Carbon Tech
Limited (“Carbon”), 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. 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
September 30, 2024,
and
June 30, 2024, respectively was $
0
(zero).
Other receivables include prepayments, deposits, income taxes receivable and
other receivables.
10
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 September 30, 2024, and June 30, 2024, is presented
in the table below:
September 30,
June 30,
2024
2024
Microlending finance loans receivable, net
$
30,732
$
28,184
Microlending finance loans receivable, gross
32,851
30,131
Allowance for doubtful finance loans receivable, end of period
2,119
1,947
Beginning of period
1,947
1,432
Reversed to statement of operations
-
(210)
Charged to statement of operations
609
2,454
Utilized
(552)
(1,795)
Foreign currency adjustment
115
66
Merchant finance loans receivable, net
16,285
15,874
Merchant finance loans receivable, gross
19,380
18,571
Allowance for doubtful finance loans receivable, end of period
3,095
2,697
Beginning of period
2,697
2,150
Reversed to statement of operations
-
(359)
Charged to statement of operations
632
2,479
Utilized
(397)
(1,672)
Foreign currency adjustment
163
99
Total finance
loans receivable, net
$
47,017
$
44,058
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 $
15.6
million as of September 30, 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 is 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 June 30, 2024 and September 30, 2024,
was
6.50
%. The performing component (that is, outstanding loan payments
not in arrears)
of the book
exceeds more than
98
%, of the
outstanding lending
book as of
each of
June 30,
2024 and
September 30,
2024.
Merchant finance loans receivable
Merchant finance loans
receivable is 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.
11
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
three 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 June 30, 2024 and
September 30, 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
%,
15
% and
1
%,
respectively,
of the
outstanding
lending
book
as
of
June
30,
2024.
The
performing
component,
under-performing
component
and
non-performing
component of
the book represents
approximately
85
%,
15
% and
0
%, respectively,
of the outstanding
lending book
as of September
30, 2024.
3.
Inventory
The Company’s inventory
comprised the following categories as of September 30, 2024, and June 30, 2024:
September 30,
June 30,
2024
2024
Raw materials
$
2,784
$
2,791
Work-in-progress
744
71
Finished goods
16,666
15,364
$
20,194
$
18,226
Finished goods as
of June 30, 2024,
includes $
1.8
million of Cell C
airtime inventory that was
previously classified as
finished
goods subject to sale restrictions. The Company sold all of this inventory during
the three months ended September 30, 2024.
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.
12
4.
Fair value of financial instruments (continued)
Risk management (continued)
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
remained unchanged
in recent quarters
and in September
2024, the South African
Reserve Bank announced
a 25-basis point reduction
in the South African
repurchase rate,
with further reductions expected in the short-term. Therefore, ignoring the impact of changes to the margin on its borrowings (refer to
Note 8),
the Company
expects its
cost of
borrowing to
decline moderately
in the
foreseeable future,
however,
the Company
would
expect a
higher cost
of borrowing
if interest
rates were
to increase
in the
future. 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. 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.
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.
13
4.
Fair value of financial instruments (continued)
Financial instruments (continued)
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 September 30, 2024 and June 30, 2024, respectively,
and valued Cell C at $
0.0
(zero) and $
0.0
(zero) as
of September 30, 2024, and June 30, 2024, 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
assumed a marketability
discount of
20
% and a
minority discount from
of
24
%. The Company
utilized the latest
business plan provided
by
Cell
C
management
for
the
period
ending
December
31,
2027,
for
the
September
30,
2024,
and
June
30,
2024,
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 September 30, 2024
and June 30, 2024:
Weighted Average
Cost of Capital ("WACC"):
Between
21
% and
23
% over the period of the forecast
Long term growth rate:
4.5
% (
4.5
% as of June 30, 2024)
Marketability discount:
20
% (
20
% as of June 30, 2024)
Minority discount:
24
% (
24
% as of June 30, 2024)
Net adjusted external debt - September 30, 2024:
(1)
ZAR
7.4
billion ($
0.4
billion), no lease liabilities included
Net adjusted external debt - June 30, 2024:
(2)
ZAR
8
billion ($
0.4
billion), no lease liabilities included
(1) translated from ZAR to U.S. dollars at exchange rates applicable as of
September 30, 2024.
(2) translated from ZAR to U.S. dollars at exchange rates applicable as of June 30,
2024.
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 September
30, 2024, all
amounts
translated at exchange rates applicable as of September 30, 2024:
Sensitivity for fair value of Cell C investment
1.0% increase
1.0% decrease
WACC
rate
$
-
$
519
EBITDA margin
$
146
$
-
The fair
value of
the Cell
C shares
as of
September 30,
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.
The
following
table
presents
the
Company’s
assets
measured
at
fair
value
on
a
recurring
basis
as
of
September
30,
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)
235
-
-
235
Fixed maturity
investments (included in
cash and cash equivalents)
5,523
-
-
5,523
Total assets at fair value
$
5,758
$
-
$
-
$
5,758
14
4.
Fair value of financial instruments
The following table presents the
Company’s assets measured
at fair value on a recurring basis as of
June 30, 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 and cash equivalents
(included in other long-term
assets)
216
-
-
216
Fixed maturity investments
(included in cash and cash
equivalents)
4,635
-
-
4,635
Total assets at fair value
$
4,851
$
-
$
-
$
4,851
There have been
no
transfers in or out of Level 3 during the three months ended September 30, 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 three months ended September 30, 2024 and 2023.
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 three months ended September
30, 2024:
Carrying value
Assets
Balance as of June 30, 2024
$
-
Foreign currency adjustment
(1)
-
Balance as of September 30, 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 three months ended September
30, 2023:
Carrying value
Assets
Balance as of June 30, 2023
$
-
Foreign currency adjustment
(1)
-
Balance as of September 30, 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.
15
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, 2024, 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 September 30, 2024,
and June 30, 2024, was as
follows:
September 30,
June 30,
2024
2024
Sandulela Technology
(Pty) Ltd ("Sandulela")
49.0
%
49.0
%
SmartSwitch Namibia (Pty) Ltd (“SmartSwitch Namibia”)
50.0
%
50.0
%
Finbond impairments recorded
during the three months ended September 30, 2023
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 ($
3.4
million using
exchange rates
applicable as
of September
30, 2023),
or ZAR
0.2911
per share.
Closed transaction
closed in
December 2023.
The
Company considered the August 10, 2023, agreement to be 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.
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 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 September 30, 2024 (refer to Note 2)).
Summarized below is the
movement in equity-accounted investments and
loans provided to equity-accounted
investments during
the three months ended September 30, 2024:
Total
(1)
Investment in equity
Balance as of June 30, 2024
$
206
Stock-based compensation
-
Comprehensive income:
27
Other comprehensive income
-
Equity accounted (loss) earnings
27
Share of net (loss) earnings
27
Impairment
-
Foreign currency adjustment
(2)
12
Balance as of September 30, 2024
$
245
(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.
16
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 September
30, 2024, and June 30, 2024:
September 30,
June 30,
2024
2024
Total equity investments
$
76,297
$
76,297
Investment in
5
% of Cell C (June 30, 2024:
5
%) at fair value (Note 4)
-
-
Investment in
10
% of MobiKwik (June 30, 2024:
10
%)
(1)
76,297
76,297
Investment in
87.5
% of CPS (June 30, 2024:
87.5
%) at fair value
(1)(2)
-
-
Policy holder assets under investment contracts (Note 7)
235
216
Reinsurance assets under insurance contracts (Note 7)
1,543
1,469
Total other long-term
assets
$
78,075
$
77,982
(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 September 30, 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, 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
-
-
-
-
Total
$
26,993
$
49,304
$
-
$
76,297
6.
Goodwill and intangible assets, net
Goodwill
Summarized below is the movement in the carrying value of goodwill
for the three months ended September 30, 2024:
Gross value
Accumulated
impairment
Carrying
value
Balance as of June 30, 2024
$
157,899
$
(19,348)
$
138,551
Foreign currency adjustment
(1)
8,816
(790)
8,026
Balance as of September 30, 2024
$
166,715
$
(20,138)
$
146,577
(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.
17
6.
Goodwill and intangible assets, net (continued)
Goodwill (continued)
Goodwill has been allocated to the Company’s
reportable segments as follows:
Consumer
Merchant
Carrying value
Balance as of June 30, 2024
$
-
$
138,551
$
138,551
Foreign currency adjustment
(1)
-
8,026
8,026
Balance as of September 30, 2024
$
-
$
146,577
$
146,577
(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
September 30, 2024, and
June
30, 2024:
As of September 30, 2024
As of June 30, 2024
Gross
carrying
value
Accumulated
amortization
Net
carrying
value
Gross
carrying
value
Accumulated
amortization
Net
carrying
value
Finite-lived intangible assets:
Customer relationships
$
27,388
$
(15,390)
$
11,998
$
25,880
$
(14,030)
$
11,850
Software, integrated
platform and unpatented
technology
122,099
(30,331)
91,768
115,213
(25,763)
89,450
FTS patent
2,230
(2,230)
-
2,107
(2,107)
-
Brands and trademarks
15,188
(4,902)
10,286
14,353
(4,300)
10,053
Total finite-lived
intangible
assets
$
166,905
$
(52,853)
$
114,052
$
157,553
$
(46,200)
$
111,353
Aggregate amortization
expense on the
finite-lived intangible assets
for the three
months ended September
30, 2024 and
2023,
was
$
3.8
million
and
$
3.6
million,
respectively.
Future
estimated
annual
amortization
expense
for
the
next
five
fiscal
years
and
thereafter, assuming exchange rates that
prevailed on September 30,
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 2025 (excluding three months ended September 30, 2024)
$
11,888
Fiscal 2026
15,850
Fiscal 2027
15,790
Fiscal 2028
15,790
Fiscal 2029
15,602
Thereafter
39,132
Total future
estimated annual amortization expense
$
114,052
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 three
months ended September 30, 2024:
Reinsurance
Assets
(1)
Insurance
contracts
(2)
Balance as of June 30, 2024
$
1,469
$
(2,241)
Increase in policy holder benefits under insurance contracts
180
(2,500)
Claims and decrease in policyholders’ benefits under insurance contracts
(190)
2,463
Foreign currency adjustment
(3)
84
(131)
Balance as of September 30, 2024
$
1,543
$
(2,409)
(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.
18
7.
Assets and policyholder liabilities under insurance and investment
contracts (continued)
Reinsurance assets and policyholder liabilities under insurance contracts
(continued)
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
three months
ended September 30, 2024:
Assets
(1)
Investment
contracts
(2)
Balance as of June 30, 2024
$
216
$
(216)
Increase in policy holder benefits under investment contracts
6
(6)
Foreign currency adjustment
(3)
13
(13)
Balance as of September 30, 2024
$
235
$
(235)
(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, 2024, 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
September 30, 2024, was
8.35
%. The prime rate, the benchmark rate at which private sector banks
lend to the public in South Africa,
on September 30, 2024, was
11.50
%.
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
September 30,
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 September 30, 2024, was JIBAR plus
4.75
%.
Available short-term facility -
Facility E
As of
September 30,
2024, the
aggregate amount
of the
Company’s
short-term South
African overdraft
facility with
RMB was
ZAR
0.9
billion ($
52.4
million). As of September 30,
2024, the Company had not
utilized 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.
19
8.
Borrowings (borrowings) (continued)
South Africa (continued)
RMB Bridge Facilities, comprising a short-term facility obtained
in October 2024
On September 30, 2024, Lesaka SA entered into
a Facility Letter (the "F2024 Facility Letter") with
RMB to provided Lesaka SA
a ZAR
665.0
million funding facility (the “Facility”).
The Facility has been used
by Lesaka SA to (i) settle an
amount of ZAR
232.2
due
under the
Adumo transaction
(refer to
Note 20);
(ii) pay
Crossfin Holdings
(RF) Proprietary
Limited (“Crossfin”)
ZAR
207.2
million under a share purchase agreement concluded
between Lesaka SA and Crossfin Holdings ((refer also to
Note 20)); (iii) pay an
amount of ZAR
147.5
million notified by Investec Bank
Limited to Adumo and Lesaka SA
as a result of the transaction
described in
Note 20,
and (iv)
pay an
origination fee
of ZAR
7.6
million to
RMB. The
Facility also
provides Lesaka
with ZAR
70.0
million for
transaction -related expenses. Interest on the Facility is calculated at the
prime rate plus
1.80
%. The Facility is unsecured and required
to be repaid in full on or before December 13, 2024.
Connect Facilities, comprising long-term borrowings and a short-term facility
As of September 30, 2024, the
Connect Facilities include (i) an overdraft facility (general
banking facility) of ZAR
170.0
million
(of which ZAR
170.0
million ($
9.9
million) has been utilized); (ii) Facility A of ZAR
700.0
million ($
40.7
million); (iii) Facility B of
ZAR
550.0
million ($
32.0
million) (both
fully utilized);
and (iv)
an asset-backed
facility of
ZAR
200.0
million ($
11.6
million) (of
which ZAR
138.1
million ($
8.0
million) has been utilized).
On October 29,
2024, the Company, through its
wholly owned subsidiary
Cash Connect Management
Solutions (Pty) Ltd,
entered
into an addendum to a facility letter with RMB, to obtain a ZAR
100.0
million temporary increase in its overdraft facility for a period
of approximately four
months to specifically
fund the purchase
of prepaid airtime
vouchers. This temporary
increase is repayable
in
equal daily instalments which commenced at the end of October
2024 and end of February 15, 2025.
CCC Revolving Credit Facility, comprising
long-term borrowings
As of
September
30,
2024,
the amount
of the
CCC Revolving
Credit Facility
was ZAR
300.0
million (of
which
ZAR
215.5
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 September
30, 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
September
30,
2024
and
June
30,
2024,
the
Company
had
utilized
ZAR
33.1
million
($
1.9
million)
and
ZAR
33.1
million
($
1.8
million), respectively,
of its indirect and derivative
facilities of ZAR
135.0
million (June 30, 2024: ZAR
135.0
million) to enable the
bank to issue guarantees, letters of credit and forward exchange contracts (refer
to Note 19).
Nedbank facility, comprising short-term facilities
As of
September 30, 2024,
the aggregate amount
of the Company’s short-term
South African
credit facility with
Nedbank Limited
was ZAR
156.6
million ($
9.1
million). The credit facility represents indirect and derivative facilities
of up to ZAR
156.6
million ($
9.1
million), which include guarantees, letters of credit and forward exchange
contracts.
As of
September 30,
2024 and
June 30,
2024, 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, 2024: ZAR
156.6
million) to enable
the bank to issue guarantees, letters of credit and forward exchange contracts
(refer to Note 19).
20
8.
Borrowings (borrowings) (continued)
South Africa (continued)
Movement in short-term credit facilities (continued)
Summarized below are the
Company’s short-term facilities as of
September 30, 2024, and
the movement in
the Company’s short-
term facilities from as of June 30, 2024 to as of September 30, 2024:
RMB
RMB
RMB
Nedbank
Facility E
Indirect
Connect
Facilities
Total
Short-term facilities available as of
September 30, 2023
$
52,384
$
7,858
$
9,895
$
9,112
$
79,249
Overdraft
-
-
9,895
-
9,895
Overdraft restricted as to use for
ATM
funding only
52,384
-
-
-
52,384
Indirect and derivative facilities
-
7,858
-
9,112
16,970
Movement in utilized overdraft
facilities:
Restricted as to use for ATM
funding only
6,737
-
-
-
6,737
No restrictions as to use
-
-
9,351
-
9,351
Balance as of June 30, 2024
6,737
-
9,351
-
16,088
Utilized
23,893
-
-
-
23,893
Repaid
(31,028)
-
-
-
(31,028)
Foreign currency
adjustment
(1)
398
-
544
-
942
Balance as of September 30, 2024
-
-
9,895
-
9,895
Restricted as to use for ATM
funding only
-
-
-
-
-
No restrictions as to use
$
-
$
-
$
9,895
$
-
$
9,895
Interest rate as of September 30,
2024 (%)
(2)
11.50
-
11.40
-
Movement in utilized indirect and
derivative facilities:
Balance as of June 30, 2024
$
-
$
1,821
$
-
$
116
$
1,937
Foreign currency adjustment
(1)
-
106
-
7
113
Balance as of September 30, 2024
$
-
$
1,927
$
-
$
123
$
2,050
(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
%.
21
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, 2024
to as of September
30, 2024:
Facilities
G & H
A&B
CCC
Asset backed
Total
Included in current
$
-
$
-
$
-
$
3,878
$
3,878
Included in long-term
56,151
66,815
11,841
4,501
139,308
Opening balance as of June 30, 2024
56,151
66,815
11,841
8,379
143,186
Facilities utilized
-
-
559
215
774
Facilities repaid
(3,911)
-
(554)
(1,007)
(5,472)
Non-refundable fees paid
-
-
-
-
-
Non-refundable fees amortized
44
12
13
-
69
Capitalized interest
1,845
-
-
-
1,845
Capitalized interest repaid
(95)
-
-
-
(95)
Foreign currency adjustment
(1)
3,188
3,890
684
451
8,213
Closing balance as of September 30,
2024
57,222
70,717
12,543
8,038
148,520
Included in current
-
-
-
3,841
3,841
Included in long-term
57,222
70,717
12,543
4,197
144,679
Unamortized fees
(229)
(176)
(9)
-
(414)
Due within 2 years
57,451
5,456
-
2,987
65,894
Due within 3 years
-
8,367
12,552
836
21,755
Due within 4 years
-
57,070
-
294
57,364
Due within 5 years
$
-
$
-
$
-
$
80
$
80
Interest rates as of September 30, 2024
(%):
13.10
12.10
12.45
12.25
Base rate (%)
8.35
8.35
11.50
11.50
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
is
based
on
the
JIBAR in
effect
from
time
to
time
plus
a
margin,
which
margin
is
calculated as:
(i)
5.50
% if
the Look
Through Leverage
(“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 LTL
ratio is
expressed as
times (“x”),
and was
introduced to
calculate the
margin
used in
the determination
of the
interest
rate.
The
LTL
ratio
is
calculated
as
the
Total
Attributable
Net
Debt
to
the
Total
Attributable
EBITDA,
as
defined
in
the
Company’s borrowing arrangements
with RMB, for the measurement period ending on a specified date.
(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 September 30, 2024 and
2023, was $
4.2
million
and $
4.0
million, respectively.
Prepaid facility fees amortized
included in interest expense
during the three months
ended September
30, 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
$
0.4
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 September
30, 2024 and
2023.
22
9.
Other payables
Summarized below is the breakdown of other payables as of September
30, 2024, and June 30, 2024:
September 30,
June 30,
2024
2024
Clearing accounts
$
7,239
$
17,124
Vendor
wallet balances
13,397
14,635
Accruals
9,959
7,173
Provisions
3,414
7,442
Value
-added tax payable
1,456
1,191
Payroll-related payables
2,929
922
Participating merchants' settlement obligation
2
1
Other
7,527
7,563
$
45,923
$
56,051
Other includes deferred income, client deposits and other payables.
10.
Capital structure
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 as of September 30, 2024
and 2023, respectively:
September 30,
September 30,
2024
2023
Number of shares, net of treasury:
Statement of changes in equity
64,301,943
63,638,912
Non-vested equity shares that have not vested as of end of period
2,035,845
2,527,492
Number of shares, net of treasury,
excluding non-vested equity shares that have not
vested
62,266,098
61,111,420
11.
Accumulated other comprehensive loss
The table
below presents
the change
in accumulated
other comprehensive
loss per
component
during the
three months
ended
September 30, 2024:
Three months ended
September 30, 2024
Accumulated
foreign
currency
translation
reserve
Total
Balance as of July 1, 2024
$
(188,355)
$
(188,355)
Movement in foreign currency translation reserve
10,525
10,525
Balance as of September 30, 2024
$
(177,830)
$
(177,830)
The table
below presents
the change
in accumulated
other comprehensive
loss per
component during
the three
months ended
September 30, 2023:
Three months ended
September 30, 2023
Accumulated foreign currency
translation reserve
Total
Balance as of July 1, 2023
$
(195,726)
$
(195,726)
Movement in foreign currency translation reserve related to equity-
accounted investment
489
489
Movement in foreign currency translation reserve
(844)
(844)
Balance as of September 30, 2023
$
(196,081)
$
(196,081)
There were
no
reclassifications from accumulated other
comprehensive loss to net (loss) income
during the three months ended
September 30, 2024 and 2023.
23
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, 2024.
Stock option and restricted stock activity
Options
The following table summarizes stock option activity for the three months
ended September 30, 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, 2024
4,918,248
8.70
4.51
889
1.77
Forfeited
(13,333)
11.23
-
-
8.83
Outstanding - September 30, 2024
4,904,915
8.67
4.33
1,117
1.76
Outstanding - June 30, 2023
673,274
4.37
5.14
239
1.67
Exercised
(6,793)
3.07
-
5
-
Forfeited
(175,776)
3.58
-
-
1.22
Outstanding - September 30, 2023
490,705
4.68
6.30
199
1.82
No
stock options
were awarded
during each
of the
three months
ended September
30, 2024
and 2023.
No
stock options
were
exercised
during
the
three
months
ended
September
30,
2024.
During
the
three
months ended
September
30,
2023,
the Company
received
approximately
$
0.02
million
from
the exercise
of
6,793
stock options.
Employees forfeited
an aggregate
of
13,333
stock
options during the three months
ended September 30, 2024. Employees and
a non-employee director forfeited an
aggregate of
175,776
stock options during the three months ended September 30, 2023.
Options
The following table presents stock options vested and expected to vest as of
September 30, 2024:
Number of
shares
Weighted
average
exercise
price
($)
Weighted
average
remaining
contractual
term
(in years)
Aggregate
intrinsic
value
($’000)
Vested
and expecting to vest - September 30, 2024
4,904,915
8.67
4.33
1,117
These options have an exercise price range of $
3.01
to $
14.00
.
The following table presents stock options that are exercisable as of September
30, 2024:
Number of
shares
Weighted
average
exercise
price
($)
Weighted
average
remaining
contractual
term
(in years)
Aggregate
intrinsic
value
($’000)
Exercisable - September 30, 2024
378,009
4.49
5.32
364
No
stock options became exercisable during each of the three months ended September 30, 2024 and 2023. The Company issues
new shares to satisfy stock option exercises.
24
12.
Stock-based compensation (continued)
Stock option and restricted stock activity (continued)
Restricted stock
The following table summarizes restricted stock activity for the three
months ended September 30, 2024 and 2023:
Number of
shares of
restricted stock
Weighted
average grant
date fair value
($’000)
Non-vested – June 30, 2024
2,084,946
8,736
Total granted
32,800
154
Granted – August 2024
32,800
154
Total vested
(78,801)
394
Vested
– July 2024
(78,801)
394
Forfeitures
(3,100)
15
Non-vested – September 30, 2024
2,035,845
8,449
Non-vested – June 30, 2023
2,614,419
11,869
Total vested
(78,800)
302
Vested
– July 2023
(78,800)
302
Forfeitures
(8,127)
32
Non-vested – September 30, 2023
2,527,492
11,475
Grants
In August 2024, the Company granted
32,800
shares of restricted stock to employees which have
time -based vesting conditions.
No
restricted stock was awarded during the three months ended September 30, 2023.
Vesting
In July 2024 and 2023, respectively,
78,801
and
78,800
shares of restricted stock granted to our former Group CEO vested.
Forfeitures
During
the
three
months
ended
September
30,
2024
and
2023,
respectively,
employees
forfeited
3,100
and
8,127
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 September 30, 2024 and 2023, of
$
2.4
million and $
1.8
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 September 30, 2024
Stock-based compensation charge
$
2,377
$
-
$
2,377
Total - three months
ended September 30, 2024
$
2,377
$
-
$
2,377
Three months ended September 30, 2023
Stock-based compensation charge
$
1,768
$
-
$
1,768
Reversal of stock compensation charge related to stock
options and restricted stock forfeited
(9)
-
(9)
Total - three months
ended September 30, 2023
$
1,759
$
-
$
1,759
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.
25
12.
Stock-based compensation (continued)
Stock-based compensation charge and unrecognized compensation
cost (continued)
As
of
September
30,
2024,
the
total
unrecognized
compensation
cost
related
to
stock
options
was
$
3.9
million,
which
the
Company expects to
recognize over
two years
. As
of September 30,
2024, the total
unrecognized compensation cost
related to
restricted
stock awards was $
3.6
million, which the Company expects to recognize over
two years
.
During the three months ended
September 30, 2024 and 2023,
the Company recorded a deferred
tax benefit of $
0.3
million and
$
0.05
million, respectively,
related to
the stock-based
compensation charge
recognized related
to employees
of Lesaka.
During the
three months
ended September
30, 2024
and 2023
the Company
recorded a
valuation allowance
of $
0.3
million and
$
0.05
million,
respectively,
related to
the deferred
tax benefit
recognized 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 months ended September 30, 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, 2024.
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 months ended September
30, 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
65,173
and
41,809
shares of common
stock from
the calculation
of diluted
loss per
share during
the three
months ended
September
30, 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.
26
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, 2024.
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
September 30,
2024
2023
(in thousands except
percent and
per share data)
Numerator:
Net loss attributable to Lesaka
$
(4,542)
$
(5,651)
Undistributed (loss) earnings
$
(4,542)
$
(5,651)
Percent allocated to common shareholders (Calculation 1)
97
96
Numerator for (loss) earnings per share: basic and diluted
(4,399)
(5,402)
Continuing
(4,399)
(5,402)
Denominator
Denominator for basic (loss) earnings per share:
Weighted-average
common shares outstanding
62,265
60,990
Denominator for diluted (loss) earnings per share: adjusted weighted
average
common shares outstanding and assuming conversion
62,265
60,990
(Loss) Earnings per share:
Basic
$
(0.07)
$
(0.09)
Diluted
$
(0.07)
$
(0.09)
(Calculation 1)
Basic weighted-average common shares outstanding (A)
62,265
60,990
Basic weighted-average common shares outstanding and unvested restricted
shares
expected to vest (B)
64,293
63,805
Percent allocated to common shareholders
(A) / (B)
97
96
Options to
purchase
4,224,210
shares of
the Company’s
common stock
at prices
ranging from
$
4.87
to $
14.00
per share
were
outstanding during
the three months
ended September
30, 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
262,506
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 September
30, 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 September 30, 2024.
14.
Supplemental cash flow information
The following table presents supplemental cash flow disclosures for
the three months ended September 30, 2024 and 2023:
Three months ended
September 30,
2024
2023
Cash received from interest
$
581
$
445
Cash paid for interest
$
3,271
$
2,925
Cash (refund) paid for income taxes
$
(45)
$
604
27
14.
Supplemental cash flow information (continued)
Leases
The following table presents supplemental cash flow disclosure related to leases for the three months ended September 30, 2024
and 2023:
Three months ended
September 30,
2024
2023
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases
$
1,004
$
693
Right-of-use assets obtained in exchange for lease obligations
Operating leases
$
510
$
243
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 September 30, 2024:
Merchant
Consumer
Total
Processing fees
$
31,583
$
7,530
$
39,113
South Africa
29,781
7,530
37,311
Rest of world
1,802
-
1,802
Technology
products
3,136
2
3,138
South Africa
3,063
2
3,065
Rest of world
73
-
73
Telecom products
and services
86,731
17
86,748
South Africa
80,851
17
80,868
Rest of world
5,880
-
5,880
Lending revenue
-
6,956
6,956
Interest from customers
1,676
-
1,676
Insurance revenue
-
4,340
4,340
Account holder fees
-
1,699
1,699
Other
1,348
528
1,876
South Africa
1,291
528
1,819
Rest of world
57
-
57
Total revenue, derived
from the following geographic locations
124,474
21,072
145,546
South Africa
116,662
21,072
137,734
Rest of world
$
7,812
$
-
$
7,812
28
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 September 30, 2023:
Merchant
Consumer
Total
Processing fees
$
28,760
$
5,733
$
34,493
South Africa
27,400
5,733
33,133
Rest of world
1,360
-
1,360
Technology
products
2,037
19
2,056
South Africa
1,986
19
2,005
Rest of world
51
-
51
Telecom products
and services
87,313
41
87,354
South Africa
82,559
41
82,600
Rest of world
4,754
-
4,754
Lending revenue
-
5,373
5,373
Interest from customers
1,520
-
1,520
Insurance revenue
-
2,611
2,611
Account holder fees
-
1,368
1,368
Other
879
435
1,314
South Africa
830
435
1,265
Rest of world
49
-
49
Total revenue, derived
from the following geographic locations
120,509
15,580
136,089
South Africa
114,295
15,580
129,875
Rest of world
$
6,214
$
-
$
6,214
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 September 30, 2024 and 2023 was $
1.0
million and
$
0.7
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
September 30, 2024 and 2023, was $
1.0
million and $
0.9
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 September 30, 2024 and June 30, 2024:
September 30,
June 30,
2024
2024
Right of use assets obtained in exchange for lease obligations:
Weighted average
remaining lease term (years)
2.7
3.1
Weighted average
discount rate (percent)
10.7
10.5
29
16.
Leases (continued)
The maturities of the Company’s
operating lease liabilities as of September 30, 2024, are presented below:
Maturities of operating lease liabilities
Year
ended June 30,
2025 (excluding three months to September 30, 2024)
$
2,581
2026
2,840
2027
2,011
2028
1,298
2029
165
Thereafter
-
Total undiscounted
operating lease liabilities
8,895
Less imputed interest
1,327
Total operating lease liabilities,
included in
7,568
Operating lease liability - current
2,600
Operating lease liability - long-term
$
4,968
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, 2024.
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 September
30, 2024 and 2023, is as follows:
Revenue
Reportable
Segment
Inter-
segment
From
external
customers
Merchant
$
125,261
$
787
$
124,474
Consumer
21,072
-
21,072
Total for the three
months ended September 30, 2024
$
146,333
$
787
$
145,546
Merchant
$
121,361
$
852
$
120,509
Consumer
15,580
-
15,580
Total for the three
months ended September 30, 2023
$
136,941
$
852
$
136,089
30
17.
Operating segments (continued)
Operating segments (continued)
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 intends
to obtain a separate
lending facility to fund
a portion of its
Consumer lending during
the twelve months ended June
30, 2025. The Company expected
to have this facility in place on
July 1, 2024, however,
the Company
has been unable to finalize
terms as the separate
lending facility will form part
of a broader financing
package. Therefore, the Company
has included an intercompany interest expense in its Consumer Segment Adjusted EBITDA for the three months ended September 30,
2024. The Company
does not allocate
once-off items,
stock-based compensation
charges, 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, certain
interest expense,
income tax
expense or
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. Interest adjustment represents the intercompany interest expense included in
the Consumer Segment Adjusted EBITDA. The
Stock-based compensation
adjustments reflect
stock-based compensation
expense and
are 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. Effective
from fiscal
2025, all lease
charges are allocated
to the Company’s operating
segments, whereas
in fiscal
2024 the
Company presented
certain lease
charges on
a separate
line outside
of its
operating segments.
Prior period
information has
been re-presented
to include
the lease charges
which were
previously reported
on a
separate line
in the
Company’s Consumer
and Merchant operating segments.
The reconciliation of
the reportable segments’
measures of profit or
loss to loss before
income tax expense for
the three months
ended September 30, 2024 and 2023, is as follows:
Three months ended
September 30,
2024
2023
Reportable segments measure of profit or loss
$
12,312
$
9,845
Operating loss: Group costs
(2,949)
(1,822)
Once-off costs
(1,805)
(78)
Unrealized Loss FV for currency adjustments
219
(102)
Interest adjustment
831
-
Stock-based compensation charge adjustments
(2,377)
(1,759)
Depreciation and amortization
(6,276)
(5,856)
Reversal of allowance of EMI doubtful debt
-
250
Interest income
586
449
Interest expense
(5,032)
(4,909)
Loss before income tax expense
$
(4,491)
$
(3,982)
31
17.
Operating segments (continued)
Operating segments (continued)
The following
tables summarize
segment
information
that is
prepared
in accordance
with GAAP
for
the three
months
ended
September 30, 2024 and 2023:
Three months ended
September 30,
2024
2023
Revenues
Merchant
$
125,261
$
121,361
Consumer
21,072
15,580
Total reportable segment
revenue
146,333
136,941
Segment Adjusted EBITDA
Merchant
(1)
7,916
7,725
Consumer
(1)
4,396
2,120
Total Segment Adjusted
EBITDA
12,312
9,845
Depreciation and amortization
Merchant
2,327
2,078
Consumer
202
169
Subtotal: Operating segments
2,529
2,247
Group costs
3,747
3,609
Total
6,276
5,856
Expenditures for long-lived assets
Merchant
3,908
2,763
Consumer
57
46
Subtotal: Operating segments
3,965
2,809
Group costs
-
-
Total
$
3,965
$
2,809
(1) Segment Adjusted EBITDA
for the three months
ended September 30, 2024,
includes retrenchments costs for
Consumer of
$
0.06
million (ZAR
1.1
million) and for Merchant, costs of
$
0.01
million (ZAR
0.2
million). Segment Adjusted EBITDA for the three
months ended September
30, 2023, includes
retrenchments costs for
Merchant of $
0.2
million (ZAR
4.6
million) and for Consumer,
costs of $
0.1
million (ZAR
1.5
million).
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.
32
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 months ended September 30, 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
(including
transaction-related
expenditures),
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 months ended September 30, 2023, 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.
Uncertain tax positions
As of three months ended September 30, 2024 and
June 30, 2023, the Company had
no
unrecognized tax benefits. The Company
files income tax
returns mainly
in South Africa,
Botswana, Namibia and
in the U.S.
federal jurisdiction.
As of September
30, 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,
2020. 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
($
1.9
million,
translated
at
exchange
rates
applicable as of September 30, 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 September 30, 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 September 30,
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
September 30,
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
September
30,
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.
33
20.
Acquisitions
2025
Acquisitions
October 2024 acquisition of Adumo
On May 7,
2024, the Company
entered into a
Sale and Purchase
Agreement (the “Purchase
Agreement”) with Lesaka
SA, and
Crossfin Apis Transactional
Solutions (Pty) Ltd
and Adumo ESS
(Pty) Ltd (“the
Sellers”). Pursuant to
the Purchase 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
transaction
closed
on
October 1, 2024.
Adumo is an
independent payments and commerce
enablement platform in Southern
Africa, serving approximately
23,000
active
merchants with
operations across
South Africa,
Namibia, Botswana
and Kenya.
For more
than two
decades, Adumo
has facilitated
physical and online commerce between retail merchants and end-consumers by offering
a unique combination of payment processing
and integrated software
solutions, which currently
include embedded payments,
integrated payments, reconciliation services,
merchant
lending, customer engagement tools, card issuing program management
and data analytics.
Adumo operates
across three businesses,
which provide
payment processing
and integrated software
solutions to different
end
markets:
●
The
Adumo
Payments
business
offers
payment
processing,
integrated
payments
and
reconciliation
solutions
to
small-and-
medium (“SME”) merchants in
South Africa, Namibia and
Botswana, and also provides
card issuing program management
to
corporate clients such as Anglo American and Coca-Cola;
●
The Adumo ISV business, also known as GAAP,
has operations in South Africa, Botswana and Kenya, and clients in a further
21
countries,
and
is
the
leading
provider
of
integrated
point-of-sales
software
and
hardware
to
the
hospitality
industry
in
Southern Africa, serving clients such as KFC, McDonald’s,
Pizza Hut, Nando’s and Krispy
Kreme; and,
●
The Adumo
Ventures
business offers
online commerce
solutions (Adumo
Online), cloud-based,
multi-channel point-of-sales
solutions
(Humble)
and
an
aggregated
payment
and
credit platform
for
in-store
and
online
commerce
(SwitchPay)
to SME
merchants and corporate clients in South Africa and Namibia.
The acquisition continues the Company’s
consolidation in the Southern African
fintech sector.
The Company’s
ecosystem now
serves approximately
1.7
million active consumers,
120,200
merchants, and processes over ZAR
270
billion in throughput (cash, card
and VAS)
per year. The acquisition of Adumo enhances the Company’s strength in both the consumer and merchant markets in which
it operates.
The purchase consideration was settled through the combination of an issuance of
17,279,803
shares of the Company’s common
stock (“Consideration
Shares”) and
a ZAR
232.2
million ($
13.4
million, translated
at the
prevailing rate
of $1:
ZAR
17.3354
as of
October 1, 2024) payment in cash. The Company’s
closing price on the Johannesburg Stock Exchange on October 1, 2024, was ZAR
83.05
($
4.79
using
the
October
1,
2024,
$1:
ZAR
exchange
rate).
The
total
purchase
consideration
was
ZAR
1.67
billion
($
96.2
million).
The
closing
of
the
transaction
was
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)
approval
from
all necessary
regulatory
bodies
and
from
shareholders
to
issue
the
Consideration
Shares
to
the
Sellers; (iv) obtaining
certain third-party
consents; (v) the
Company obtained confirmation
from RMB that
it has sufficient
funds to
settle the
cash portion
of the purchase
consideration; (vi)
approval of
Adumo shareholders
(including preference
shareholders) with
respect to entering into and implementation of the Purchase Agreement, and
all other agreements and transactions contemplated in the
Purchase Agreement;
(vii) obtained
the consent
of Adumo’s
lender regarding
Adumo entering
into and
implementing the
Purchase
Agreement, and
all other
agreements and
transactions contemplated
in the
Purchase Agreement;
(viii) the
release of
certain Seller’s
shares held
as security
by such
bank; (ix)
consent of
the lender
of one
of Adumo’s
shareholders regarding
Adumo entering
into the
transaction;
(x)
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
change;
and
(xi)
a
Seller
(or
their
nominee),
which
ultimately
was
Crossfin,
concluding
share
purchase agreements to dispose
of an amount of Consideration
Shares (which ultimately was determined
as
3,587,332
Consideration
Shares).
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.
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 $
1.7
million
during
the
three
months
ended
September
30,
2024,
related
to
acquisition
of
Adumo.
The
Company’s
accruals
presented
in
Note
9
of
as
September
30,
2024,
includes
an
accrual
of
transaction related
expenditures of
$
2.2
million and
the Company
does not
expect to
incur any
further significant
transaction costs
over the remainder of the 2025 fiscal year.
34
20.
Acquisitions (continued)
2025
Acquisitions (continued)
October 2024 acquisition of Adumo (continued)
On
October
1,
2024,
Lesaka
SA
and
Crossfin
entered
into
a
share
purchase
agreement
under
which
Lesaka
SA
purchased
2,601,410
of the
3,587,332
Consideration Shares for ZAR
207.2
million ($
12.0
million). The transaction was settled in early October
2024,
and the shares of Company’s common
stock repurchased will be included in the Company’s
treasury shares.
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 November
6, 2024.
The Company
expects to
include its
preliminary allocation
of the purchase consideration
related to this acquisition
in its unaudited
financial statements to
be included
in
its Quarterly Report on Form 10-Q for the quarterly period ended
December 31, 2024.
35
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, 2024,
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, 2024.
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
Our
mission
at
Lesaka
is driven
by
a
purpose
to
provide
financial
services
and
software
to
Southern
Africa’s
underserviced
consumers
(B2C)
and
merchants
(B2B),
improving
people’s
lives
and
increasing
financial
inclusion
in
the
markets
in
which
we
operate. We offer a wide
range of
integrated payment solutions
including transactional accounts
(banking), lending, insurance,
payouts,
cash
management
solutions,
card
acceptance,
supplier
payments,
software
services
and
bill
payments.
By
providing
a
full-service
fintech platform in our connected ecosystem, we facilitate the digitization
of commerce in our markets.
We experienced continued improvement in our financial and operational performance in the first quarter of fiscal 2025. Revenue
of $145.5 million
(ZAR 2.6 billion) was
at the mid-point of
our revenue guidance
and compares to $136.1
million (ZAR 2.5
billion)
in 2024.
Operating
loss
of
$0.05
million
(ZAR
0.3
million)
includes
the
impact
of
$1.7
million
(ZAR
30.0
million)
one-off
Adumo
transaction costs.
We
reported a
net loss
attributable to
the company
of $4.5
million (ZAR
81.0 million)
during the
first quarter
of
fiscal 2025 compared with a net loss of $5.7 million (ZAR 105.6 million) during
the first quarter of fiscal 2024.
Group Adjusted EBITDA of $9.4 million
(ZAR 168.1 million) was at
the mid-point of our guidance range,
representing the ninth
successive quarter of
Lesaka achieving or
outperforming its Group
Adjusted EBITDA guidance.
Group Adjusted EBITDA
is a non-
GAAP measure, refer to reconciliation below at “—Results of Operations
—Use of Non-GAAP Measures”.
We continue
to broaden our product proposition and solve for both consumer and merchant
pain-points.
Merchant Division
The year-on-year
performance in
our Merchant
Division (“Merchant”)
is supported
by the
robust secular
trends underpinning
financial
inclusion,
cash management
and
digitalization
to empower
micro-merchants,
merchants
and
enterprise
clients to
transact
efficiently and fulfill their potential.
Performance in Merchant has been driven by:
36
Our VAS
and supplier payments business continues to see adoption by micro
-merchants.
Fiscal quarter ended September 30,
Q1
2025
Q1
2024
Q1
2023
2025
vs.
2024
2
year
CAGR
%
Approximate number of devices in deployment
1
89,040
77,000
57,000
16%
25%
Total
Throughput for the quarter (ZAR billions)
9.9
7.2
5.9
38%
30%
Throughput
for
the
quarter
international
money
transfers
(“IMT”) (ZAR billions)
1.3
0.3
1.6
333%
(10%)
Throughput for the quarter supplier
payments (ZAR billions)
3.2
2
0.6
60%
131%
Total throughput
for the quarter excluding IMT and supplier
payments (ZAR billions)
5.4
4.9
3.7
10%
21%
1.
2025 includes approximately
5,430 devices attributable
to the acquisition of
Touchsides,
effective May 1, 2024,
which are
not enabled for VAS
and supplier payments on the Kazang platform.
●
We
had
approximately
89,040
devices
deployed
at
September
30,
2024,
representing
a
16%
year-on-year
growth
compared
to
approximately
77,000
devices
as
of
September
30,
2023,
and
a
2-year
CAGR
of
25%
compared
to
September 30,
2022. This
includes approximately
5,430 devices
in Touchsides
sites that
are not
yet enabled
for VAS
and supplier payments on the Kazang platform.
●
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 growth and margin
per device.
●
VAS
and supplier payments throughput increased 38% to R9.9 billion. We have separately disclosed supplier payments
from traditional VAS
as it is becoming a material contributor to our
throughput and attracts a lower gross profit margin.
Supplier payments
is an
important part
of the micro
-merchant ecosystem
we are
developing as
part of
our strategy
to
provide a holistic offering to micro-merchants in informal markets.
●
VAS
throughput,
excluding
IMT
and
supplier
payments
increased
10%
to
R5.4
billion.
Our
supplier
payments
throughput
increased
by
60%
year
on
year
to
R3.2
billion
as
we
added
further
suppliers
onto
our
platform.
The
international money
transfer throughput
recovered significantly
and is
approaching the
levels from
quarter one
fiscal
2022.
Our card acceptance solutions to micro-merchants is through Kazang
Pay and to merchants through Card Connect.
Fiscal quarter ended September 30,
Q1
2025
Q1
2024
Q1
2023
2025 vs.
2024
2
year
CAGR
%
Approximate number of devices in deployment
1
53,450
46,600
27,700
15%
39%
Total Throughput
for the quarter (ZAR billions)
4.3
3.6
2.3
18%
36%
●
The
trend
towards
digital
payments
continued
year
on
year
with
a
15%
increase
in
devices
and
a
18%
increase
in
throughput to R4.2 billion for the quarter
Our lending
solutions offered to merchants through Capital Connect in
the merchant market.
Fiscal quarter ended September 30,
Q1
2025
Q1
2024
Q1
2023
2025
vs.
2024
2
year
CAGR
%
Total credit disbursed
(ZAR millions)
166
196
226
(15%)
(14%)
Total
net
loan
book
size
at
period
end
(ZAR millions)
273
285
274
(4%)
0%
Capital
Connect
credit
disbursed
(ZAR millions)
166
173
190
(4%)
(7%)
Capital
Connect
loan
book
size
at
period
end
(ZAR
millions)
273
280
254
(3%)
4%
Kazang
Pay
Advance
credit
disbursed
(ZAR millions)
0
23
36
n/m
n/m
Kazang Pay
Advance loan book
size at period
end (ZAR
millions)
0
5
20
n/m
n/m
37
●
Capital Connect disbursed
ZAR 166 million
during Q1 2025,
compared to ZAR
173 million in
the comparable period
last year, representing
a 4% decrease, reflective of the deterioration
in financial strength of our merchants compared
to
a year ago. We
have maintained our strict
credit criteria during the high
interest rate and inflationary
cycle resulting in
less merchants qualifying for new or renewals of credit lines.
●
With a
more positive political
environment, the suspension
of load-shedding
and hopefully the
start of an
interest rate
down cycle,
we are
more optimistic
this business
can resume
a growth
trend reflective
in the
8% increase
in Capital
Connect disbursements
this quarter compared to ZAR 154 million a quarter ago (quarter four fiscal 2024.)
●
Capital Connect’s
lending proposition
is an important
component in
enabling the merchants
we serve
to compete
and
grow. Since inception, Capital Connect
has distributed more
than ZAR 3
billion of funding
to merchants and
can provide
funding of up to ZAR 5 million in under 24 hours. Quick access to affordable and flexible opportunity capital is vital in
every stage of a merchant’s lifecycle,
enabling them to never miss an opportunity.
●
Kazang Pay Advance, our lending offering
in the micro-merchant sector, was suspended
in early fiscal 2024 following
the decision to discontinue the
current product, especially in the
high interest rate environment. We continued to explore
other options
with respect
to this
offering
with it
now in
live pilot
phase. We
are monitoring
payment behavior
on a
smaller loan book and applying stricter lending criteria before the official
relaunch later in fiscal 2025.
Our cash management and digitalization
solutions effectively “puts the bank” in approximately 4,480
merchants’ stores.
Fiscal quarter ended September 30,
Q1 2025
Q1 2024
Q1 2023
2025
vs.
2024
2
year
CAGR %
Approximate number of devices in deployment
1
4,480
4,400
4,200
2%
3%
Cash
settlements
(throughput)
for
the
quarter
(ZAR
billions)
28.7
27.6
27.5
4%
2%
o
Our
cash
business
remains
a
vital
product
in
our
merchant
offering
and
is
a
key
differentiator
for
us
in
the
digitalization of cash. We
provide robust cash vaults in the SME sector (Cash Connect) and are building a presence
in the micro-merchant sector
(Kazang Vaults),
which enables our merchant
customer base to significantly
mitigate
their operational risks pertaining to cash management and security.
o
Whilst there
is trend
towards digital
payments,
cash remains
as the
most significant
portion
of retail
transactions
especially
in
informal
markets.
This
business
is
primarily
exposed
to
the
mid-market
SMEs,
a
sector
which
has
experienced challenges such as power outages, high price inflation and a slowdown in consumer spending, over the
past 24 months. This impacted
the merchants we serve in
this sector and resulted in
increased bankruptcies and vault
upliftments which affected the net growth in the vault estate.
Consumer Division
In
our
Consumer
Division
we
offer
transactional
accounts
(banking),
insurance,
lending
and
payments
solutions
designed
to
improve the lives
of historically underserviced
consumers and continue
to deliver against
our strategic focus
areas underpinning our
growth
strategy.
Progress made
on these
levers: (i)
growing
active EasyPay
Everywhere (“EPE”)
account numbers;
(ii) increasing
average revenue per user (“ARPU”) through cross-selling; (iii) cost
optimization; and (iv) enhancing our product and service offering,
resulted in revenue and profitability growth in the Consumer Division in the
first quarter of fiscal 2025.
38
Consumer
Fiscal quarter ended September 30,
Q1 2025
Q1 2024
Q1 2023
2025 vs.
2024
Transactional accounts
(banking) - EasyPay Everywhere ("EPE")
Total active EPE transactional account base at quarter
end (millions)
1.5
1.3
1.2
14%
Total active EPE transactional account base at quarter
end - Permanent grant recipients (millions)
1.3
1.1
1.1
18%
Approximate
Gross
EPE
account
activations
for
the
quarter -Permanent grant recipients (number)
62,000
76,000
45,000
(19%)
Approximate
Net
EPE
account
activations
for
the
quarter - Permanent grant recipients (number)
26,000
42,000
3,000
(39%)
Lending - EasyPay Loans
Approximate
number
of
loans
originated
during
the
quarter (number)
286,000
222,000
198,000
28%
Gross advances in the quarter (ZAR millions)
451
353
289
28%
Loan
book
size,
before
allowances,
at
quarter
end
1
(ZAR millions)
564
423
351
34%
Insurance - EasyPay Insurance
Approximate number
of insurance policies
written in
the quarter (number)
49,000
38,000
25,000
29%
Total active insurance
policies on book at quarter end
(number)
466,000
359,000
268,000
30%
Average
revenue
per
customer
per
month,
as
of
September
30,
(permanent
grant
beneficiaries)
(ZAR)
91
83
71
10%
1.
Gross loan book, before
provisions.
●
Driving customer acquisition
o
Gross EPE account
activations, continue to
grow at the new
levels for the permanent
base, post our marketing
and
distribution network enhancements
in fiscal 2024.
We
achieved approximately 62,000
gross account activations
in
the quarter which was pleasing in a traditionally quiet
quarter for us. This compares to a higher
than usual activation
rate in quarter one fiscal
2024 due to significant migration
away from the South African
Post Office in that
quarter
driven
by
concerns
around
its
going
concern
status
and
its
failure
to
timeously
distribute
grants
timeously.
Net
activations of
26,000 in
the quarter
was negatively
impacted by
the closure
of the
SASSA (
South African
Social
Security Agency)
digital portal for switching.
o
Our total active EPE transactional account base stood at approximately 1.5 million at the end of September
2024, of
which
approximately
1.3 million
(or approximately
88%)
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 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.
39
●
Progress on cross
selling
EasyPay Loans
o
We
originated
approximately 286
000 loans
during the
quarter,
with our
consumer loan
book, before
allowances
(“gross book”), increasing 34% to ZAR 564 million
as of September 30, 2024, compared to ZAR 423
million as of
September 30, 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.
o
The
portfolio
loss
ratio
of
approximately
6%,
calculated
as
the
loans
written
off
over
the
last
12
months
as
a
percentage of the total
gross loan book at the
end of the quarter,
remained stable on an
annualized basis, compared
to quarter one fiscal 2024.
EasyPay Insurance
o
Our insurance product sales continue to grow and
is a material contributor to the
improvement in our overall ARPU.
We
have
been
able
to
improve
customer
penetration
to
34%
of
our
active
permanent
grant
account
base
as
of
September 30, 2024, compared to 31% as of September 30, 2023. Approximately 49,000 new policies
were written
in the quarter, compared to
approximately 38,000 in the
comparable period in fiscal
2024. The total number
of active
policies has grown 30% to approximately 466,000 policies as of September 30, 2024, compared to 359,000 policies
as of September 30, 2023.
o
In April 2024 we launched a new benefit where existing policyholders and new clients could elect
to cover up to six
of their
dependent family
members with
cover ranging
from ZAR
5 000 to
ZAR 30 000.
Since the
launch of
this
benefit more than 25 00 clients have elected to cover their dependent family
members.
ARPU
o
ARPU for our permanent client
base has increased to
approximately ZAR 91 for the
first quarter of fiscal
2025, from
approximately ZAR 83 in the first quarter of fiscal 2024.
Adumo Payouts
o
On 1 October
the Adumo Payouts
business officially became part
of the Consumer
Division. We are looking forward
to
working
with
them
as
we
build
out
the
Consumer
offering
beyond
the
grant
recipient
space.
The
Adumo
contribution will be reflected in our quarter two fiscal 2025 results.
Board and Leadership Changes in quarter one fiscal 2025
Leadership changes
On October,
1 2024 Dan
Smith was appointed
as Group Chief
Financial Officer
taking over these
responsibilities from
Naeem
Kola,
who
transitioned
to
Group
Chief
Operating
Officer.
Mr.
Smith
was also
appointed
to
the
Board.
As Lesaka
scales,
we
will
continue to augment our executive capability to accommodate the growing size of the business and deliver on the opportunity in front
of us.
Paul
Kent,
the
CEO
of
Adumo,
joined
the
Lesaka
executive
team
on
completion
of
the
Adumo
transaction
to
oversee
the
Merchant pillar within Lesaka’s Merchant
Division.
Board changes
Similarly, on completion of the Adumo acquisition Dean Sparrow, Group CEO of Crossfin
Technology Holdings (RF) (Pty) Ltd,
was appointed to the Board as an independent non-executive director
and joined Lesaka’s Capital Allocation Committee.
Chris Meyer and Monde Nkosi, non-executive directors, stepped
down as directors of the Board in October 2024.
40
Acquisition of Adumo
On October
1, 2024,
we announced
the closing
of the
Adumo transaction
which enhances
our platform,
adding customers
and
products, as well as
scale. The completion
of this transaction
marks the beginning
of a new chapter
in the Lesaka story.
Adumo will
be included in our results for the full second quarter of fiscal 2025.
Going forward Lesaka will be run in four distinct pillars
The Adumo
transaction is the
catalyst to approach
the market with
a more customer
-centric operating
model. From
a financial
reporting standpoint,
we will continue
to maintain the
Consumer Division
and Merchant Division
split however
we will present
our
KPIs and performance with a more granular breakdown.
Our Consumer segment
will remain substantially
the same however
the perimeter will
be expanded to
include the Adumo
Payouts
business.
In our
Merchant segment,
the Adumo transaction
provides the
opportunity to
segment the
business into
three component
parts
organized around distinct customers. Micro-Merchant,
Merchant and Enterprise.
Micro-merchants are
typically sole
proprietors, often
operating in
the informal
economy.
We
address these
customers through
the
Kazang
and
Touchsides
brands.
In
South
Africa
the
focus
will
be
to
augment
the
product
offering
and
cross-sell
to
existing
customers
so that
we can
materially improve
the unit
economics,
as we
have been
doing. Outside
of South
Africa, in
neighboring
geographies,
there are
a substantial
number of
sole traders
who have
very limited
offerings available
to them
to empower
them on
their digital journey.
Here we have an opportunity again to expand our total addressable market through wallet growth.
The
Merchant
pillar
is
made
up
of
the
existing
Connect
operations,
as
well
as
the
bulk
of
Adumo,
specifically
its
merchant
acquiring
and
processing
business
and
its
GAAP
hospitality
platform.
The
Connect
business
has
cash
and
credit
as
key
product
offerings, the
Adumo business has
merchant acquiring and
software at point
of sale. Combined
the Lesaka offering
will be amongst
most comprehensive in the market in meeting the needs of small and medium size businesses
in the region.
Our Enterprise
segment will focus
on large
corporates, mobile network
operators, banks,
governments and
municipalities. Our
solutions include a
new payment switch, Prism
Switch, our Point
Of Sale hardware
business branded Prism
POS (previously known
as NUETS), our bill payments platform EasyPay, as well as a third party vending and security business. As well as serving third party
corporates it will also service some of the technology needs of our other pillars, Consumer,
Micro-Merchant and Merchant.
41
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, 2024:
●
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 September 30, 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
September
30,
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
Year
ended
September 30,
June 30,
2024
2023
2024
ZAR : $ average exchange rate
17.9601
18.6457
18.7070
Highest ZAR : $ rate during period
18.5100
19.2202
19.4568
Lowest ZAR : $ rate during period
17.1144
17.6278
17.6278
Rate at end of period
17.1808
18.9236
18.1808
42
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 months
ended September
30, 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
Year
ended
Table 2
September 30,
June 30,
2024
2023
2024
Income and expense items: $1 = ZAR
17.7176
18.7088
18.6844
Balance sheet items: $1 = ZAR
17.1808
18.9236
18.1808
We have
translated the results of operations and
operating segment information for the
three months ended September 30,
2024
and 2023,
provided in
the tables below
using the actual
average exchange
rates per month
(i.e. for
each of
July 2024,
August 2024,
and September 2024 for the
first quarter of fiscal
2025) 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.
43
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
is
our
Executive
Chairman
and
he
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,
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 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.
Effective from fiscal 2025, all lease charges are allocated to our operating segments, whereas in
fiscal 2024 we presented certain lease
charges
on
a
separate
line
outside
of
our
operating
segments.
Prior
period
information
has
been
re-presented
to
include
the
lease
charges which were previously reported on a separate
line in our Consumer and Merchant operating segments.
Group
Adjusted
EBITDA
represents
Segment
Adjusted
EBITDA
after
deducting
group
costs.
Refer
also
“Results
of
Operations—Use of Non-GAAP Measures” below.
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.
First quarter of fiscal 2025 compared to first quarter
of fiscal 2024
The following factors had a significant impact on
our results of operations during the first
quarter of fiscal 2025 as compared with
the same period in the prior year:
●
Higher
revenue:
Our
revenues
increased
3%
in
ZAR,
primarily
due
to
an
increase
in
value-added
services
activity
and
processing fees in Merchant,
as well as higher transaction, insurance and lending revenues in Consumer, which was partially
offset by fewer low margin prepaid airtime sales;
●
Operating
income
improvement,
before
transaction
costs:
Operating
income,
before
Adumo-related
transaction
costs,
increased
due to an increase trading activity as noted above;
●
Lower net interest
charge:
Net interest
charge decreased
to $4.4 million
(ZAR 79.8 million)
from $4.5 million
(ZAR 83.1
million) primarily due to lower interest rates on our borrowings, which was partially
offset by higher over borrowings; and
●
Foreign
exchange
movements:
The
U.S.
dollar
was 5%
stronger
against the
ZAR during
the
first
quarter
of
fiscal
2025
compared to
the prior period,
which adversely
impacted our U.S.
dollar reported
results The ZAR
was 5% stronger
against
the U.S.
dollar during
first quarter
of fiscal
2025
compared to
the prior
period, which
positively impacted
our U.S.
dollar
reported results.
44
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 September 30,
2024
2023
%
$ ’000
$ ’000
change
Revenue
145,546
136,089
7%
Cost of goods sold, IT processing, servicing and support
110,887
107,490
3%
Selling, general and administration
26,726
22,515
19%
Depreciation and amortization
6,276
5,856
7%
Transaction costs related to Adumo acquisition
1,702
-
nm
Operating (loss) income
(45)
228
nm
Reversal of allowance for EMI doubtful debt receivable
-
250
nm
Interest income
586
449
31%
Interest expense
5,032
4,909
3%
Loss before income tax expense
(4,491)
(3,982)
13%
Income tax expense
78
264
(70%)
Net loss before earnings (loss) from equity-accounted investments
(4,569)
(4,246)
8%
Earnings (Loss) from equity-accounted investments
27
(1,405)
nm
Net loss attributable to us
(4,542)
(5,651)
(20%)
Table 4
In South African Rand
Three months ended September 30,
2024
2023
%
ZAR ’000
ZAR ’000
change
Revenue
2,615,690
2,537,659
3%
Cost of goods sold, IT processing, servicing and support
1,993,641
2,004,465
(1%)
Selling, general and administration
479,677
419,861
14%
Depreciation and amortization
112,660
109,166
3%
Transaction costs related to Adumo acquisition
29,997
-
nm
Operating (loss) income
(285)
4,167
nm
Reversal of allowance for EMI doubtful debt receivable
-
4,741
nm
Interest income
10,517
8,368
26%
Interest expense
90,328
91,429
(1%)
Loss before income tax expense
(80,096)
(74,153)
8%
Income tax expense
1,402
4,825
(71%)
Net loss before earnings (loss) from equity-accounted investments
(81,498)
(78,978)
3%
Earnings (Loss) from equity-accounted investments
475
(26,657)
nm
Net loss attributable to us
(81,023)
(105,635)
(23%)
Revenue increased by
$9.5 million (ZAR
78.0 million), or
6.9% (in ZAR, 3.1%
), primarily due
to an increase in
the volume of
value-added
services
provided
(prepaid
airtime
and
gaming),
high
transactions
volumes
from
our
vault
and
cash
management
operations
resulting
in higher
processing
fees, an
increase
in certain
issuing fee
base prices
and
transaction
activity in
our
issuing
business, and an
increase in insurance
premiums collected and
lending revenues following
higher loan
originations, which was
partially
offset
by fewer
low margin
prepaid
airtime 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 $3.4
million (or
3.2%) and,
in ZAR, decreased
by ZAR
10.8 million
(or 0.5%),
primarily the
decrease in
low margin
prepaid airtime
sales, which
was partially
by higher
insurance-related
claims and third-party transaction fees.
Selling,
general
and
administration
expenses
increased
by
$4.2
million
(ZAR
59.8
million),
or
18.7%
(in
ZAR
14.2%).
The
increase was
primarily due
to higher
employee-related expenses
(including annual
bonuses and
annual salary
increases) and
higher
stock-based
compensation
charges;
higher
consulting,
legal
and
travel
expenses,
and
the
year-over-year
impact
of
inflationary
increases on certain expenses.
45
Depreciation and amortization expense increased by $0.4 million (ZAR 3.5 million), or 7.2%
(3.2%). 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 and advisory
services procured to close the transaction on October 1, 2024.
Our operating (loss) income margin
for the first quarter of fiscal 2025 and 2024
was (0.0)% and 0.2%, 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 first quarter of fiscal 2025
or 2024, 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.
Interest
on surplus
cash increased
to $0.6
million
(ZAR 10.5
million)
from $0.4
million (ZAR
8.4
million),
primarily
due
to
higher overall average cash balances on deposit during the first quarter
of fiscal 2025 compared with 2024.
Interest expense increased to $5.0
million from $4.9 million
and, in ZAR, decreased
to ZAR 90.3 million
from ZAR 91.4 million.
In ZAR, the decrease was 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 2024, which
was partially offset
by higher overall
borrowings during
the first quarter of fiscal 2025 compared with comparable period
in the prior quarter.
Fiscal 2025
tax expense
was $0.1
million (ZAR
1.4 million)
compared to
$0.3 million
(ZAR 4.8
million) in
fiscal 2024.
Our
effective tax rate for fiscal 2025 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 (in transaction-related 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
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.
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 first
quarter of
fiscal 2024.
The table
below presents the relative (loss) earnings from our equity-accounted investments:
Table 5
Three months ended September 30,
2024
2023
$ %
$ ’000
$ ’000
change
Finbond
-
(1,445)
nm
Share of net loss
-
(278)
nm
Impairment
-
(1,167)
nm
Other
27
40
(33%)
Total
income (loss) from equity-accounted investments
27
(1,405)
nm
46
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 September 30,
2024
% of
2023
% of
% change
Operating Segment
$ ’000
total
$ ’000
total
Consolidated revenue:
Merchant
125,261
86%
121,361
89%
3%
Consumer
21,072
14%
15,580
11%
35%
Subtotal: Operating segments
146,333
100%
136,941
100%
7%
Eliminations
(787)
-
(852)
-
(8%)
Total
consolidated revenue
145,546
100%
136,089
100%
7%
Group Adjusted EBITDA:
Merchant
(1)(2)
7,916
84%
7,725
96%
2%
Consumer
(1)(2)
4,396
47%
2,120
26%
107%
Group costs
(2,949)
(31%)
(1,822)
(22%)
62%
Group Adjusted EBITDA (non-GAAP)
9,363
100%
8,023
100%
17%
(1)
Segment
Adjusted
EBITDA
Merchant
and
Segment
Adjusted
EBITDA
Consumer
include
retrenchment
costs
of
$0.01
million and $0.06 million, respectively,
for the first quarter of fiscal 2025.
(2)
Lease
expenses
which
were
previously
presented
on
a
separately
line
in
fiscal
2024
are
now
included
in
Merchant
and
Consumer Segment Adjusted EBITDA.
The prior period has been
re-presented to conform with current
period presentation. See also
“—Results of Operations—
Presentation of Merchant and Consumer by segment for fiscal 2024 and 2023
including lease charges”.
(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 September 30,
2024
% of
2023
% of
% change
Operating Segment
ZAR ’000
total
ZAR ’000
total
Consolidated revenue:
Merchant
2,251,825
86%
2,263,001
89%
(0%)
Consumer
378,063
14%
290,629
11%
30%
Subtotal: Operating segments
2,629,888
100%
2,553,630
100%
3%
Eliminations
(14,198)
-
(15,971)
-
(11%)
Total
consolidated revenue
2,615,690
100%
2,537,659
100%
3%
Group Adjusted EBITDA:
Merchant
(1)(2)
142,078
84%
143,910
96%
(1%)
Consumer
(1)(2)
78,681
47%
39,612
26%
99%
Group costs
(52,654)
(31%)
(33,980)
(22%)
55%
Group Adjusted EBITDA (non-GAAP)
168,105
100%
149,542
100%
12%
(1) Segment
Adjusted EBITDA
Merchant and
Segment Adjusted
EBITDA Consumer
include retrenchment
costs of
ZAR 0.2
million and ZAR 1.1 million, respectively,
for the first quarter of fiscal 2025.
(2)
Lease
expenses
which
were
previously
presented
on
a
separately
line
in
fiscal
2024
are
now
included
in
Merchant
and
Consumer Segment Adjusted EBITDA. The prior period has been re-presented
to conform with current period 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
primarily increased
due to
a higher
volume of
value-added services
provided (prepaid
airtime and
gaming),
and high transactions volumes from
our vault and cash
management operations resulting in higher
processing fees, which was
partially
offset by fewer low margin prepaid airtime sales. In ZAR, the modest decrease in Segment Adjusted EBITDA is primarily due higher
operating expenses incurred, especially employment-related expenditures, to expand
our offering, which was partially offset by
higher
gross
margin
(calculated
as
revenue
less
cost
of
goods
sold,
IT
processing,
servicing
and
support).
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.
During the
first quarter
of fiscal
2025,
we
experience a shift
in the mix
between the
sale of pinned
prepaid airtime
and distribution of
pinless prepaid
airtime, with the
volume
of pinned airtime sales decreasing, which results in a lower revenue
and related cost of sales, and an overall improved margin.
47
Our Segment
Adjusted EBITDA margin
(calculated as Segment
Adjusted EBITDA
divided by revenue)
for the first
quarter of
fiscal 2025 and 2024 was 6.3% and 6.4%, 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,
an
increase in certain
issuing fee base
prices and transaction
activity in our
issuing business,
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
interest expenses
(of approximately
ZAR 15.0
million) incurred
to fund
our
lending
book
and
the
year-over-year
impact
of
inflationary
increases
on
certain
expenses.
We
intend
to
obtain
a
separate
lending
facility to
fund a
portion of
our lending
during fiscal
2025.
We
expected to
have this facility
in place
on July 1,
2024, however,
we
have been unable
to finalize terms as
the separate lending
facility will form part
of a broader financing
package. Therefore, we
have
included an intercompany interest expense in our Consumer Segment Adjusted
EBITDA for the first quarter of fiscal 2025.
Our Segment Adjusted EBITDA margin for the
first quarter of fiscal 2025 and 2024 was 20.9%
and 13.6%, 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
2025 increased compared with the prior
period due to higher employee
costs resulting from an increase
in the number of
individuals allocated to group
costs and base salary
adjustments, higher bonus
expense, travel, consulting and
legal
fees.
48
Presentation of Merchant and Consumer by segment for fiscal 2024 and 2023 including lease charges
The tables below present Merchant and Consumer EBITDA for fiscal 2024
and 2023, including lease charges, as well as the
U.S. dollar/ ZAR exchange rates applicable per fiscal quarter and year:
Table 8
Fiscal 2024
In United States dollars
Quarter 1
Quarter 2
Quarter 3
Quarter 4
F2024
$ ’000
$ ’000
$ ’000
$ ’000
$ ’000
Group Adjusted EBITDA:
Merchant
7,725
8,388
8,145
7,843
32,101
Consumer
2,120
2,575
3,757
4,227
12,679
Group costs
(1,822)
(2,011)
(2,199)
(1,812)
(7,844)
Group Adjusted EBITDA (non-GAAP)
8,023
8,952
9,703
10,258
36,936
Income and expense items: $1 = ZAR
18.71
18.71
18.88
18.47
18.68
Table 9
Fiscal 2023
In United States dollars
Quarter 1
Quarter 2
Quarter 3
Quarter 4
F2023
$ ’000
$ ’000
$ ’000
$ ’000
$ ’000
Group Adjusted EBITDA:
Merchant
7,580
8,780
7,980
7,924
32,264
Consumer
(1,893)
171
1,263
2,134
1,675
Group costs
(2,300)
(2,256)
(2,293)
(2,260)
(9,109)
Group Adjusted EBITDA (non-GAAP)
3,387
6,695
6,950
7,798
24,830
Income and expense items: $1 = ZAR
17.13
17.52
17.93
18.74
17.94
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.
49
The table below presents the reconciliation between GAAP net loss attributable
to Lesaka to Group Adjusted EBITDA:
Table 10
Three months ended
September 30,
2024
2023
$ ’000
$ ’000
Loss attributable to Lesaka - GAAP
(4,542)
(5,651)
(Earnings) loss from equity accounted investments
(27)
1,405
Net loss before (earnings) loss from equity-accounted investments
(4,569)
(4,246)
Income tax expense
78
264
Loss before income tax expense
(4,491)
(3,982)
Interest expense
5,032
4,909
Interest income
(586)
(449)
Reversal of allowance for doubtful EMI loan receivable
-
(250)
Operating income (loss)
(45)
228
PPA amortization
(amortization of acquired intangible assets)
3,747
3,608
Depreciation and amortization
2,529
2,248
Stock-based compensation charges
2,377
1,759
Interest adjustment
(831)
-
Once-off items
(1)
1,805
78
Unrealized (gain) loss FV for currency adjustments
(219)
102
Group Adjusted EBITDA - Non-GAAP
9,363
8,023
(1) The table below presents the components of once-off
items for the periods presented:
Table 11
Three months ended
September 30,
2024
2023
$ ’000
$ ’000
Transaction costs
103
78
Transaction costs related to Adumo acquisition
1,702
-
Total once-off
items
1,805
78
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
2025
we
incurred
significant
transaction
costs
related
to
the
acquisition
of
Adumo
over
a
number of quarters, and the transactions are generally non-recurring.
Liquidity and Capital Resources
As of September 30, 2024, our
cash and cash equivalents were $49.7
million and comprised of U.S. dollar-denominated balances
of $2.0 million,
ZAR-denominated balances of
ZAR 791.0 million
($46.0 million), and
other currency deposits,
primarily Botswana
pula, of $1.7
million, all amounts
translated at exchange
rates applicable as of
September 30, 2024.
The decrease in
our unrestricted
cash balances from June 30, 2024, was
primarily due to the utilization of cash
reserves to fund certain scheduled and
other repayments
of our
borrowings,
purchase ATMs
and vaults,
pay annual
bonuses, pay
for expenses
included
in our
group costs,
and to
make an
investment in
working capital,
which was partially
offset by
positive contribution
from our
Merchant and
Consumer operations
and
utilization.
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,
2024,
for
additional
information related to our borrowings.
50
Available short-term
borrowings
Summarized below are our short-term facilities available and utilized as of
September 30, 2024:
Table 12
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
-
-
-
-
9,895
170,000
-
-
Overdraft restricted as to
use
(1)
52,384
900,000
-
-
-
-
-
-
Total overdraft
52,384
900,000
-
-
9,895
170,000
-
-
Indirect and derivative
facilities
(2)
-
-
7,858
135,000
-
-
9,112
156,556
Total
short-term
facilities available
52,384
900,000
7,858
135,000
9,895
170,000
9,112
156,556
Utilized short-term
facilities:
Overdraft
-
-
-
-
9,895
170,000
-
-
Indirect and derivative
facilities
(2)
-
-
1,927
33,100
-
-
123
2,110
Total
short-term
facilities available
-
-
1,927
33,100
9,895
170,000
123
2,110
Interest
rate,
based
on
South African prime rate
11.50%
11.40%
(1) Overdraft may only
be used to fund
ATMs
and upon utilization is
considered restricted cash.
We did
not utilize this facility
at the end of September 2024, and expect to cancel the facility in the second
quarter of fiscal 2025.
(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.
Long-term borrowings
We
have
aggregate
long-term
borrowing
outstanding
of
ZAR
2.6
billion
($148.5
million
translated
at
exchange
rates
as
of
September 30, 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 have settled all drawn amounts
in full as
of September 30,
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 September 30,
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.
On September 30, 2024, we obtained
a ZAR 665.0 million funding facility from
RMB which has been used on October 1,
2024
to (i) settle an amount of ZAR 232.2 million due to the
Adumo sellers; (ii) pay ZAR 207.2 million to acquire 2,601,410 shares of
our
common stock from
one of the Adumo
sellers’ indirect shareholders;
(iii) pay ZAR 147.5
million notified by
Investec Bank Limited
to Adumo and us as
a result of the acquisition,
(iv) pay an origination fee
of ZAR 7.6 million to
RMB and (v) pay ZAR
70.0 million
of transaction-related expenses.
Restricted cash
As of
September 30, 2024,
we had
credit facilities
with RMB in
order to access
cash to
fund our ATMs in South
Africa. Utilization
of this facility is included in our cash, cash equivalents
and restricted cash presented in our consolidated statement
of cash flows. We
did not
utilize the
facility at
the end
of September
2024. Any
cash drawn
under the
facility 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 September 30, 2024, includes restricted cash of
$0.1 million that has been ceded and pledged.
51
Arrangement with African Bank to fund our ATMs
In
September
2024,
we
entered into
an
arrangement
with African
Bank Limited
(“African
Bank”)
and
certain
cash-in-transit
service providers
to fund
our ATMs.
Under this
arrangement, African
Bank will
use its
cash resources
to fund
our ATMs
and it
is
specifically recorded that the cash in our ATMs are African Bank’s property.
Therefore,
as we have not utilized a facility to obtain the
cash, and do not own or control the cash for an extended period
of time, we do not record cash or cash equivalents and borrowings
in
our
consolidated statement
of financial
position.
Cash withdrawn
from our
ATMs
by our
EPE customers
and other
consumers are
settled through the interbank settlement
system from the ATM
users bank account to African
Bank’s bank
accounts. We
pay African
Bank a
monthly fee
for the
service provided
which is calculated
based on
the cumulative
daily outstanding
balance of
cash utilized
multiplied by the South African prime interest rate
less 1%. We are
exposed to the risk of cash lost while it is in our
ATMs
(i.e. from
theft) and are required to repay African Bank for any shortages.
Cash flows from operating activities
First quarter
Net cash
used operating
activities during
the first
quarter of
fiscal 2025
was $4.1
million (ZAR
73.3 million)
compared to
net
cash provided by operating activities
of $3.4 million (ZAR 63.1
million) during the first quarter
of fiscal 2024. Excluding the
impact
of income taxes, our cash used in operating activities during the first quarter of fiscal 2025 includes cash utilized for the settlement of
working
capital
movements
within
our
merchant
business
related
to
quarter-end
transaction
processing
activities
and
which
were
settled in the following week (our fourth quarter of
fiscal 2024 closed on a Sunday), and the
net growth in our consumer and merchant
finance
loans
receivable
books,
which
was
partially
offset
by
was
positively
impacted
by
the
contribution
from
Merchant
and
Consumer businesses.
We didn’t pay
any significant taxes during the first quarter of fiscal 2025.
During the first quarter of fiscal 2024, we paid second
provisional South
African tax payments
of $- million
(ZAR - million)
related to certain
Connect entities’ 2024
tax year that
had not
yet been aligned with ours.
Taxes (refunded)
paid during the first quarter of fiscal 2025 and 2024 were as follows:
Table 13
Three months ended September 30,
2024
2023
2024
2023
$
$
ZAR
ZAR
‘000
‘000
‘000
‘000
Taxation paid related
to prior years
-
572
-
10,859
Tax refund received
(113)
(31)
(2,053)
(640)
Total South African
taxes paid
(113)
541
(2,053)
10,219
Foreign taxes paid
68
63
1,213
1,196
Total
tax (refund) paid
(45)
604
(840)
11,415
Cash flows from investing activities
First quarter
Cash used
in
investing
activities
for
the
first
quarter
of
fiscal
2025
included
capital
expenditures
of
$4.0
million
(ZAR 70.3
million), primarily due to the acquisition of vaults and POS devices
.
Cash
used
in
investing
activities
for
the
first
quarter
of
fiscal
2024
included
capital
expenditures
of
$2.8
million
(ZAR 52.6
million), primarily due to the acquisition of vaults.
52
Cash flows from financing activities
First quarter
During the
first quarter of
fiscal 2025, we
utilized $23.9
million from
our South African
overdraft facilities
to fund our
ATMs
and our cash management business through Connect, and repaid
$31.0 million of those facilities. We utilized $0.8 million of our long-
term borrowings to fund
the acquisition of certain
capital expenditures and for
working capital requirements.
We repaid
$5.5 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
first quarter of
fiscal 2024,
we utilized $59.6
million from
our South African
overdraft facilities
to fund our
ATMs
and
our
cash
management
business through
Connect,
and
repaid
$62.8
million
of
those facilities.
We
utilized
approximately
$2.5
million of our long-term borrowings
to fund the acquisition of
certain capital expenditures and
for working capital requirements.
We
repaid approximately
$2.6 million of
long-term borrowings in
accordance with our
repayment schedule as
well as to
settle a portion
of our revolving credit facility utilized.
Off-Balance Sheet Arrangements
We have no off
-balance sheet arrangements.
Capital Expenditures
We
expect capital
spending for the
second quarter of
fiscal 2025
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 first quarter of fiscal
2025
and 2024 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
September
30,
2024,
of
$0.3
million.
We
expect
to
fund
these
expenditures
through
internally
generated
funds
and
available
facilities.
53
Item 3. Quantitative and Qualitative Disclosures About
Market Risk
In addition to the tables below, see
Note 4 to the unaudited condensed consolidated financial statements for
a discussion of
market risk.
We
have
short and
long-term borrowings
in South
Africa which
attract interest
at rates
that fluctuate
based on
changes in
the
South African prime
and 3-month JIBAR
interest rates. The
following table illustrates
the effect on
our annual expected
interest charge,
translated at exchange rates
applicable as of September
30, 2024, as a
result of changes in
the South African
prime and 3-month JIBAR
interest rates, using
our outstanding
short and long-term
borrowings as of
September 30, 2024.
The effect
of a hypothetical
1% (i.e.
100 basis points)
increase and a 1%
decrease in the
interest rates applicable
to the borrowings
as of September
30, 2024, are shown.
The selected 1% hypothetical change does not reflect what could be considered
the best- or worst-case scenarios.
Table 14
As of September 30, 2024
Annual expected
interest charge
($ ’000)
Hypothetical
change in
interest rates
Estimated annual
expected interest
charge after
hypothetical change
in interest rates
($ ’000)
Interest on South African borrowings
19,780
1%
21,367
(1%)
18,190
54
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
September 30, 2024.
We previously identified and disclosed in Part II, Item 9A of our Annual Report on Form 10-K for the
year ended June 30, 2024,
material weaknesses in our internal control over financial reporting
related to: (1) information technology general controls (“ITGCs”),
specifically
insufficient
risk
assessment,
design
and
implementation,
monitoring
activities
and
training
of
individuals
to
operate
controls
in the
areas of
user access
and
program-change
management
for
certain
information
technology
systems
that support
our
financial reporting processes and (2) insufficient design and implementation of controls and associated policies
and procedures in our
annual goodwill impairment assessment. A material weakness is a deficiency,
or combination of deficiencies, in internal control
over
financial reporting such
that there
is a
reasonable possibility that
a material misstatement
of our annual
or interim
consolidated financial
statements will not be prevented or detected on a timely basis.
As a result
of insufficient time to
design and implement procedures
to remediate the
material weaknesses discussed in
our Annual
Report on Form
10-K for
our fiscal
year ended June
30, 2024 (as
described above), the
executive chairman and
the group chief
financial
officer concluded that our disclosure controls and procedures were
not effective as of September 30, 2024.
Notwithstanding
the
previously
identified
material
weaknesses,
management
believes
the
condensed
consolidated
financial
statements included
in this Quarterly
Report on
Form 10-Q fairly
present, in
all material respects,
our financial
condition, results
of
operations and cash flows as of and for the periods presented in accordance with
GAAP.
Changes in Internal Control over Financial Reporting
We have commenced
with the design and implementation of the remediation plan during the three months ended
September 30,
2024 which includes:
-
the
review
of
ITGCs
and
implementation
of
changes
to
certain
controls
to
address
the
issues
related
to
the
material
weaknesses identified above; and
-
the review and implementation of changes to the design of the controls related
to the goodwill impairment assessment.
The remediation plan
may be adjusted
as is appropriate,
as we continue
to evaluate and
enhance our internal
control over financial
reporting. Other than the
design and implementation of
the remediation plan, there
have not been any changes
in our internal control
over financial reporting during
the fiscal quarter ended
September 30, 2024, that have
materially affected, or are
reasonably likely to
materially affect, our internal control over financial reporting.
55
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, 2024,
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,
2024.
We may not be able
to successfully integrate Adumo’s
operations with our business.
On October 1, 2024, we announced the closing of our ZAR 1.67 billion ($96.2 million) investment to acquire a 100% interest in
Adumo. Integrating Adumo
into our company
may require significant
attention from our
senior management which
may divert their
attention
from
our
day-to-day
business.
The
difficulties
of
integration
may
be
increased
by
cultural
differences
between
our
two
organizations and the necessity of retaining and integrating personnel, including Adumo’s key employees and management team. The
services of these individuals will be important to the continued
growth and success of Adumo’s business and to our ability to integrate
Adumo with
us. If
we were
to lose
the services
of these
key employees
or fail
to sufficiently
integrate them,
our ability
to operate
Adumo successfully would likely be materially and adversely impacted.
As such, if we are unable to successfully integrate Adumo’s operations into our business we could be required to record material
impairments, and as a result, our financial condition, results of operations,
cash flows and stock price could suffer.
We
depend upon
third-party suppliers,
making us
vulnerable to
supply shortages
and price
fluctuations, which
could harm
our business.
We
obtain our
smart cards, ATMs,
electronic payment
and POS devices,
components for our
safe assets, components
to repair
the ISV (independent software vendor)
division’s POS hardware, and the other
hardware we use in
our business from a
limited number
of suppliers, and
do not manufacture
this equipment ourselves.
We generally do not have
long-term agreements with
our manufacturers
or component suppliers.
If our suppliers
become unwilling or
unable to provide
us with adequate
supplies of parts
or products when
we need them,
or if they
increase their prices,
we may not
be able to
find alternative
sources in a
timely manner
and could be
faced
with a critical shortage. This
could harm our ability to meet customer
demand and cause our revenues
to decline. Even if we are
able
to secure alternative sources in a timely manner,
our costs could increase as a result of supply or geopolitical shocks, which
may lead
to
an
increase
in
the
prices
of
goods
and
services
from
third
parties.
A
supply
interruption,
such
as
the
recent
global
shortage
of
semiconductors, or
an increase
in demand
beyond current
suppliers’ capabilities
could harm
our ability
to distribute
our equipment
and thus to
acquire new customers
who use our
technology. Any
interruption in the
supply of the
hardware necessary to
operate our
technology, or our inability to obtain substitute equipment at acceptable prices in a
timely manner, could impair our ability to meet the
demand of our customers, which would have an adverse effect on
our business.
We do
not have a South African banking
license and, therefore, we provide
our EPE solution through an
arrangement with
a third-party bank, which
limits our control over this
business and the economic benefit we
derive from it. If
this arrangement were
to terminate,
we would
not be
able to
operate our
EPE business
without alternate
means of
access to
a banking
license. We
are
also required
to comply
with the
requirements of
payment schemes,
including
VISA and
Mastercard.
Furthermore,
we provide
certain of
our services under
partnerships with South
African banks. We will
be unable to
provide our payments
and card-acquiring
businesses if we
fail to comply
with payment scheme
rules, and/or fails
to maintain certain
regulatory licenses
and registrations,
and/ or if we were unable to continue to partner with South African banks to provide
our payments and card acquiring services.
The
South
African
retail
banking
market
is
highly
regulated.
Under
current
law
and
regulations,
our
EasyPay
Everywhere
(“EPE”) business activities require
us to be registered as
a bank in South Africa
or to have access to an
existing banking license.
We
are not currently so registered,
but we have an agreement
with Grindrod Bank, a subsidiary
of African Bank Limited, that
enables us
to implement
our EPE
program in
compliance
with the
relevant laws
and regulations.
If this
agreement
were to
be terminated,
we
would
not
be
able
to
operate
these
services
unless
we
were
able
to
obtain
access
to
a
banking
license
through
alternate
means.
Furthermore, we have
to comply with the
South African Financial
Intelligence Centre Act,
2001 and money
laundering and terrorist
financing
control
regulations,
when
we
open
new
bank
accounts
for
our
customers
and
when
they
transact.
Failure
to
effectively
implement and
monitor responses
to the
legislation and
regulations may
result in
significant fines
or prosecution
of Grindrod
Bank
and ourselves.
We
are required
to comply
with the
requirements of
payment schemes,
including VISA
and Mastercard.
We
have deployed
a
significant number of devices, and any
mandatory compliance upgrades to our deployed POS
devices would require significant capital
expenditures and/or be
disruptive to our
customer base. Failure
to comply with
the payment schemes’
rules may result
in significant
fines and/or a loss of license to participate in the scheme(s).
56
We provide card acquiring services
to our customers
by partnering with
Nedbank Limited and
ABSA Bank Limited,
and payment
processing services
in partnership
with the
largest banks
in South
Africa. If
these agreements
were to
be terminated,
Adumo would
not be able to operate
its payment services unless it
were able to obtain
alternative card acquiring or
payment processing agreements
with other partners
or obtain a direct
designation license with
the scheme's and
regulatory bodies. In
addition, if we
were to lose our
PASA registrations
or fail to have them renewed, it would be unable to operate its payment services.
Compliance with the requirements under these various regulatory regimes may
cause us to incur significant additional costs and
failure to
comply with
such requirements
could result
in the
shutdown of
the non-complying
facility,
the imposition
of liens,
fines
and/or civil or criminal liability.
In
addition,
the
South
African
Financial
Advisory
and
Intermediary
Services
Act,
2002,
requires
persons
who
act
as
intermediaries between financial product
suppliers and consumers in
South Africa to register
as financial service providers.
EasyPay
Insurance was
granted a Financial
Service Provider,
or FSP,
license on June
9, 2015, and
EasyPay Financial
Services (Pty) Ltd
was
granted
a FSP
license on
July 11,
2017. If
our FSP
licenses are
withdrawn or
suspended, we
may be
stopped from
continuing our
financial
services businesses in South Africa unless we are able to enter into a representative arrangement
with a third party FSP.
Furthermore, the
proposed Conduct
of Financial
Institutions Bill
will make
significant changes
to the
current licensing
regime
however, the current proposal is that existing licences will be converted. The second draft of the Conduct of
Financial Institutions Bill
was published for public comment on September 29, 2020.
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 September 30, 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.
57
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
2.2
First Addendum to Sale and Purchase Agreement, dated
October 1, 2024, between Lesaka Technologies Proprietary
Limited; Lesaka Technologies, Inc. and the parties listed in
Annexure A
8-K
2.2
October 1, 2024
10.39
Facility Letter dated September 30, 2024 between Lesaka
Technologies (Proprietary) Limited and FirstRand Bank
Limited (acting through its Rand Merchant Bank division)
8-K
10.1
October 1, 2024
10.40
Sale of Shares Agreement dated October 1, 2024, between
Lesaka Technologies Proprietary Limited and Crossfin
Holdings Proprietary Limited
8-K
10.2
October 1, 2024
10.41
Third Addendum to Facility Letter no.: LM/CCMS/01/2021
between FirstRand Bank Ltd, Cash Connect Management
Solutions (Pty) Ltd, Main Street 1723 (Pty) Ltd, Cash
Connect Rentals (Pty) Ltd; and K2020 Connect (Pty) Ltd
dated October 29, 2024
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
58
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 November 6,
2024.
LESAKA TECHNOLOGIES, INC.
By: /s/ Ali Mazanderani
Ali Mazanderani
Executive Chairman
By: /s/ Dan L. Smith
Dan L. Smith
Group Chief Financial Officer,
Treasurer and Secretary