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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
December 31, 2024
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the transition period from
To
Commission file number:
000-31203
LESAKA TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Florida
98-0171860
(State or other jurisdiction
(IRS Employer
of incorporation or organization)
Identification No.)
President Place, 4
th
Floor
,
Cnr. Jan Smuts Avenue and Bolton Road
,
Rosebank, Johannesburg
,
2196
,
South Africa
(Address of principal executive offices, including zip code)
Registrant’s telephone number,
including area code:
27
-
11
-
343-2000
Not Applicable
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Title of each class
Trading Symbol(s)
Name of each exchange
on which registered
Common stock, par value $0.001 per share
LSAK
NASDAQ
Global Select Market
Indicate by check mark whether
the registrant (1) has filed
all reports required to be
filed by Section 13 or
15(d)
of
the
Securities
Exchange
Act
of
1934
during
the
preceding
12
months
(or
for
such
shorter
period
that
the
registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90
days.
YES
☒
NO
☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File
required
to
be
submitted
pursuant
to
Rule
405
of
Regulation
S-T
(§232.405
of
this
chapter)
during
the
preceding
12
months (or for such shorter period that the registrant was required to submit such files).
YES
☒
NO
☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated
filer, smaller
reporting company
or an
emerging growth
company. See the
definitions of
“large accelerated
filer,”
“accelerated
filer,”
“smaller
reporting
company,”
and
“emerging
growth
company”
in
Rule 12b-2
of
the
Exchange Act (check one):
☐
Large accelerated filer
☒
Accelerated filer
☐
Non-accelerated filer
☒
Smaller reporting company
☐
Emerging growth company
If an
emerging
growth company,
indicate by
check mark
if the
registrant has
elected not
to use
the extended
transition period
for complying
with any
new or
revised financial
accounting standards
provided pursuant
to
Section 13(a) of the Exchange Act.
☐
Indicate by
check mark
whether the
registrant is
a shell
company (as
defined in
Rule 12b-2
of the
Exchange
Act). YES
☐
NO
☒
As of
February 3,
2025 (the
latest practicable
date),
79,124,599
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 December 31, 2024 and June
30, 2024
2
Unaudited Condensed Consolidated Statements of Operations for the three and six
months ended December 31, 2024 and 2023
3
Unaudited Condensed Consolidated Statements of Comprehensive (Loss) Income for the
three and six months ended December 31, 2024 and 2023
4
Unaudited Condensed Consolidated Statement of Changes in Equity for the three and six
months ended December 31, 2024 and 2023
5
Unaudited Condensed Consolidated Statements of Cash Flows for the three and six
months ended December 31, 2024 and 2023
9
Notes to Unaudited Condensed Consolidated Financial Statements
10
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
48
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
70
Item 4.
Controls and Procedures
71
Part II. OTHER INFORMATION
Item 1A.
Risk Factors
72
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
73
Item 5.
Other Information
73
Item 6.
Exhibits
74
Signatures
75
EXHIBIT 2.2
EXHIBIT 40
EXHIBIT 41
EXHIBIT 42
EXHIBIT 43
EXHIBIT 44
EXHIBIT 45
2
Part I. Financial information
Item 1. Financial Statements
LESAKA TECHNOLOGIES, INC.
Unaudited Condensed Consolidated Balance Sheets
December 31,
June 30,
2024
2024
(A)
(In thousands, except share data)
ASSETS
CURRENT ASSETS
Cash and cash equivalents
$
60,625
$
59,065
Restricted cash related to ATM funding
and credit facilities (Note 9)
112
6,853
Accounts receivable, net and other receivables (Note 3)
46,203
36,667
Finance loans receivable, net (Note 3)
49,529
44,058
Inventory (Note 4)
27,346
18,226
Total current assets before settlement assets
183,815
164,869
Settlement assets
27,550
22,827
Total current assets
211,365
187,696
PROPERTY,
PLANT AND EQUIPMENT, net of accumulated depreciation of - December: $
48,124
June:
$
49,762
42,295
31,936
OPERATING LEASE RIGHT-OF-USE (Note 17)
7,649
7,280
EQUITY-ACCOUNTED INVESTMENTS
(Note 6)
181
206
GOODWILL (Note 7)
200,760
138,551
INTANGIBLE ASSETS, NET (Note 7)
125,964
111,353
DEFERRED INCOME TAXES
6,278
3,446
OTHER LONG-TERM ASSETS, including equity securities (Note 6 and 8)
46,082
77,982
TOTAL ASSETS
640,574
558,450
LIABILITIES
CURRENT LIABILITIES
Short-term credit facilities for ATM funding (Note 9)
-
6,737
Short-term credit facilities (Note 9)
51,152
9,351
Accounts payable
16,704
16,674
Other payables (Note 10)
59,416
56,051
Operating lease liability - current (Note 17)
3,257
2,343
Current portion of long-term borrowings (Note 9)
68,300
3,878
Income taxes payable
1,385
654
Total current liabilities before settlement obligations
200,214
95,688
Settlement obligations
26,882
22,358
Total current liabilities
227,096
118,046
DEFERRED INCOME TAXES
36,260
38,128
OPERATING LEASE LIABILITY - LONG TERM (Note 17)
4,819
5,087
LONG-TERM BORROWINGS (Note 9)
80,357
139,308
OTHER LONG-TERM LIABILITIES, including insurance policy liabilities (Note 8)
3,048
2,595
TOTAL LIABILITIES
351,580
303,164
REDEEMABLE COMMON STOCK
88,957
79,429
EQUITY
COMMON STOCK (Note 11)
Authorized:
200,000,000
with $
0.001
par value;
Issued and outstanding shares, net of treasury - December:
80,159,292
June:
64,272,243
101
83
PREFERRED STOCK
Authorized shares:
50,000,000
with $
0.001
par value;
Issued and outstanding shares, net of treasury:
December:
-
June:
-
-
-
ADDITIONAL PAID-IN-CAPITAL
421,950
343,639
TREASURY SHARES, AT
COST: December:
28,297,365
June:
25,563,808
(302,319)
(289,733)
ACCUMULATED OTHER
COMPREHENSIVE LOSS (Note 12)
(199,969)
(188,355)
RETAINED EARNINGS
273,547
310,223
TOTAL LESAKA EQUITY
193,310
175,857
NON-CONTROLLING INTEREST
6,727
-
TOTAL EQUITY
200,037
175,857
TOTAL LIABILITIES, REDEEMABLE COMMON STOCK AND SHAREHOLDERS’ EQUITY
$
640,574
$
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
Six months ended
December 31,
December 31,
2024
2023
2024
2023
(In thousands, except per share
data)
(In thousands, except per share
data)
REVENUE (Note 16)
$
146,818
$
143,893
$
292,364
$
279,982
EXPENSE
Cost of goods sold, IT processing, servicing and support
101,298
114,266
212,185
221,756
Selling, general and administration
36,520
21,507
63,246
44,022
Depreciation and amortization
8,223
5,813
14,499
11,669
Transaction costs related to Adumo acquisition (Note 2)
-
34
1,702
34
OPERATING INCOME
777
2,273
732
2,501
CHANGE IN FAIR VALUE
OF EQUITY SECURITIES (Note 5 and 6)
(33,731)
-
(33,731)
-
LOSS ON DISPOSAL OF EQUITY-ACCOUNTED INVESTMENT
(Note 6)
161
-
161
-
REVERSAL OF ALLOWANCE FOR
DOUBTFUL EMI DEBT
RECEIVABLE
-
-
-
250
INTEREST INCOME
721
485
1,307
934
INTEREST EXPENSE
6,174
4,822
11,206
9,731
LOSS BEFORE INCOME TAX (BENEFIT) EXPENSE
(38,568)
(2,064)
(43,059)
(6,046)
INCOME TAX (BENEFIT) EXPENSE (Note 19)
(6,412)
686
(6,334)
950
NET LOSS BEFORE EARNINGS (LOSS) FROM EQUITY-
ACCOUNTED INVESTMENTS
(32,156)
(2,750)
(36,725)
(6,996)
EARNINGS (LOSS) FROM EQUITY-ACCOUNTED INVESTMENTS
(Note 6)
50
43
77
(1,362)
NET LOSS
(32,106)
(2,707)
(36,648)
(8,358)
LESS NET INCOME ATTRIBUTABLE
TO NON-CONTROLLING
INTEREST
28
-
28
-
NET LOSS ATTRIBUTABLE
TO LESAKA
$
(32,134)
$
(2,707)
$
(36,676)
$
(8,358)
Net loss per share, in United States dollars
(Note 14):
Basic loss attributable to Lesaka shareholders
$
(0.40)
$
(0.04)
$
(0.51)
$
(0.13)
Diluted loss attributable to Lesaka shareholders
$
(0.40)
$
(0.04)
$
(0.51)
$
(0.13)
See Notes to Unaudited Condensed Consolidated Financial Statements
LESAKA TECHNOLOGIES, INC.
Unaudited Condensed Consolidated Statements of Comprehensive (Loss) Income
4
Three months ended
Six months ended
December 31,
December 31,
2024
2023
2024
2023
(In thousands)
(In thousands)
Net loss
$
(32,106)
$
(2,707)
$
(36,648)
$
(8,358)
Other comprehensive (loss) income, net of taxes
Movement in foreign currency translation reserve
(22,731)
6,112
(12,206)
5,268
Release of foreign currency translation reserve related to
liquidation of subsidiaries (Note 12)
6
(952)
6
(952)
Release of foreign currency translation reserve related to
disposal of Finbond equity securities (Note 12)
-
1,543
-
1,543
Movement in foreign currency translation reserve related
to equity-accounted investments
-
-
-
489
Total other comprehensive
(loss) income, net of
taxes
(22,725)
6,703
(12,200)
6,348
Comprehensive (loss) income
(54,831)
3,996
(48,848)
(2,010)
Less comprehensive loss attributable to non-
controlling interest
558
-
558
-
Comprehensive (loss) income attributable to
Lesaka
$
(54,273)
$
3,996
$
(48,290)
$
(2,010)
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 December 31, 2023 (dollar amounts
in thousands)
Balance – October 1, 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
Shares repurchased (Note 13)
(50,975)
(198)
(50,975)
-
(198)
(198)
Restricted stock granted (Note 13)
868,996
868,996
-
-
Exercise of stock options (Note 13)
592
-
592
2
2
2
Stock-based compensation charge
(Note 13)
-
1,812
1,812
1,812
Reversal of stock-based compensation
charge (Note 13)
(14,002)
(14,002)
(8)
(8)
(8)
Stock-based compensation charge
related to equity-accounted investment
(Note 6)
-
(147)
(147)
(147)
Net loss
-
(2,707)
(2,707)
-
(2,707)
Other comprehensive loss (Note 12)
6,703
6,703
-
6,703
Balance – December 31, 2023
89,738,784
$
83
(25,295,261)
$
(288,436)
64,443,523
$
339,149
$
319,305
$
(189,378)
$
180,723
$
-
$
180,723
$
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 six months ended December 31, 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
Shares repurchased (Note 13)
-
(50,975)
(198)
(50,975)
(198)
(198)
Restricted stock granted (Note 13)
868,996
868,996
-
-
Exercise of stock options (Note 13)
7,385
-
7,385
23
23
23
Stock-based compensation charge
(Note 13)
3,580
3,580
3,580
Reversal of stock-based compensation
charge (Note 13)
(22,129)
(22,129)
(17)
(17)
(17)
Stock-based compensation charge
related to equity-accounted investment
(133)
(133)
(133)
Net loss
(8,358)
(8,358)
-
(8,358)
Other comprehensive loss (Note 12)
6,348
6,348
-
6,348
Balance – December 31, 2023
89,738,784
$
83
(25,295,261)
$
(288,436)
64,443,523
$
339,149
$
319,305
$
(189,378)
$
180,723
$
-
$
180,723
$
79,429
See Notes to Unaudited Condensed Consolidated Financial
Statements
LESAKA TECHNOLOGIES, INC.
Unaudited Condensed Consolidated Statements of Changes in Equity
7
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 December 31, 2024 (dollar amounts
in thousands)
Balance – October 1, 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
Shares issued (Note 2 and Note 11)
17,279,803
17
-
-
17,279,803
73,239
73,256
73,256
9,528
Shares repurchased (Note 13)
-
(2,733,557)
(12,586)
(2,733,557)
(12,586)
(12,586)
Restricted stock granted (Note 13)
1,331,310
1,331,310
-
-
Exercise of stock options (Note 13)
17,014
1
17,014
51
52
52
Stock-based compensation charge
(Note 13)
-
-
2,655
2,655
2,655
Reversal of stock-based compensation
charge (Note 13)
(37,221)
(37,221)
(11)
(11)
(11)
Adumo non-controlling interest
acquired (Note 2)
-
7,586
7,586
Net loss
(32,134)
(32,134)
28
(32,106)
Dividends paid to non-controlling
interest
-
(301)
(301)
Other comprehensive loss (Note 12)
(22,139)
(22,139)
(586)
(22,725)
Balance – December 31, 2024
108,456,657
$
101
(28,297,365)
$
(302,319)
80,159,292
$
421,950
$
273,547
$
(199,969)
$
193,310
$
6,727
$
200,037
$
88,957
LESAKA TECHNOLOGIES, INC.
Unaudited Condensed Consolidated Statements of Changes in Equity
8
Lesaka Technologies, Inc. Shareholders
Number of
Shares
Amount
Number of
Treasury
Shares
Treasury
Shares
Number of
shares, net
of treasury
Addition
al Paid-
In
Capital
Retained
Earnings
Accumulated
other
comprehensiv
e loss
Total
Lesaka
Equity
Non-
controllin
g Interest
Total
Redeemda
ble
common
stock
For the six months ended December 31, 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
Shares issued (Note 2 and Note 11)
17,279,803
17
-
-
17,279,803
73,239
73,256
73,256
9,528
Shares repurchased (Note 13)
(2,733,557)
(12,586)
(2,733,557)
(12,586)
(12,586)
Restricted stock granted
1,364,110
1,364,110
-
-
-
Exercise of stock options (Note 13)
17,014
1
17,014
51
52
52
Stock-based compensation charge
(Note 13)
-
-
5,032
5,032
5,032
Reversal of stock-based compensation
charge (Note 13)
(40,321)
(40,321)
(11)
(11)
(11)
Stock-based compensation charge
related to equity-accounted investment
(Note 6)
-
-
-
Adumo non-controlling interest
acquired (Note 2)
-
-
7,586
7,586
Net loss
(36,676)
(36,676)
28
(36,648)
Dividends paid to non-controlling
interest
-
-
(301)
(301)
Other comprehensive loss (Note 12)
(11,614)
(11,614)
(586)
(12,200)
Balance – December 31, 2024
108,456,657
$
101
(28,297,365)
$
(302,319)
80,159,292
$
421,950
$
273,547
$
(199,969)
$
193,310
$
6,727
$
200,037
$
88,957
See Notes to Unaudited Condensed Consolidated Financial
Statements
LESAKA TECHNOLOGIES, INC.
Unaudited Condensed Consolidated Statements of Cash Flows
9
Three months ended
Six months ended
December 31,
December 31,
2024
2023
2024
2023
(In thousands)
(In thousands)
Cash flows from operating activities
Net loss
$
(32,106)
$
(2,707)
$
(36,648)
$
(8,358)
Depreciation and amortization
8,223
5,813
14,499
11,669
Movement in allowance for doubtful accounts receivable
2,521
1,164
4,020
2,689
Fair value adjustment related to financial liabilities
(454)
(836)
(264)
(870)
Loss on disposal of equity-accounted investments (Note 6)
161
-
161
-
(Earnings) Loss from equity-accounted investments
(50)
(43)
(77)
1,362
Movement in allowance for doubtful loans to equity-accounted investments
-
-
-
(250)
Change in fair value of equity securities (Note 5 and 6)
33,731
-
33,731
-
Profit on disposal of property, plant and equipment
(14)
(163)
(41)
(199)
Movement in interest payable
1,864
(1,573)
3,557
191
Facility fee amortized
68
89
137
316
Stock-based compensation charge (Note 13)
2,644
1,804
5,021
3,563
Dividends received from equity-accounted investments
65
54
65
54
Increase in accounts receivable
(11,988)
(13,157)
(4,295)
(15,502)
Increase in finance loans receivable
(8,325)
(2,889)
(9,915)
(3,377)
(Increase) Decrease in inventory
(4,560)
985
(5,449)
506
Increase (Decrease) in accounts payable and other payables
8,135
13,728
(9,042)
14,103
(Decrease) Increase in taxes payable
(153)
(654)
612
(346)
Decrease in deferred taxes
(8,928)
(1,032)
(9,374)
(1,594)
Net cash (used in) provided by operating activities
(9,166)
583
(13,302)
3,957
Cash flows from investing activities
Capital expenditures
(6,318)
(2,198)
(10,283)
(5,007)
Proceeds from disposal of property, plant and equipment
475
436
1,325
720
Acquisition of intangible assets
(428)
(47)
(601)
(182)
Acquisitions, net of cash acquired
(3,957)
-
(3,957)
-
Proceeds from disposal of equity-accounted investment (Note 6)
-
3,508
-
3,508
Repayment of loans by equity-accounted investments
-
250
-
250
Net change in settlement assets
(1,266)
(43)
2,304
(11,280)
Net cash (used in) provided by investing activities
(11,494)
1,906
(11,212)
(11,991)
Cash flows from financing activities
Proceeds from bank overdraft (Note 9)
48,855
69,012
72,748
128,586
Repayment of bank overdraft (Note 9)
(4,512)
(66,048)
(35,540)
(128,841)
Long-term borrowings utilized (Note 9)
12,903
8,557
13,677
11,028
Repayment of long-term borrowings (Note 9)
(8,322)
(3,184)
(13,794)
(5,813)
Acquisition of treasury stock (Note 13)
(12,586)
(198)
(12,586)
(198)
Proceeds from exercise of stock options
51
2
51
23
Guarantee fee
(431)
-
(431)
-
Dividends paid to non-controlling interest
(301)
-
(301)
-
Net change in settlement obligations
1,209
197
(2,439)
10,893
Net cash provided by financing activities
36,866
8,338
21,385
15,678
Effect of exchange rate changes on cash and cash equivalents
(5,278)
2,005
(2,052)
1,562
Net increase (decrease) in cash, cash equivalents and restricted cash
10,928
12,832
(5,181)
9,206
Cash, cash equivalents and restricted cash – beginning of period
49,809
55,006
65,918
58,632
Cash, cash equivalents and restricted cash – end of period (Note 15)
$
60,737
$
67,838
$
60,737
$
67,838
See Notes to Unaudited Condensed Consolidated Financial Statements
10
LESAKA TECHNOLOGIES, INC
Notes to the Unaudited Condensed Consolidated Financial Statements
for the three and six months ended December 31, 2024 and 2023
(All amounts in tables stated in thousands or thousands of U.S. dollars, unless otherwise stated)
1.
Basis of Presentation and Summary of Significant Accounting
Policies
Unaudited Interim Financial Information
The accompanying
unaudited condensed
consolidated financial
statements include
all majority-owned
subsidiaries over
which
the Company exercises
control and have been
prepared in accordance with
U.S. generally accepted accounting
principles (“GAAP”)
and
the rules
and
regulations
of
the United
States Securities
and
Exchange
Commission
for
Quarterly Reports
on Form
10-Q
and
include all of
the information and
disclosures required
for interim financial
reporting. The results
of operations
for the three
and six
months ended December 31, 2024 and
2023, are not necessarily indicative
of the results for the full year.
The Company believes that
the disclosures are adequate to make the information presented not misleading.
These
unaudited
condensed
consolidated
financial
statements
should
be
read
in
conjunction
with
the
financial
statements,
accounting policies and financial notes thereto included in the
Company’s Annual Report on Form 10-K for the fiscal year ended June
30,
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 December 31, 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.
In
November
2024,
the
FASB
issued
guidance
regarding
Income
Statement—Reporting
Comprehensive
Income—Expense
Disaggregation
Disclosures
(Subtopic
220-40)
which
requires
disaggregated
disclosure
of
income
statement
expenses
for
public
business entities. The guidance does not change the expense captions an
entity presents on the face of the income statement; rather,
it
requires
disaggregation
of
certain
expense
captions
into
specified
categories
in
disclosures
within
the
footnotes
to
the
financial
statements. This guidance is effective for the
Company beginning July 1, 2027. Early
adoption is permitted. The Company is
currently
assessing the impact of this guidance on its financial statements and related disclosures.
2.
Acquisitions
The Company did not make
any acquisition during the six
months ended December 31, 2023.
The cash paid, net of
cash received
related to the Company’s acquisitions during
the six months ended December 31, 2024, is summarized in the table below:
Total
Total cash paid
$
13,392
Less: cash acquired
9,435
Total cash paid, net
of cash received
$
3,957
11
2.
Acquisitions
(continued)
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,
and
at
acquisition
it
served
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.
At acquisition,
the Company’s
ecosystem served 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 total purchase
consideration was ZAR
1.67
billion ($
96.2
million) and comprised
the issuance of 17,279,803
shares of the
Company’s
common stock
(“Consideration Shares”)
with a
value of
$
82.8
million (
17,279,803
multiplied by
$
4.79
per share)
and
cash of $
13.4
million. The purchase consideration was settled through
the combination of the 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
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 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 resale registration statement
was declared effective by the SEC on
December 6, 2024.
12
2.
Acquisitions (continued)
2025
Acquisitions (continued)
October 2024 acquisition of Adumo (continued)
The Company incurred transaction-related expenditures of $
1.7
million during the six months ended December 31,
2024, related
to the acquisition
of Adumo. The
Company’s accruals presented in Note
10 of as
December 31, 2024,
includes an accrual
of transaction
related
expenditures
of
$
0.6
million
and
the
Company
does
not
expect
to
incur
any
further
significant
transaction
costs over
the
remainder of the 2025 fiscal year.
November 2024 acquisition of Innervation Value
Added Services Namibia Pty Ltd (continued)
Effective
November
1,
2024,
the
Company,
through
its
wholly
owned
subsidiary
Adumo
Technologies
Proprietary
Limited
(“Adumo AT”),
acquired the remaining
shares (representing
50
% of the issued and
outstanding shares) it did
not own in Innervation
Value
Added Services Namibia Pty Ltd
(“IVAS
Nam”) for $
0.4
million (ZAR
6.0
million, translated at November 1, 2024
exchange
rates). IVAS
Nam was accounted for using the equity method prior to the acquisition of a controlling interest in the company. Adumo
paid ZAR
2.0
million of the purchase price
prior the acquisition of Adumo
by the Company and the
balance of ZAR
4.0
million will
be
paid
in
two
equal
tranches,
one
in
March
2025
and
the
other
in
September
2025.
The
Company
did
not
incur
any
significant
transaction costs related to this acquisition.
The
preliminary
purchase
price
allocation
of
acquisitions
during
the
six
months
ended
December
31,
2024,
translated
at
the
foreign exchange rates applicable on the date of acquisition, in provided
is the table below:
Acquisitions during fiscal 2025 through December
31, 2024
Adumo
IVAS
Nam
Total
Cash and cash equivalents
$
9,219
$
216
$
9,435
Accounts receivable
6,800
630
7,430
Inventory
5,121
3
5,124
Property, plant and equipment
9,169
12
9,181
Operating lease right of use asset
1,024
-
1,024
Equity-accounted investment
477
-
477
Goodwill
72,299
432
72,731
Intangible assets
28,383
-
28,383
Deferred income taxes assets
1,060
55
1,115
Other long-term assets
2,809
-
2,809
Current portion of long-term borrowings
(1,178)
-
(1,178)
Accounts payable
(3,266)
(388)
(3,654)
Other payables
(28,045)
(226)
(28,271)
Operating lease liability - current
(1,019)
-
(1,019)
Income taxes payable
(150)
(42)
(192)
Deferred income taxes liabilities
(6,994)
-
(6,994)
Operating lease liability - long-term
(326)
-
(326)
Long-term borrowings
(7,308)
-
(7,308)
Other long-term liabilities
(141)
-
(141)
Settlement assets
8,610
-
8,610
Settlement liabilities
(8,530)
-
(8,530)
Fair value of assets and liabilities on acquisition
$
88,014
$
692
$
88,706
The
fair
value
of
the
non-controlling
interests
recorded
was $
7.6
million.
The
fair
value
of
the
non-controlling
interest
was
determined as
the non-controlling
interests respective
portion of
the equity value
of the entity
acquired by
the Company,
and which
was adjusted for
a
20
% minority discount.
The allocation of the
purchase price is
preliminary and not
yet finalized. The preliminary
allocation of the purchase price
is based upon preliminary estimates which
used information that was available
to management at the
time
the
unaudited
condensed
consolidated
financial
statements
were
prepared
and
these estimates
and
assumptions
are subject
to
change within the measurement period,
up to one year
from the acquisition date. Accordingly, the allocation may
change. We continue
to refine certain inputs to the calculation of acquired intangible assets and the valuation
of the non-controlling interest.
13
2.
Acquisitions (continued)
2025 Acquisitions (continued)
Intangible assets acquired
No
intangible assets were identified related
to the acquisition of IVAS
Nam. Summarized below is the
fair value of the Adumo
intangible assets acquired and the weighted-average amortization period:
Fair value as of
acquisition date
Weighted-average
amortization
period (in years)
Finite-lived intangible asset:
Acquired during the six months ended December 31, 2024:
Adumo – technology assets
$
13,949
3
-
7
Adumo – customer relationships
10,813
5
-
10
Adumo – brands
$
3,621
10
-
15
On acquisition, the
Company recognized a
deferred tax liability
of approximately $
7.7
million related to
the acquisition of
Adumo
intangible assets during the six months ended December 31, 2024.
Pro forma results related
to acquisitions
Pro forma results
of operations have
not been presented
for the acquisition
of IVAS
Nam because
the effect
of the IVAS
Nam
acquisition is not material to the Company. Since the closing of the IVAS
Nam acquisition, it has contributed revenue and net income
of $
0.9
million and $
0.2
million, respectively, for the
six months ended December 31, 2024.
The results
of Adumo’s
operations are
reflected in
the Company’s
financial
statements from
October 1,
2024. The
following
unaudited pro
forma revenue
and net
income information
has been prepared
as if the
acquisition of
Adumo had
occurred on
July 1,
2023 using the applicable average foreign exchange rates for the periods presented:
Three months
ended
December 31,
2023
Six months ended
December 31,
2024
2023
Revenue
$
159,397
$
305,748
$
307,897
Net loss
$
(3,040)
$
(35,024)
$
(15,088)
The unaudited pro forma financial
information presented above includes the
business combination accounting and
other effects
from the
acquisition including
(1) amortization
expense related
to acquired
intangibles and
the related
deferred tax;
(2) the
loss of
interest income,
net of
taxation, as
a result
of funding
a portion
of the
purchase price
in cash;
and (3)
an adjustment
to exclude
all
applicable transaction-related costs recognized in
the Company’s consolidated statement of
operations for six months
ended December
31, 2024, and
include the applicable transaction
-related costs for the
year ended June 30,
2024. The unaudited pro
forma net income
presented above does not include any cost savings or other synergies
that may result from the acquisition.
The unaudited pro forma
information as presented above
is for information purposes
only and is not indicative
of the results of
operations that would have been achieved if the acquisition had occurred on
these dates.
Since the closing
of the acquisition,
Adumo has contributed
revenue of $
17.0
million and net
income attributable to
the Company,
including intangible assets amortization related to assets acquired, net of deferred
taxes, of $
0.45
million.
14
3.
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 December 31, 2024, and June 30, 2024, are presented in
the table below:
December 31,
June 30,
2024
2024
Accounts receivable, trade, net
$
21,407
$
13,262
Accounts receivable, trade, gross
23,258
14,503
Allowance for doubtful accounts receivable, end of period
1,851
1,241
Beginning of period
1,241
509
Reversed to statement of operations
(200)
(511)
Charged to statement of operations
1,385
1,305
Utilized
(493)
(67)
Foreign currency adjustment
(82)
5
Current portion of amount outstanding related to sale of interest in Carbon,
net of
allowance: December 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
24,796
23,405
Total accounts receivable,
net and other receivables
$
46,203
$
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 December 31,
2024, and
June 30, 2024, respectively was $
0
(zero).
Other receivables include prepayments, deposits, income taxes receivable and
other receivables.
15
3.
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 December 31, 2024, and June 30, 2024, is presented
in the table below:
December 31,
June 30,
2024
2024
Microlending finance loans receivable, net
$
35,196
$
28,184
Microlending finance loans receivable, gross
37,642
30,131
Allowance for doubtful finance loans receivable, end of period
2,446
1,947
Beginning of period
1,947
1,432
Reversed to statement of operations
(162)
(210)
Charged to statement of operations
1,927
2,454
Utilized
(1,166)
(1,795)
Foreign currency adjustment
(100)
66
Merchant finance loans receivable, net
14,333
15,874
Merchant finance loans receivable, gross
17,375
18,571
Allowance for doubtful finance loans receivable, end of period
3,042
2,697
Beginning of period
2,697
2,150
Reversed to statement of operations
(23)
(359)
Charged to statement of operations
1,093
2,479
Utilized
(607)
(1,672)
Foreign currency adjustment
(118)
99
Total finance
loans receivable, net
$
49,529
$
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 $
13.6
million as of December 31, 2024 have been pledged as
security for the Company’s
revolving credit facility (refer to Note 9).
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
nine 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 5 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 December 31,
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 December
31,
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 5 related to the Company risk management
process related to these receivables.
16
3.
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 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
December
31,
2024,
was
approximately
1.18
%.
The
performing
component
(that
is,
outstanding loan
payments not
in arrears),
under-performing
component (that
is, outstanding
loan payments
that are
in arrears)
and
non-performing
component
(that
is,
outstanding
loans
for
which
payments
appeared
to
have
ceased)
of
the
book
represents
approximately
84
%,
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 December 31, 2024.
4.
Inventory
The Company’s inventory
comprised the following categories as of December 31, 2024, and June 30, 2024:
December 31,
June 30,
2024
2024
Raw materials
$
2,333
$
2,791
Work-in-progress
145
71
Finished goods
24,868
15,364
$
27,346
$
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
first two
months of the
six months
ended December
31, 2024.
5.
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.
17
5.
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
remained
unchanged
for
the
majority
of
calendar 2024 however the South African Reserve Bank announced a 25-basis point reduction in the South African repurchase rate in
each of
September 2024
and November
2024, with
further reductions
expected in
the short-term.
Therefore, ignoring
the impact
of
changes
to
the
margin
on
its
borrowings
(refer
to
Note
9)
and
value
of
borrowings
outstanding,
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.
18
5.
Fair value of financial instruments (continued)
Financial instruments (continued)
The following
section describes
the valuation
methodologies the
Company uses
to measure
its significant
financial assets
and
liabilities at fair value.
In general, and where applicable, the Company uses quoted prices in
active markets for identical assets or liabilities
to determine
fair value.
This pricing
methodology would
apply to
Level 1
investments. If quoted
prices in
active markets
for identical
assets or
liabilities are
not available
to determine
fair value,
then the
Company uses
quoted
prices for
similar assets
and
liabilities or
inputs
other
than
the
quoted
prices
that
are
observable
either
directly
or
indirectly. These
investments
would
be included
in
Level
2
investments. In
circumstances
in
which
inputs
are
generally
unobservable,
values
typically
reflect
management’s
estimates
of
assumptions that market participants would use in pricing the asset or liability.
The fair values are therefore determined using model-
based techniques that include
option pricing models,
discounted cash flow models,
and similar techniques. Investments
valued using
such techniques are included in Level 3 investments.
Asset measured at fair value using significant observable inputs – investment in MobiKwik
The Company’s
owns
6,215,620
equity shares of
One MobiKwik Systems Limited
(“MobiKwik”). MobiKwik
listed on the
National Stock Exchange of India (“NSE”) on December 18, 2024. Up until its listing MobiKwik did not have a readily determinable
fair value and the
Company elected to measure
its investment in MobiKwik
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
(“cost plus
or minus changes
in observable prices equity
securities”). From the date
of MobiKwik’s
listing, the Company has
used MobiKwik’s
closing price reported
on the NSE
on the last
trading day related
to last day
of the Company’s
reporting period to
determine the fair
value of the equity securities
owned by the Company.
The Company has determined
a fair value per MobiKwik
share of $
6.85
(INR
586.15
per share at the USD: INR exchange rates applicable as of December 31, 2024).
Refer to Note 6 for additional information.
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 December 31, 2024 and June 30, 2024, respectively,
and valued Cell C at $
0.0
(zero) and $
0.0
(zero) as
of December 31, 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 of
24
%. The Company utilized the latest business plan provided by
Cell C management for the
period ending December 31, 2027, for
the December 31, 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 December 31, 2024
and June 30, 2024:
Weighted Average
Cost of Capital ("WACC"):
Between
21
% and
25
% 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 - December 31, 2024:
(1)
ZAR
7.4
billion ($
0.4
billion), no lease liabilities included
Net adjusted external debt - June 30, 2024:
(2)
ZAR
7.9
billion ($
0.4
billion), no lease liabilities included
(1) translated from ZAR to U.S. dollars at exchange rates applicable as of
December 31, 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
December 31,
2024, all
amounts
translated at exchange rates applicable as of December 31, 2024:
Sensitivity for fair value of Cell C investment
1.0% increase
1.0% decrease
WACC
rate
$
-
$
426
EBITDA margin
$
1,059
$
-
The aggregate
fair value
of the
MobiKwik and
Cell C’s
shares as
of December
31, 2024,
represented
6.6
% of
the Company’s
total assets,
including
these shares
.
The Company
expects that
there will
be short-term
equity price
volatility with
respect to
these
shares, and with respect to Cell C specifically,
particularly given that Cell C remains in a turnaround process.
19
5.
Fair value of financial instruments
The following table
presents the
Company’s assets measured at
fair value on
a recurring
basis as
of December 31,
2024, according
to the fair value hierarchy:
Quoted Price in
Active Markets
for Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
Assets
Investment in Cell C
$
-
$
-
$
-
$
-
Investment in MobiKwik
42,566
-
-
42,566
Related to insurance
business:
Cash, cash equivalents and
restricted cash (included
in other long-term assets)
217
-
-
217
Fixed maturity
investments (included in
cash and cash equivalents)
4,532
-
-
4,532
Total assets at fair value
$
47,315
$
-
$
-
$
47,315
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 six months ended December 31, 2024 and 2023,
respectively.
There was
no
movement in the carrying value of assets measured at fair value on a recurring basis, and categorized within Level
3, during the six months ended December 31, 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 six months ended December 31, 2024:
Carrying value
Assets
Balance as of June 30, 2024
$
-
Foreign currency adjustment
(1)
-
Balance as of December 31, 2024
$
-
(1) The foreign currency adjustment represents the effects of the fluctuations of the
South African rand against the U.S. dollar on
the carrying value.
20
5.
Fair value of financial instruments
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 six months ended December 31, 2023:
Carrying value
Assets
Balance as of June 30, 2023
$
-
Foreign currency adjustment
(1)
-
Balance as of December 31, 2023
$
-
(1) The
foreign currency
adjustment represents the
effects of
the fluctuations
of the South
African rand
against the U.S.
dollar
on the carrying value.
Assets measured at fair value on a nonrecurring basis
The Company
measures equity
investments without
readily determinable
fair values
at fair value
on a
nonrecurring basis.
The
fair values of
these investments
are determined
based on
valuation techniques
using the best
information available
and may include
quoted market prices, market comparables, and discounted cash flow
projections. An impairment charge is recorded when the cost
of
the
asset
exceeds
its
fair
value
and
the
excess
is
determined
to
be
other-than-temporary.
Refer
to
Note
6
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.
6.
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 December 31,
2024, and June 30, 2024, was as
follows:
December 31,
June 30,
2024
2024
Sandulela Technology
(Pty) Ltd ("Sandulela")
49.0
%
49.0
%
SmartSwitch Namibia (Pty) Ltd (“SmartSwitch Namibia”)
50.0
%
50.0
%
Sale and impairment of Finbond shares during
the three and six months ended December 31, 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 ($
3.5
million), or
ZAR
0.2911
per share. The transaction was subject to certain conditions, including regulatory and shareholder approvals, which were
finalized in
December 2023.
The cash
proceeds received
of ZAR
64.2
million ($
3.5
million) were
used to
repay capitalized
interest
under the Company’s borrowing
facilities.
As noted
above, the
Company
entered into
an agreement
to exit
its position
in Finbond
and
the Company
considered this
an
impairment indicator. The
Company is required to include any foreign currency translation reserve
and other equity account amounts
in its impairment assessment if it considers exiting an equity method investment. The Company performed an impairment assessment
of its
holding in
Finbond, including
the foreign
currency translation
reserve and
other equity
account amounts,
as of September
30,
2023. The Company recorded an impairment loss of $
1.2
million during the quarter ended September 30, 2023, which represented the
difference between
the determined fair value
of the Company’s
interest in Finbond and
the Company’s
carrying value, including
the
foreign currency
translation reserve
(before the
impairment). The
Company used
the price of
ZAR
0.2911
referenced in
the August
2023 agreement referred to above to calculate the determined fair value for Finbond.
21
6.
Equity-accounted investments and other long-term assets (continued)
Equity-accounted investments (continued)
Sale and impairment of Finbond shares during
the three and six months ended December 31, 2023
(continued)
The Company sold
7,379,656
shares in Finbond for
cash during the three
and six months ended
December 31, 2023, respectively.
The
Company
did
no
t
record
a
gain
or
loss
on
the
disposal
because
the
sale
proceeds
were
equivalent
to
the
net
carrying
value,
including accumulated reserves,
of the investment
in Finbond as of
the disposal date. The
following table presents
the calculation of
the disposal of Finbond shares during the three and six months ended December
31, 2023:
2023
Loss on disposal of Finbond shares:
Consideration received in cash
$
3,508
Less: carrying value of Finbond shares sold
(2,112)
Less: release of foreign currency translation reserve from
accumulated other comprehensive loss
(1,543)
Add: release of stock-based compensation charge related
to
equity-accounted investment
147
Loss on sale of Finbond shares
$
-
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 December 31, 2024 (refer to Note 3)).
Summarized below is the
movement in equity-accounted investments and
loans provided to equity-accounted
investments during
the six months ended December 31, 2024:
Total
(1)
Investment in equity
Balance as of June 30, 2024
$
206
Comprehensive income:
77
Other comprehensive income
-
Equity accounted (loss) earnings
77
Share of net (loss) earnings
77
Impairment
-
Dividends received
(65)
Equity-accounted investment acquired in business combination (Note
2)
477
Disposal of equity accounted investment (Note 2)
(507)
Foreign currency adjustment
(2)
(7)
Balance as of December 31, 2024
$
181
(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.
22
6.
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 December
31, 2024, and June 30, 2024:
December 31,
June 30,
2024
2024
Total equity investments
$
42,566
$
76,297
Investment in
5
% of Cell C (June 30, 2024:
5
%) at fair value (Note 5)
-
-
Investment in
8
% of MobiKwik (June 30, 2024:
10
%)
(1)
42,566
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 8)
217
216
Reinsurance assets under insurance contracts (Note 8)
1,692
1,469
Other long-term assets
1,607
-
Total other long-term
assets
$
46,082
$
77,982
(1) The
Company determined
that MobiKwik
(up until
December 2024)
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.
Refer to Note 5 for additional information regarding
the determination of the fair value of Company’s
investment in MobiKwik
as
of
December
31,
2024.
The
Company
used
this
valuation
as
the
basis
for
its
adjustment
to
decrease
the
carrying
value
of
its
investment in MobiKwik by $
33.7
million from $
76.3
million to $
42.6
million as of December 31, 2024. The change in the fair value
of MobiKwik for the three and
six months ended December 31, 2024,
of $
33.7
million, is included in the
caption “Change in fair value
of equity securities” in the consolidated statement of operations for
the three and six months ended December 31, 2024.
Summarized below
are the components
of the Company’s
equity securities without
readily determinable
fair value and
held to
maturity investments as of December 31, 2024:
Cost basis
Unrealized
holding
Unrealized
holding
Carrying
gains
losses
value
Equity securities:
Investment in CPS
$
-
$
-
$
-
$
-
Held to maturity:
Investment in Cedar Cellular notes (Note 3)
-
-
-
-
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
23
7.
Goodwill and intangible assets, net
Goodwill
Summarized below is the movement in the carrying value of goodwill
for the three months ended December 31, 2024:
Gross value
Accumulated
impairment
Carrying
value
Balance as of June 30, 2024
$
157,899
$
(19,348)
$
138,551
Acquisitions (Note 2)
(1)
72,731
-
72,731
Foreign currency adjustment
(2)
(10,989)
467
(10,522)
Balance as of December 31, 2024
$
219,641
$
(18,881)
$
200,760
(1) – Represents goodwill arising from the acquisition of Adumo
and IVAS Namibia and translated at the foreign exchange rates
applicable on the date
the transactions became
effective. This goodwill
has been allocated to
the Merchant and
Consumer reportable
operating segments.
(2) – The foreign currency adjustment represents the effects
of the fluctuations of the South African rand against the U.S.
dollar on the carrying value.
Goodwill associated with the acquisitions
represents the excess of cost over the fair value of acquired net assets. Goodwill
arising from these acquisitions is not deductible for tax purposes. See Note 2 for
the allocation of the purchase price to the fair value
of acquired net assets.
Refer to Note 7 for additional information regarding changes
to the Company’s reportable segments during the six months ended
December 31, 2024. Goodwill has been allocated to the Company’s
reportable segments as follows:
Merchant
Consumer
Enterprise
Carrying
value
Balance as of June 30, 2024
$
123,396
$
-
$
15,155
$
138,551
Acquisitions (Note 2)
64,241
8,490
-
72,731
Foreign currency adjustment
(1)
(9,327)
(674)
(521)
(10,522)
Balance as of December 31, 2024
$
178,310
$
7,816
$
14,634
$
200,760
(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 December 31,
2024, and June
30, 2024:
As of December 31, 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
(1)
$
34,945
$
(14,941)
$
20,004
$
25,880
$
(14,030)
$
11,850
Software, integrated
platform and unpatented
technology
(1)
124,690
(31,056)
93,634
115,213
(25,763)
89,450
FTS patent
2,035
(2,035)
-
2,107
(2,107)
-
Brands and trademarks
(1)
17,191
(4,865)
12,326
14,353
(4,300)
10,053
Total finite-lived
intangible
assets
$
178,861
$
(52,897)
$
125,964
$
157,553
$
(46,200)
$
111,353
(1) December 31, 2024 balances include the intangible assets acquired as part of
the Adumo acquisition in October 2024.
24
7.
Goodwill and intangible assets, net (continued)
Intangible assets, net (continued)
Aggregate amortization
expense on the
finite-lived intangible
assets for the
three months
ended December
31, 2024 and
2023,
was $
4.9
million and $
3.6
million, respectively. Aggregate amortization expense on the
finite-lived intangible assets for
the six months
ended December
31, 2024 and
2023, was $
8.8
million and $
7.2
million, respectively.
Future estimated
annual amortization
expense
for the next
five fiscal years
and thereafter,
assuming exchange
rates that prevailed
on December
31, 2024, is
presented in
the table
below. Actual amortization expense in future periods could differ from this estimate
as a result of acquisitions, changes
in useful lives,
exchange rate fluctuations and other relevant factors.
Fiscal 2025 (excluding six months ended December 31, 2024)
$
9,291
Fiscal 2026
18,581
Fiscal 2027
18,286
Fiscal 2028
18,061
Fiscal 2029
17,699
Thereafter
44,046
Total future
estimated annual amortization expense
$
125,964
8.
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
six
months ended December 31, 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
550
(5,028)
Claims and decrease in policyholders’ benefits under insurance
contracts
(260)
4,582
Foreign currency adjustment
(3)
(67)
102
Balance as of December 31, 2024
$
1,692
$
(2,585)
(1) Included in other long-term assets (refer to Note 6);
(2) Included in other long-term liabilities;
(3) Represents the effects of the fluctuations of the ZAR against the U.S. dollar.
The Company has agreements with reinsurance companies in order to limit its losses from various insurance contracts, however,
if the reinsurer is unable
to meet its obligations, the
Company retains the liability.
The value of insurance
contract liabilities is based
on the best estimate assumptions of future experience plus prescribed
margins, as required in the markets in which these
products are
offered,
namely South
Africa. The
process of
deriving the
best estimate
assumptions plus
prescribed margins
includes assumptions
related to claim reporting delays (based on average industry experience).
Assets and policyholder liabilities under investment contracts
Summarized below is the movement
in assets and policyholder
liabilities under investment contracts during
the six months ended
December 31, 2024:
Assets
(1)
Investment
contracts
(2)
Balance as of June 30, 2024
$
216
$
(216)
Increase in policy holder benefits under investment contracts
8
(8)
Foreign currency adjustment
(3)
(7)
7
Balance as of December 31, 2024
$
217
$
(217)
(1) Included in other long-term assets (refer to Note 6);
(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.
25
9.
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.
Reference rate reform
After the
transition
away from
certain
interbank
offered
rates in
foreign
jurisdictions
(“IBOR reform
”), the
reforms to
South
Africa’s
reference interest
rate are now
accelerating rapidly.
The Johannesburg
Interbank Average
Rate (“JIBAR”)
will be replaced
by the new South African Overnight Index Average (“ZARONIA”). Certain of the Company’s
borrowings reference JIBAR as a base
interest rate. ZARONIA
reflects the
interest rate at
which rand-denominated
overnight wholesale
funds are
obtained by commercial
banks. There
is uncertainty
surrounding the
timing and
manner in
which the
transition would
occur and
how this
would affect
our
borrowings. The
Company is engag
ing with its
borrowers to
negotiate changes
to its existing
borrowing agreements
or to introduce
language to cater for the transition to ZARONIA in its future borrowing agreements.
South Africa
The Company is currently renegotiating its borrowing facilities and expects the process to be concluded before
March 31, 2025.
The amounts
below have
been translated
at exchange
rates applicable
as of
the dates
specified. The
JIBAR, an
average of
3 month
negotiable
certificates of
deposit (“NCD”)
rates, on
December 31,
2024, was
7.75
%. The
prime rate,
the benchmark
rate at
which
private sector
banks lend to
the public in
South Africa, on
December 31,
2024, was
11.25
%, and reduced
to
11.00
% on January
31,
2025, following a 0.25% reduction in the South African repo rate, the rate at which private sector banks borrow funds from
the South
African Reserve Bank.
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 December 31, 2024, Lesaka SA’s
facilities included (i) Facility G of ZAR
627.0
million ($
33.3
million); (ii) Facility H of
ZAR
390.1
million ($
20.8
million) (both
fully utilized);
and (iii)
the Facility
G revolver
of ZAR
200.0
million ($
10.6
million) (of
which ZAR
199
million ($
10.6
million) has been
utilized). The interest rate
on these facilities as
of December 31,
2024, was JIBAR
plus
4.75
%.
Available short-term facility -
Facility E
The Company
cancelled its
Facility E
facility agreement
in November
2024. The
overdraft facility
could only
be used
to fund
ATMs
and therefore
the overdraft utilized
and converted
to cash to
fund the Company’s
ATMs
was considered
restricted cash.
The
interest rate on this facility was equal to the prime rate.
RMB Bridge Facilities, comprising a short-term facility obtained
in October 2024 and amended in December 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”). As
of December
31, 2024,
the Company
had utilized
all of
the ZAR
665
million bridge 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
2); (ii) pay
Crossfin Holdings (RF)
Proprietary Limited (“Crossfin Holdings”)
ZAR
207.2
million under a
share purchase
agreement concluded between Lesaka SA and Crossfin Holdings (refer
to Note 11); (iii) pay an amount of ZAR
147.5
million, which
includes interest, notified
by Investec Bank Limited
to Adumo and Lesaka
SA as a result
of the transaction
described in Note 2,
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.
On
December
10,
2024,
Lesaka
SA
and
RMB
entered
into
a
First
Addendum
to
the
Facility
Letter
(the
“F2024
Addendum
Letter”).
The F2024
Addendum
Letter provides
Lesaka
SA with
an additional
ZAR
250.0
million
general
banking
facility (“GBF
Facility”) which may be used for general corporate
purposes. As of December 31, 2024, the Company
had utilized ZAR
98.2
million
of the bridge facility.
Interest on
the Facility
and the
GBF Facility
is calculated
at the
prime rate
plus
1.80
%. The
Facility and
the GBF
Facility are
unsecured and are required to be repaid in full on or before February
28, 2025.
26
9.
Borrowings (borrowings) (continued)
South Africa (continued)
Connect Facilities, comprising long-term borrowings and a short-term facility
As of December 31, 2024, the Connect Facilities include (i) an overdraft facility (general banking facility) of
ZAR
170.0
million
(of which ZAR
170.0
million ($
9.0
million) has been utilized); (ii) Facility A of ZAR
700.0
million ($
37.2
million); (iii) Facility B of
ZAR
550.0
million ($
29.2
million) (both
fully utilized);
and (iv)
an asset-backed
facility of
ZAR
200.0
million ($
10.6
million) (of
which ZAR
151.6
million ($
8.1
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 with the final repayment due on February 15, 2025.
CCC Revolving Credit Facility, comprising
long-term borrowings
As of
December
31,
2024,
the amount
of
the
CCC Revolving
Credit
Facility
was ZAR
300.0
million
(of
which
ZAR
215.7
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
0.9
0% per annum.
RMB facility, comprising indirect facilities
As of December
31, 2024, the
aggregate amount
of the Company’s
short-term South African
indirect credit facility
with RMB
was ZAR
135.0
million ($
7.1
million), which includes facilities for guarantees, letters of credit and forward exchange contracts. As
of
December 31, 2024
and June
30, 2024, the
Company had utilized
ZAR
33.1
million ($
1.8
million) and ZAR
33.1
million ($
1.8
million),
respectively,
of its indirect
and derivative facilities
of ZAR
135.0
million (June 30,
2024: ZAR
135.0
million) to enable
the bank
to
issue guarantees, letters of credit and forward exchange contracts (refer
to Note 20).
Nedbank facility, comprising short-term facilities
As of December
31, 2024, the
aggregate amount of the
Company’s short-term South African credit
facility with Nedbank
Limited
was ZAR
156.6
million ($
8.3
million). The credit facility represents indirect and derivative facilities
of up to ZAR
156.6
million ($
8.3
million), which include guarantees, letters of credit and forward exchange
contracts.
As of
December 31,
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 20).
27
9.
Borrowings (borrowings) (continued)
South Africa (continued)
Movement in short-term credit facilities (continued)
Summarized below are the Company’s short-term facilities as
of December 31, 2024, and
the movement in the Company’s short-
term facilities from as of June 30, 2024 to as of December 31, 2024:
RMB
RMB
RMB
RMB
Nedbank
Facility E
Bridge
Indirect
Connect
Facilities
Total
Short-term facilities available as of
December 31, 2024
$
-
$
48,594
$
7,170
$
14,339
$
8,314
$
78,417
Overdraft
-
48,594
-
14,339
-
62,933
Indirect and derivative facilities
-
-
7,170
-
8,314
15,484
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
43,200
-
5,655
-
72,748
Repaid
(31,028)
-
-
(3,374)
-
(34,402)
Guarantee fee paid
-
(431)
-
-
-
(431)
Foreign currency
adjustment
(1)
398
(2,683)
-
(566)
-
(2,851)
Balance as of December 31, 2024
-
40,086
-
11,066
-
51,152
No restrictions as to use
$
-
$
40,086
$
-
$
11,066
$
-
$
51,152
Interest rate as of December 31,
2024 (%)
(2)
N/A
13.05
N/A
11.15
N/A
Movement in utilized indirect and
derivative facilities:
Balance as of June 30, 2024
$
-
$
-
$
1,821
$
-
$
116
$
1,937
Foreign currency adjustment
(1)
-
-
(63)
-
(4)
(67)
Balance as of December 31, 2024
$
-
$
-
$
1,758
$
-
$
112
$
1,870
(1) Represents the effects of the fluctuations between the
ZAR and the U.S. dollar.
(2) Facility E interest was set at prime, RMB Bridge at prime plus
1.8
% and the Connect facility at prime less
0.10
%.
Interest expense incurred under
the Company’s South African short-term borrowings
and included in
the caption interest
expense
on the condensed consolidated statement of operations during the three months ended December 31, 2024 and 2023, was $
1.8
million
and $
0.6
million, respectively.
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
six months ended
December 31, 2024
and 2023, was $
2.4
million and $
1.3
million, respectively.
The
Company
cancelled
Adumo’s
overdraft
arrangements
on
October
1,
2024,
and
settled
Adumo’s
outstanding
overdraft
balance of ZAR
20.0
million ($
1.1
million) on the
same day.
The repayment is
included in the
caption repayment
of bank overdraft
included on the Company’s unaudited condensed consolidated statements of cash flows for the three and six months ended December
31, 2024.
28
9.
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 December
31, 2024:
Facilities
Lesaka
RMB
G & H
Connect
RMB
A&B
CCC
RMB
Connect
Wesbank
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
11,022
-
559
2,096
13,677
Facilities repaid
(3,911)
-
(554)
(2,117)
(6,582)
Non-refundable fees amortized
88
24
21
-
133
Capitalized interest
3,735
-
-
-
3,735
Capitalized interest repaid
(95)
-
-
-
(95)
Foreign currency adjustment
(1)
(2,374)
(2,302)
(414)
(307)
(5,397)
Closing balance as of December 31, 2024
64,616
64,537
11,453
8,051
148,657
Included in current
64,616
-
-
3,684
68,300
Included in long-term
-
64,537
11,453
4,367
80,357
Unamortized fees
-
(149)
-
-
(149)
Due within 2 years
-
4,978
-
2,873
7,851
Due within 3 years
-
7,634
11,453
1,119
20,206
Due within 4 years
-
52,074
-
333
52,407
Due within 5 years
$
-
$
-
$
-
$
42
$
42
Interest rates as of December 31, 2024 (%):
12.50
11.50
12.15
12.00
Base rate (%)
7.75
7.75
11.25
11.25
Margin (%)
4.75
3.75
0.90
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, which
margin is calculated
as (i)
4.00
% if
the Leverage Ratio (“LR”) is
greater than 3.50x; (ii)
3.75
% if the LR is less than
3.50x but greater than 2.50x;
(iii)
3.40
% if the LTL
ratio is less than 2.50x.
(4) Interest is charged at prime plus
0.90
% 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 December 31, 2024 and 2023, was $
4.3
million
and $
4.1
million, respectively.
Prepaid facility fees
amortized included
in interest expense
during the three
months ended December
31, 2024
and 2023,
respectively,
were $
0.1
million and
$
0.1
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 December 31, 2024 and
2023.
29
9.
Borrowings (continued)
Movement in long-term borrowings (continued)
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
six months ended
December 31, 2024
and 2023, was
$
8.5
million
and $
8.1
million, respectively. Prepaid facility fees amortized included in interest expense during the six months ended December
31,
2024 and 2023,
respectively,
were $
0.1
million and $
0.3
million, respectively.
Interest expense incurred
under the Company’s
CCC
facilities relates to borrowings utilized to fund a portion of
the Company’s merchant finance loans receivable and this interest expense
of $
0.8
million and $
0.7
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 six months
ended December 31, 2024 and 2023.
The Company
cancelled Adumo’s
long-term borrowings
arrangements on
October 1,
2024, and
settled Adumo’s
outstanding
balances
of ZAR
126.7
million
($
7.2
million) on
the same
day.
The repayment
is included
in the
caption
repayment of
long-term
borrowings included on the Company’s unaudited condensed consolidated
statements of cash flows
for the three and
six months ended
December 31, 2024.
10.
Other payables
Summarized below is the breakdown of other payables as of December
31, 2024, and June 30, 2024:
December 31,
June 30,
2024
2024
Clearing accounts
$
8,093
$
17,124
Vendor
wallet balances
18,657
14,635
Accruals
12,522
7,173
Provisions
5,873
7,442
Value
-added tax payable
2,088
1,191
Payroll-related payables
1,942
922
Participating merchants' settlement obligation
2
1
Other
10,239
7,563
$
59,416
$
56,051
Other includes deferred income, client deposits and other payables.
11.
Capital structure
October 2024 repurchase of common stock
On October
1, 2024,
the Company,
through Lesaka
SA, and
Crossfin Holdings
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 have
been included
in the
Company’s
treasury shares
included in
its unaudited
condensed consolidated
statement of
changes in
equity for
the three
and six months
ended
December 31, 2024. The repurchase was made outside of the Company’s
$
100
million share repurchase authorization.
Redeemable common stock issued pursuant to transaction with the IFC Investors
Put Option
Refer to
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, for
additional information regarding
its redeemable common
stock issued pursuant to
transaction with
the IFC Investors.
Certain IFC Investors were
investors in Adumo
and the Company
issued an aggregate
of
1,989,162
additional shares
of its common
stock at a
price of
$
4.79
to these
IFC Investors pursuant
to the
Purchase Agreement. The
Company and the
IFC Investors
amended and restated the Policy Agreement (“Amended and Restated Policy Agreement”) to include these additional shares issued to
the IFC
Investors to also
be covered by
the put
right included
in the
Amended and Restated
Policy Agreement. The
Company accounted
for these
1,989,162
shares as redeemable
common stock as
a result of
the put option.
The Company believes
that the put
option has
no value and, accordingly,
has not recognized the put option in its consolidated financial statements.
30
11.
Capital structure (continued)
Impact of non-vested equity shares on number of shares,
net of treasury
The following table presents a
reconciliation between the number of
shares, net of treasury, presented in the
unaudited condensed
consolidated statement of changes in
equity during the six months ended
December 31, 2024 and 2023, respectively,
and the number
of shares, net of treasury,
excluding non-vested equity shares that have not vested as of December
31, 2024 and 2023, respectively:
December 31,
December 31,
2024
2023
Number of shares, net of treasury:
Statement of changes in equity
80,203,148
64,443,523
Less: Non-vested equity shares that have not vested as of end of period
2,902,303
3,205,580
Number of shares, net of treasury,
excluding non-vested equity shares that have not
vested
77,300,845
61,237,943
12.
Accumulated other comprehensive loss
The table
below presents
the change
in accumulated
other comprehensive
loss per
component
during the
three months
ended
December 31, 2024:
Three months ended
December 31, 2024
Accumulated
foreign
currency
translation
reserve
Total
Balance as of October 1, 2024
$
(177,830)
$
(177,830)
Release of foreign currency translation reserve related to liquidation of subsidiaries
6
6
Movement in foreign currency translation reserve
(22,145)
(22,145)
Balance as of December 31, 2024
$
(199,969)
$
(199,969)
The table
below presents
the change
in accumulated
other comprehensive
loss per
component during
the three
months ended
December 31, 2023:
Three months ended
December 31, 2023
Accumulated
foreign
currency
translation
reserve
Total
Balance as of October 1, 2023
$
(196,081)
$
(196,081)
Release of foreign currency translation reserve related to disposal of
Finbond equity securities
1,543
1,543
Movement in foreign currency translation reserve related to liquidation
of subsidiaries
(952)
(952)
Movement in foreign currency translation reserve
6,112
6,112
Balance as of December 31, 2023
$
(189,378)
$
(189,378)
31
12.
Accumulated other comprehensive loss (continued)
The
table
below
presents
the
change
in
accumulated
other
comprehensive
loss
per
component
during
the
six
months
ended
December 31, 2024:
Six months ended
December 31, 2024
Accumulated
foreign
currency
translation
reserve
Total
Balance as of July 1, 2024
$
(188,355)
$
(188,355)
Release of foreign currency translation reserve related to liquidation
of subsidiaries
6
6
Movement in foreign currency translation reserve
(11,620)
(11,620)
Balance as of December 31, 2024
$
(199,969)
$
(199,969)
The
table
below
presents
the
change
in
accumulated
other
comprehensive
loss
per
component
during
the
six
months
ended
December 31, 2023:
a
Six months ended
December 31, 2023
Accumulated
foreign
currency
translation
reserve
Total
Balance as of July 1, 2023
$
(195,726)
$
(195,726)
Release of foreign currency translation reserve related to disposal of Finbond
equity securities
1,543
1,543
Movement in foreign currency translation reserve related to equity-accounted
investment
489
489
Movement in foreign currency translation reserve related to liquidation
of subsidiaries
(952)
(952)
Movement in foreign currency translation reserve
5,268
5,268
Balance as of December 31, 2023
$
(189,378)
$
(189,378)
The movement in the
foreign currency translation reserve represents
the impact of translation of
consolidated entities which have
a functional currency (which is primarily ZAR) to the Company’s
reporting currency, which is USD.
During
each
of
the
three
and
six
months
ended
December
31,
2024,
the
Company
reclassified
a
loss
of
$
0.006
million,
respectively, from
accumulated other comprehensive loss (accumulated foreign currency
translation reserve) to net loss related to the
liquidation of subsidiaries During each of the three and
six months ended December 31, 2023, the
Company reclassified losses of $
1.5
million, respectively, from accumulated other
comprehensive loss
(accumulated foreign currency translation
reserve) to net
loss related
to the disposal
of shares in
Finbond (refer
to Note 6).
The Company also
reclassified a gain
of $
1.0
million from accumulated
other
comprehensive loss (accumulated foreign currency translation reserve)
to net loss related to the liquidation of subsidiaries.
32
13.
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 six months
ended December 31, 2024 and 2023:
Number of
shares
Weighted
average
exercise
price
($)
Weighted
average
remaining
contractual
term
(in years)
Aggregate
intrinsic
value
($'000)
Weighted
average
grant date
fair value
($)
Outstanding - June 30, 2024
4,918,248
8.70
4.51
889
1.77
Granted - December 2024
350,000
6.00
-
433
1.24
Granted - December 2024
250,000
8.00
-
177
0.71
Exercised
(17,014)
3.02
-
38
-
Forfeited
(13,333)
11.23
-
-
8.83
Outstanding - December 31, 2024
5,487,901
8.48
4.04
1,418
1.76
Outstanding - June 30, 2023
673,274
4.37
5.14
239
1.67
Granted – December 2023
500,000
3.50
5.17
880
1.76
Exercised
(7,385)
3.07
-
5
-
Forfeited
(186,846)
3.71
-
-
1.28
Outstanding - December 31, 2023
979,043
4.07
5.50
48
1.80
The Company awarded
600,000
stock options to an executive officer during the three and six months ended December 31,
2024.
The Company awarded a further
400,000
to the same executive officer in January 2025 with strike prices ranging from $
8
to $
14
. The
1,000,000
stock options will vest on
December 31, 2026, and
vesting is subject to the
executive officers continued
employment with
the Company
through to the
vesting date. The
1,000,000
stock options expire
on January 31,
2029. The Company
awarded
500,000
stock options
to Ali
Mazanderani, the
Company’s
Executive Chairman,
during the
three and
six months
ended December
31, 2023.
These options
vested in December
2024, but may
only be exercised
during a period
commencing from
January 31,
2028 to January
31, 2029.
During each
of the
three and
six months
ended December
31, 2024,
the Company
received $
0.05
million from
the exercise of
17,014
stock options, respectively. During the three and six months ended December
31, 2023, the Company received $
0.002
million
and $
0.02
million from
the exercise of
592
and
7,385
stock options, respectively.
Employees forfeited
an aggregate of
13,333
stock
options
during
each
of
the
three
and
six
months
ended
December
31,
2024.
Employees
and
a
non-employee
director
forfeited
an
aggregate of
11,070
and
186,846
stock options during the three and six months ended December 31, 2023.
The
fair
value
of
each
option
is
estimated
on
the
date
of
grant
using the
Cox
Ross
Rubinstein
binomial
model
that
uses the
assumptions noted in the following table. The estimated expected
volatility is calculated based on the Company’s
730
- day volatility.
The estimated
expected life
of the
option was
determined based
on the
historical behavior
of employees
who were
granted options
with similar terms.
The table below
presents the range
of assumptions used
to value stock
options granted during
the six months
ended December
31, 2024 and 2023:
Six months ended
December 31,
2024
2023
Expected volatility
42
%
56
%
Expected dividends
0
%
0
%
Expected life (in years)
2
5
Risk-free rate
4.3
%
2.1
%
33
13.
Stock-based compensation (continued)
The Company’s
Amended and
Restated 2022
Stock Incentive
Plan (“2022
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
(continued)
Options (continued)
The following table presents stock options vested and expected to vest as of
December 31, 2024:
Number of
shares
Weighted
average
exercise
price
($)
Weighted
average
remaining
contractual
term
(in years)
Aggregate
intrinsic
value
($’000)
Vested
and expecting to vest - December 31, 2024
5,487,901
8.48
4.04
1,418
These options have an exercise price range of $
3.01
to $
14.00
.
The following table presents stock options that are exercisable as of December
31, 2024:
Number of
shares
Weighted
average
exercise
price
($)
Weighted
average
remaining
contractual
term
(in years)
Aggregate
intrinsic
value
($’000)
Exercisable - December 31, 2024
360,995
4.56
5.03
428
No
stock options became exercisable during each
of the three and six
months ended December 31, 2024 and
2023. The Company
issues new shares to satisfy stock option exercises.
34
13.
Stock-based compensation (continued)
Stock option and restricted stock activity (continued)
Restricted stock
The following table summarizes restricted stock activity for the six
months ended December 31, 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
1,331,110
4,850
Granted – August 2024
32,800
154
Granted – October 2024
100,000
490
Granted – November 2024, with performance conditions
1,198,310
4,206
Total vested
(473,432)
2,469
Vested
– July 2024
(78,801)
394
Vested
– November 2024
(213,687)
1,134
Vested
– November 2024, with performance conditions
(103,638)
524
Vested
– December 2024
(77,306)
417
Forfeitures
(40,321)
216
Non-vested – December 31, 2024
2,902,303
11,348
Non-vested – June 30, 2023
2,614,419
11,869
Total Granted
868,996
3,394
Granted – October 2023
333,080
1,456
Granted – October 2023, with performance awards
310,916
955
Granted – October 2023
225,000
983
Total vested
(255,706)
965
Vested
– July 2023
(78,800)
302
Vested
– November 2023
(109,833)
429
Vested
– December 2023
(67,073)
234
Forfeitures
(22,129)
91
Non-vested – December 31, 2023
3,205,580
13,880
Grants
In August 2024 and
October 2024, respectively, the Company granted
32,800
and
100,000
shares of restricted
stock to employees
which have time -based vesting conditions and which are subject to the employees continued employment with the Company through
the applicable vesting dates.
In
November
2024,
the
Company
awarded
1,198,310
shares
of
restricted
stock
to
a
group
comprising
employees
and
three
executive officers and which
are subject to a time-based
vesting condition and a market
condition and vest in full only
on the date, if
any,
that the following
conditions are
satisfied: (1) a
compounded annual
15
% appreciation in
the Company’s
stock price off
a base
price of $
5.00
over the measurement period commencing on September 30, 2024 through September 30, 2027, and (2) the recipient is
employed by the Company on a full-time basis through to September 30, 2027. If either of these conditions is not satisfied,
then none
of the shares of restricted stock will vest and they will be forfeited. The Company’s
closing price on September 30, 2024, was $
5.00
.
The appreciation levels (times and price) and
annual target percentages to earn the
awards as of each period
ended are as follows:
●
Prior to the first anniversary of the grant date:
0
%;
●
Fiscal
2026,
the
Company’s
30-day
volume
weighted-average
stock
price
(“VWAP”)
before
September
30,
2025
is
approximately
1.15
times higher (i.e. $
5.75
or higher) than $
5.00
:
33
%;
●
Fiscal 2027, the Company’s
VWAP before
September 30, 2026 is
1.32
times higher (i.e. $
6.61
or higher) than $
5.00
:
67
%;
●
Fiscal 2028, the Company’s
VWAP before
November 1, 2027 is
1.52
times higher (i.e. $
7.60
) than $
5.00
:
100
%.
The fair value
of these shares
of restricted
stock was calculated
using a Monte
Carlo simulation. In
scenarios where
the shares
do not vest, the final vested value at maturity is zero. In scenarios where vesting occurs, the final vested value on maturity is the share
price on
vesting date.
In its calculation
of the
fair value
of the
restricted stock,
the Company
used an
equally weighted
volatility of
47.7
% for
the closing
price (of
$
5.50
), a
discounting based
on U.S.
dollar overnight
indexed swap
rates for
the grant
date, and
no
future dividends. The equally weighted volatility was extracted from the time series for closing prices as the standard deviation of log
prices for the three years preceding the grant date.
35
13.
Stock-based compensation (continued)
Stock option and restricted stock activity (continued)
Restricted stock (continued)
Grants (continued)
In October 2023, the Company
awarded
333,080
shares of restricted stock with time-based
vesting conditions to approximately
150
employees, which
are subject to
the employees
continued employment
with the
Company through
the applicable
vesting dates.
The Company also awarded
225,000
shares of restricted stock
to an executive officer
in October 2023, which
vest on June 30, 2025,
except if the executive officer is terminated for cause, in
which case the award will be forfeited.
In October 2023, the Company
awarded
310,916
shares of restricted stock to three
of its executive officers
which are subject to
a
time-based
vesting
condition
and
a
market
condition
and
vest
in
full
only
on
the
date,
if
any,
that
the
following
conditions
are
satisfied: (1)
a compounded
annual
10
% appreciation
in the
Company’s
stock price
off a
base price
of $
4.00
over the
measurement
period commencing on September 30, 2023 through November 17, 2026, and (2) the recipient is employed by the Company on a full-
time basis when the condition in (1) is met. If either of these conditions is not satisfied, then none of the shares of restricted stock will
vest and they will be forfeited. The Company’s
closing price on September 30, 2023, was $
3.90
.
The appreciation levels (times and price) and vesting percentages as of each
period ended are as follows:
●
Prior to the first anniversary of the grant date:
0
%;
●
Fiscal
2025,
the
Company’s
30-day
volume
weighted-average
stock
price
(“VWAP”)
before
November
17,
2024
is
approximately
1.10
times higher (i.e. $
4.40
or higher) than $
4.00
:
33
%;
●
Fiscal 2026, the Company’s
VWAP before
November 17, 2025 is
1.21
times higher (i.e. $
4.84
or higher) than $
4.00
:
67
%;
●
Fiscal 2027, the Company’s
VWAP before
November 1, 2026 is
1.33
times higher (i.e. $
5.32
) than $
4.00
:
100
%.
The fair value
of these shares
of restricted
stock was calculated
using a Monte
Carlo simulation. In
scenarios where
the shares
do not vest, the final vested value at maturity is zero. In scenarios where vesting occurs, the final vested value on maturity is the share
price on
vesting date.
In its calculation
of the
fair value
of the
restricted stock,
the Company
used an
equally weighted
volatility of
48.3
% for
the closing
price (of
$
4.37
), a
discounting based
on U.S.
dollar overnight
indexed swap
rates for
the grant
date, and
no
future dividends. The equally weighted volatility was extracted from the time series for closing prices as the standard deviation of log
prices for the three years preceding the grant date.
The Company has agreed
to grant an advisor
5,500
shares per month in
lieu of cash for services
provided to the Company.
The
Company and
the advisor have
agreed that the
Company will issue
the shares to
the advisor,
in arrears, on
a quarterly basis.
During
the three
and six months
ended December
31, 2024,
the Company
recorded a
stock-based compensation
charge of
$
0.2
million and
included the issuance of
33,000
shares of common stock in its issued and outstanding share count.
Vesting
In July 2024,
78,801
shares of restricted
stock granted to Mr. Meyer, our former
Group CEO, vested.
In November and December
2024, an
aggregate of
290,993
shares of restricted
stock granted to
employees vested.
Certain employees elected
for
132,147
shares
to be withheld
to satisfy the
withholding tax
liability on the
vesting of
their shares. These
132,147
shares have
been included
in the
Company’s
treasury shares. In
November 2024,
103,638
shares of restricted
stock with performance
conditions (share price
targets)
vested following the achievement of the agreed performance condition.
In July 2023,
78,800
shares of restricted stock granted
to Mr. Meyer
vested. In November and
December 2023, an aggregate
of
176,906
shares of restricted stock granted
to employees vested. Certain employees
elected for
50,975
shares to be withheld to
satisfy
the withholding tax liability on the vesting of their shares. These
50,975
shares have been included in the Company’s treasury
shares.
Forfeitures
During
the
three
and
six
months
ended
December
31,
2024,
respectively,
employees
forfeited
37,221
and
40,321
shares
of
restricted stock following their
termination of employment with
the Company or the
failure to achieved agreed
performance conditions
(
29,121
shares were
forfeited following
the failure
to achieved
agreed share
performance targets).
During the
three and
six months
ended December 31, 2023, respectively,
employees forfeited
14,002
and
22,129
shares of restricted stock following their termination
of employment with the Company.
36
13.
Stock-based compensation (continued)
Stock-based compensation charge and unrecognized compensation
cost
The Company recorded a stock-based compensation charge, net during the three months ended December 31, 2024 and 2023, of
$
2.6
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 December 31, 2024
Stock-based compensation charge
$
2,655
$
-
$
2,655
Reversal of stock compensation charge related to stock
options and restricted stock forfeited
(11)
-
(11)
Total - three months
ended December 31, 2024
$
2,644
$
-
$
2,644
Three months ended December 31, 2023
Stock-based compensation charge
$
1,812
$
-
$
1,812
Reversal of stock compensation charge related to stock
options and restricted stock forfeited
(8)
-
(8)
Total - three months
ended December 31, 2023
$
1,804
$
-
$
1,804
The Company
recorded a stock-based
compensation charge,
net during
the six months
ended December 31,
2024 and 2023,
of
$
5.0
million and $
3.6
million respectively, which
comprised:
a
Total
charge
Allocated to cost
of goods sold, IT
processing,
servicing and
support
Allocated to
selling, general
and
administration
Six months ended December 31, 2024
Stock-based compensation charge
$
5,032
$
-
$
5,032
Reversal of stock compensation charge related to stock
options and restricted stock forfeited
(11)
-
(11)
Total - six months ended
December 31, 2024
$
5,021
$
-
$
5,021
Six months ended December 31, 2023
Stock-based compensation charge
$
3,580
$
-
$
3,580
Reversal of stock compensation charge related to stock
options and restricted stock forfeited
(17)
-
(17)
Total - six months ended
December 31, 2023
$
3,563
$
-
$
3,563
The stock-based compensation charges
have been allocated to selling,
general and administration based
on the allocation of the
cash compensation paid to the relevant employees.
As
of
December
31,
2024,
the
total
unrecognized
compensation
cost
related
to
stock
options
was
$
3.5
million,
which
the
Company expects to
recognize over
two years
. As of
December 31, 2024,
the total unrecognized
compensation cost related
to restricted
stock awards was $
6.3
million, which the Company expects to recognize over
two years
.
During the three months
ended December 31,
2024 and 2023, the
Company recorded a deferred
tax benefit of $
0.5
million and
$
0.3
million, respectively,
related to the stock-based compensation charge
recognized related to employees of Lesaka.
During the six
months
ended
December
31,
2024
and
2023,
the
Company
recorded
a
deferred
tax
benefit
of
$
0.8
million
and
$
0.3
million,
respectively,
related
to the
stock-based
compensation
charge
recognized
related
to employees
of Lesaka.
During
these periods
the
Company recorded a valuation allowance related to the full 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.
37
14.
(Loss) Earnings per share
The Company
has issued redeemable
common stock
which is redeemable
at an amount
other than
fair value.
Redemption of
a
class of
common stock
at other
than fair
value increases
or decreases
the carrying
amount of
the redeemable
common stock
and is
reflected in basic earnings
per share using the two-class
method. There were
no
redemptions of common stock, or
adjustments to the
carrying value
of the redeemable
common stock
during the three
and six months
ended December 31,
2024 and 2023.
Accordingly,
the two-class method
presented below does
not include the impact
of any redemption.
The Company’s
redeemable common stock
is
described in Note 14 to the Company’s
audited consolidated financial statements included in its Annual Report on Form 10-K
for the
year ended June 30, 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
and six months ended
December 31,
2024 and
2023, reflects
only undistributed
earnings. The
computation below
of basic
(loss) earnings
per share
excludes the
net loss
attributable
to
shares
of
unvested
restricted
stock
(participating
non-vested
restricted
stock)
from
the
numerator
and
excludes
the
dilutive impact of these unvested shares of restricted stock from the denominator.
Diluted (loss)
earnings
per share
has been
calculated
to give
effect
to the
number
of shares
of additional
common
stock that
would have
been outstanding
if the
potential dilutive
instruments had
been issued
in each
period. Stock
options are
included in
the
calculation of diluted (loss) earnings per share utilizing the treasury
stock method and are not considered to be
participating securities,
as the
stock options
do not
contain non-forfeitable
dividend rights.
The Company
has excluded
employee stock
options to
purchase
257,445
and
51,704
shares of common
stock from the calculation
of diluted loss per
share during the
three months ended December
31, 2024 and 2023 because the effect would be antidilutive.
The Company has excluded employee stock options to
purchase
338,725
and
46,756
shares of
common stock
from the
calculation of
diluted loss
per share
during the
six months
ended December
31, 2024
and 2023, because the effect would be antidilutive.
The
calculation
of diluted
(loss) earnings
per
share
includes the
dilutive
effect
of
a portion
of the
restricted
stock granted
to
employees
as
these
shares
of
restricted
stock
are
considered
contingently
returnable
shares
for
the
purposes
of
the
diluted
(loss)
earnings per share calculation and the vesting conditions in respect of
a portion of the restricted stock had been satisfied.
38
14.
(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
Six months ended
December 31,
December 31,
2024
2023
2024
2023
(in thousands except
(in thousands except
percent and
percent and
per share data)
per share data)
Numerator:
Net loss attributable to Lesaka
$
(32,134)
$
(2,707)
$
(36,676)
$
(8,358)
Undistributed loss
(32,134)
(2,707)
(36,676)
(8,358)
Percent allocated to common shareholders
(Calculation 1)
97%
96%
97%
95%
Numerator for loss per share: basic and diluted
$
(31,034)
$
(2,588)
$
(35,430)
$
(7,961)
Denominator
Denominator for basic (loss) earnings per share:
weighted-average common shares outstanding
77,024
60,990
69,589
60,134
Effect of dilutive securities:
Denominator for diluted (loss) earnings
per share: adjusted weighted average
common shares outstanding and assuming
conversion
77,024
60,990
69,589
60,134
Loss per share:
Basic
$
(0.40)
$
(0.04)
$
(0.51)
$
(0.13)
Diluted
$
(0.40)
$
(0.04)
$
(0.51)
$
(0.13)
(Calculation 1)
Basic weighted-average common shares
outstanding (A)
77,024
60,990
69,589
60,134
Basic weighted-average common shares
outstanding and unvested restricted shares
expected to vest (B)
79,753
63,805
72,037
63,134
Percent allocated to common shareholders
(A) / (B)
97%
96%
97%
95%
Options to
purchase
4,743,500
shares of
the Company’s
common stock
at prices
ranging from
$
6.00
to $
14.00
per share
were
outstanding
during the
three and
six months
ended December
31, 2024,
but were
not included
in the
computation of
diluted (loss)
earnings per
share because
the options’
exercise price
was greater
than the
average market
price of
the Company’s
common stock.
Options to purchase
755,006
shares of the
Company’s common stock at
prices ranging from
$
4.87
to $
11.23
per share were
outstanding
during the
three and
six months
ended December
31, 2023,
respectively,
but were
not included
in the
computation of
diluted (loss)
earnings per
share because
the options’
exercise price
was greater
than the
average market
price of
the Company’s
common stock.
The options, which expire at various dates through February 3, 2032,
were still outstanding as of December 31, 2024.
15.
Supplemental cash flow information
The following
table presents
supplemental
cash flow
disclosures
for the
three and
six months
ended December
31, 2024
and
2023:
Three months ended
Six months ended
December 31,
December 31,
2024
2023
2024
2023
Cash received from interest
$
716
$
482
$
1,297
$
927
Cash paid for interest
$
4,242
$
6,308
$
7,513
$
9,233
Cash paid for income taxes
$
3,253
$
2,806
$
3,208
$
3,410
39
15.
Supplemental cash flow information (continued)
Disaggregation of cash, cash equivalents and restricted
cash
Cash, cash equivalents and restricted
cash included on the Company’s unaudited condensed consolidated statement of
cash flows
includes restricted cash
related to cash
withdrawn from the
Company’s
debt facilities to
fund ATMs.
This cash may
only be used
to
fund ATMs
and is
considered restricted
as to
use and
therefore is
classified as
restricted cash.
Cash, cash
equivalents and
restricted
cash also includes cash in certain bank accounts that has
been ceded to Nedbank. As this cash has been pledged
and ceded it may not
be drawn
and is
considered
restricted as
to use
and therefore
is classified
as restricted
cash as
well. Refer
to Note
9 for
additional
information regarding the
Company’s facilities. The following
table presents the
disaggregation of cash,
cash equivalents and
restricted
cash as of December 31, 2024 and 2023, and June 30, 2024:
December 31,
2024
December 31,
2023
June 30, 2024
Cash and cash equivalents
$
60,625
$
44,316
$
59,065
Restricted cash
112
23,522
6,853
Cash, cash equivalents and restricted cash
$
60,737
$
67,838
$
65,918
Leases
The following table presents supplemental
cash flow disclosure related to leases
for the three and nine months
ended December
31, 2024 and 2023:
Three months ended
Six months ended
December 31,
December 31,
2024
2023
2024
2023
Cash paid for amounts included in the measurement of
lease liabilities
Operating cash flows from operating leases
$
1,212
$
679
$
2,216
$
1,372
Right-of-use assets obtained in exchange for lease
obligations
Operating leases
$
708
$
243
$
1,218
$
983
16.
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 December 31, 2024:
Merchant
Consumer
Enterprise
Total
Processing fees
$
37,931
$
7,862
$
5,825
$
51,618
South Africa
36,068
7,862
5,825
49,755
Rest of Africa
1,863
-
-
1,863
Technology
products
8,121
65
1,187
9,373
South Africa
8,057
65
1,187
9,309
Rest of Africa
64
-
-
64
Prepaid airtime sold
66,653
23
1,660
68,336
South Africa
59,874
23
1,660
61,557
Rest of Africa
6,779
-
-
6,779
Lending revenue
-
7,376
-
7,376
Interest from customers
1,610
120
-
1,730
Insurance revenue
-
4,868
-
4,868
Account holder fees
-
1,765
-
1,765
Other
902
850
-
1,752
South Africa
845
850
-
1,695
Rest of Africa
57
-
-
57
Total revenue, derived
from the following geographic
locations
115,217
22,929
8,672
146,818
South Africa
106,454
22,929
8,672
138,055
Rest of Africa
$
8,763
$
-
$
-
$
8,763
40
16.
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 December 31, 2023:
Merchant
Consumer
Enterprise
Total
Processing fees
$
22,984
$
6,175
$
6,820
$
35,979
South Africa
21,528
6,175
6,820
34,523
Rest of Africa
1,456
-
-
1,456
Technology
products
557
12
2,646
3,215
South Africa
518
12
2,646
3,176
Rest of Africa
39
-
-
39
Prepaid airtime sold
90,620
52
1,339
92,011
South Africa
85,618
52
1,339
87,009
Rest of Africa
5,002
-
-
5,002
Lending revenue
-
5,586
-
5,586
Interest from customers
1,453
-
-
1,453
Insurance revenue
-
2,897
-
2,897
Account holder fees
-
1,502
-
1,502
Other
654
483
113
1,250
South Africa
604
483
113
1,200
Rest of Africa
50
-
-
50
Total revenue, derived
from the following geographic
locations
116,268
16,707
10,918
143,893
South Africa
109,721
16,707
10,918
137,346
Rest of Africa
$
6,547
$
-
$
-
$
6,547
The
following
table
presents
the
Company’s
revenue
disaggregated
by
major
revenue
streams,
including
a
reconciliation
to
reportable segments for the six months ended December 31, 2024:
Merchant
Consumer
Enterprise
Total
Processing fees
$
63,002
$
15,392
$
12,337
$
90,731
South Africa
59,337
15,392
12,337
87,066
Rest of Africa
3,665
-
-
3,665
Technology
products
9,966
67
2,478
12,511
South Africa
9,829
67
2,478
12,374
Rest of Africa
137
-
-
137
Prepaid airtime sold
151,806
40
3,238
155,084
South Africa
139,147
40
3,238
142,425
Rest of Africa
12,659
-
-
12,659
Lending revenue
-
14,332
-
14,332
Interest from customers
3,286
120
-
3,406
Insurance revenue
-
9,208
-
9,208
Account holder fees
-
3,464
-
3,464
Other
2,199
1,378
51
3,628
South Africa
2,085
1,378
51
3,514
Rest of Africa
114
-
-
114
Total revenue, derived
from the following geographic
locations
230,259
44,001
18,104
292,364
South Africa
213,684
44,001
18,104
275,789
Rest of Africa
$
16,575
$
-
$
-
$
16,575
41
16.
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 six months ended December 31, 2023:
Merchant
Consumer
Enterprise
Total
Processing fees
$
45,310
$
11,908
$
13,254
$
70,472
South Africa
42,494
11,908
13,254
67,656
Rest of Africa
2,816
-
-
2,816
Technology
products
1,068
31
4,172
5,271
South Africa
978
31
4,172
5,181
Rest of Africa
90
-
-
90
Prepaid airtime sold
176,856
93
2,416
179,365
South Africa
167,100
93
2,416
169,609
Rest of Africa
9,756
-
-
9,756
Lending revenue
-
10,959
-
10,959
Interest from customers
2,973
-
-
2,973
Insurance revenue
-
5,508
-
5,508
Account holder fees
-
2,870
-
2,870
Other
1,424
918
222
2,564
South Africa
1,325
918
222
2,465
Rest of Africa
99
-
-
99
Total revenue, derived
from the following geographic
locations
227,631
32,287
20,064
279,982
South Africa
214,870
32,287
20,064
267,221
Rest of Africa
$
12,761
$
-
$
-
$
12,761
17.
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
December 31, 2024 and 2023 was $
1.2
million and
$
0.7
million, respectively.
The Company’s operating lease expense during the
six months ended December 31, 2024 and 2023 was $
2.2
million and $
1.4
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
December 31, 2024
and 2023, was $
1.2
million and $
1.0
million, respectively.
The Company’s
short-term lease expense
during the
six months ended December 31, 2024 and 2023, was $
2.3
million and $
1.9
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 December 31, 2024 and June 30, 2024:
December 31,
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)
10.5
10.5
42
17.
Leases (continued)
The maturities of the Company’s
operating lease liabilities as of December 31, 2024, are presented below:
Maturities of operating lease liabilities
Year
ended June 30,
2025 (excluding six months to December 31, 2024)
$
2,338
2026
3,200
2027
2,155
2028
1,369
2029
279
Thereafter
40
Total undiscounted
operating lease liabilities
9,381
Less imputed interest
1,305
Total operating lease liabilities,
included in
8,076
Operating lease liability - current
3,257
Operating lease liability - long-term
$
4,819
18.
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.
Change to internal reporting structure and re
cast of previously reported information
The Company’s
chief operating
decision maker
is the
Company’s
Executive Chairman.
He changed
the Company’s
operating
and internal reporting
structures to present
a new segment,
Enterprise, separately.
The chief operating
decision maker has
decided to
analyze the Company’s
operating performance primarily based on three operational lines, namely,
(i) Merchant, which focuses on
both formal and informal sector
merchants.
Formal sector merchants are generally
in urban areas,
have higher
revenues and
have access
to multiple
service providers.
Informal sector
merchants, which
are often
sole proprietors
and
usually
have lower
revenues compared
with formal
section merchants,
operate in
rural areas
or in
informal urban
areas and
do not
always have access to a full-suite of traditional banking products;
(ii) Consumer,
which primarily
focuses on
individuals who
have historically
been excluded
from traditional
financial services
and to whom we offer transactional accounts (banking), insurance, lending (short-term
loans), payments solutions (digital wallet) and
various value-added services;
and
(iii) Enterprise, which comprises large-scale corporate and government organizations, including but not limited to banks, mobile
network operators (“MNOs”) and municipalities.
Reallocation of certain activities among operating segments
The
change
in
our
operating
segments
during
the
second
quarter
of
fiscal
2025
included
the
separation
of
Enterprise
out
of
Merchant.
The
Company
has also
allocated
the
majority
of Adumo’s
operations
to
Merchant,
with
a
smaller
part
of
its operations
focusing on the provision
of physical and digital
prepaid and secure payout
solutions for South African
businesses with large individual
end-users being allocated to Consumer.
Previously reported information has been recast.
The Merchant segment includes revenue generated from the sale of prepaid airtime, and fees earned from the provision
of value-
added services (“VAS”)
and card-acquiring services to informal sector merchants.
It also includes activities related to the provision of
goods
and services
provided
to corporate
and
other
juristic entities.
The
Company
earns fees
from
processing
activities
performed
(including
card acquiring
and the
provision
of a
payment
gateway services)
for
its customers,
and
rental and
license fees
from
the
provision of point
of sales (“POS”) hardware
and software to
the hospitality industry.
The Company also
provides cash management
and payment services to merchant customers through a digital vault which is located at the customer’s premises and through which the
Company is able to provide
the services which generate
processing fee revenue. From
July 1, 2023, the segment
includes fees earned
from transactions performed by customers utilizing its ATM
infrastructure.
43
18.
Operating segments (continued)
Reallocation of certain activities among operating segments (continued)
The Consumer segment
includes activities related
to the provision
of financial services
to customers,
including a bank
account,
loans and
insurance products.
The Company
charges monthly
administration fees
for all
bank accounts.
Customers that
have a
bank
account managed by the Company are issued cards that can be utilized to withdraw funds at an ATM or to transact at a merchant POS.
The Company
earns processing
fees from
transactions processed
for these
customers. The
Company also
earns fees
on transactions
performed
by
other
banks’
customers
utilizing
its
ATM
(until
June
30,
2023)
or
POS. The
Company
provides
short-term
loans
to
customers in South Africa for which it earns initiation and monthly service fees, and interest revenue from the second quarter of fiscal
2025.
The Company writes life insurance contracts, primarily funeral-benefit policies, and policy holders pay the Company a monthly
insurance premium.
The Company
also earns fees
from the provision
of physical and
digital prepaid
and secure payout
solutions for
South African businesses.
The Enterprise segment provides its business and government-related customers with transaction
processing services that involve
the collection, transmittal and retrieval of all transaction data. This segment also includes sales of hardware
and licenses to customers.
Hardware includes
the sale of
POS devices, SIM
cards and other
consumables which can
occur on an
ad hoc basis.
Licenses include
the right to use certain technology developed by the Company.
The reconciliation of the reportable segment’s revenue to revenue from external customers for the three months ended December
31, 2024 and 2023, is as follows:
Revenue
Reportable
Segment
Inter-
segment
From
external
customers
Merchant
$
115,811
$
594
$
115,217
Consumer
22,929
-
22,929
Enterprise
8,933
261
8,672
Total for the three
months ended December 31, 2024
$
147,673
$
855
$
146,818
Merchant
$
117,182
$
914
$
116,268
Consumer
16,707
-
16,707
Enterprise
11,921
1,003
10,918
Total for the three
months ended December 31, 2023
$
145,810
1,917
143,893
The reconciliation of
the reportable segment’s
revenue to revenue from
external customers for the
six months ended December
31, 2024 and 2023, is as follows:
Revenue
Reportable
Segment
Inter-
segment
From
external
customers
Merchant
$
231,441
$
1,182
$
230,259
Consumer
44,001
-
44,001
Enterprise
20,815
2,711
18,104
Total for the six months ended
December 31, 2024
$
296,257
$
3,893
$
292,364
Merchant
$
229,243
$
1,612
$
227,631
Consumer
32,287
-
32,287
Enterprise
21,388
1,324
20,064
Total for the six months ended
December 31, 2023
$
282,918
$
2,936
$
279,982
44
18.
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 is
working on obtaining 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
refinancing of
the Company’s
facilities. Therefore, the Company has included an intercompany interest expense in its Consumer Segment Adjusted EBITDA for
the
three and
six months
ended December
31, 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 represent
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
(now Merchant, Enterprise and Consumer) operating segments.
The reconciliation of the reportable
segments’ measure of profit or
loss to loss before income taxes
for the three and six months
ended December 31, 2024 and 2023, is as follows:
Three months ended
Six months ended
December 31,
December 31,
2024
2023
2024
2023
Reportable segments' measure of profit or loss
$
14,630
$
10,963
$
26,942
$
20,808
Operating loss: Group costs
(2,820)
(2,011)
(5,769)
(3,833)
Once-off costs
(488)
816
(2,293)
738
Interest adjustment
757
-
1,588
-
Unrealized Loss FV for currency adjustments
(435)
122
(216)
20
Stock-based compensation charge adjustments
(2,644)
(1,804)
(5,021)
(3,563)
Depreciation and amortization
(8,223)
(5,813)
(14,499)
(11,669)
Loss on disposal of equity-accounted investments
(161)
-
(161)
-
Change in fair value of equity securities
(33,731)
-
(33,731)
-
Reversal of allowance of EMI doubtful debt
-
-
-
250
Interest income
721
485
1,307
934
Interest expense
(6,174)
(4,822)
(11,206)
(9,731)
Loss before income tax expense
$
(38,568)
$
(2,064)
$
(43,059)
$
(6,046)
45
18.
Operating segments (continued)
Operating segments (continued)
The following tables summarize
supplemental segment information
for the three and six months
ended December 31, 2024 and
2023:
Three months ended
Six months ended
December 31,
December 31,
2024
2023
2024
2023
Revenues
Merchant
$
115,811
$
117,182
$
231,441
$
229,243
Enterprise
8,933
11,921
20,815
21,388
Consumer
22,929
16,707
44,001
32,287
Total reportable segment
revenue
147,673
145,810
296,257
282,918
Segment Adjusted EBITDA
Merchant
(1)(2)
10,319
7,497
17,873
14,407
Enterprise
(2)
(31)
891
331
1,706
Consumer
(1)(2)
4,342
2,575
8,738
4,695
Total Segment Adjusted
EBITDA
14,630
10,963
26,942
20,808
Depreciation and amortization
Merchant
3,027
1,944
5,254
3,904
Enterprise
94
97
194
215
Consumer
235
179
437
348
Subtotal: Operating segments
3,356
2,220
5,885
4,467
Group costs
4,867
3,593
8,614
7,202
Total
8,223
5,813
14,499
11,669
Expenditures for long-lived assets
Merchant
5,783
2,052
9,669
4,736
Enterprise
24
26
46
105
Consumer
511
120
568
166
Subtotal: Operating segments
6,318
2,198
10,283
5,007
Group costs
-
-
-
-
Total
$
6,318
$
2,198
$
10,283
$
5,007
(1) Segment Adjusted
EBITDA for the
three months ended December
31, 2024, includes
retrenchments costs for
Consumer of
$
0.01
million (ZAR
0.1
million). Segment
Adjusted EBITDA
for Merchant
includes retrenchment
costs of
$
0.01
million (ZAR
0.1
million) and Consumer includes retrenchment costs of $
0.1
million (ZAR
1.3
million) for the three months ended December 31,
2023.
(2) Segment
Adjusted EBITDA
for the
six months
ended December
31, 2024,
includes retrenchments
costs for
Consumer of
$
0.1
million (ZAR
1.2
million) and Enterprise of $
0.0
million (ZAR
0.2
million). Segment Adjusted EBITDA
for Merchant includes
retrenchment costs
of $
0.2
million (ZAR
4.7
million) and
Consumer includes
retrenchment costs
of $
0.2
million (ZAR
2.8
million)
for the six months ended December 31, 2023.
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.
46
19.
Income tax
Income tax in interim periods
For the purposes of interim
financial reporting, the Company
determines the appropriate income
tax provision by first
applying
the effective
tax rate
expected to
be applicable
for the
full fiscal
year to
ordinary income.
This amount
is then
adjusted for
the tax
effect
of
significant
unusual
items,
for
instance,
changes
in
tax
law,
valuation
allowances
and
non-deductible
transaction-related
expenses that
are reported
separately,
and have an
impact on the
tax charge.
The cumulative effect
of any change
in the enacted
tax
rate, if and when applicable, on the opening balance of deferred tax assets
and liabilities is also included in the tax charge as a discrete
event in the interim period in which the enactment date occurs.
For
the
three
and
six
months
ended
December
31,
2024,
the
Company’s
effective
tax
rate
was
impacted
by
the
tax expense
recorded by the
Company’s profitable South African operations,
non-deductible expenses (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
and
six
months
ended
December
31,
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 December 31, 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
December 31,
2024,
the Company’s South African subsidiaries are no longer subject to income tax examination by the South African Revenue Service
for
periods before
June 30,
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.
20.
Commitments and contingencies
Guarantees
The South African
Revenue Service and
certain of the
Company’s customers,
suppliers and other
business partners have
asked
the Company
to provide
them with
guarantees, including
standby letters
of credit,
issued by
South African
banks. The
Company is
required to procure these guarantees for these third parties to operate
its business.
RMB has
issued
guarantees
to
these
third
parties
amounting
to
ZAR
33.1
million
($
1.8
million,
translated
at
exchange
rates
applicable as of December 31, 2024) thereby utilizing part of the Company’s
short-term facilities. The Company pays commission of
between
3.42
% per annum to
3.44
% per annum of the face
value of these guarantees and does
not recover any of the commission
from
third parties.
Nedbank has
issued guarantees
to these
third parties
amounting to
ZAR
2.1
million ($
0.1
million, translated
at exchange
rates
applicable as of December 31, 2024) thereby utilizing part of the Company’s
short-term facilities. The Company pays commission of
between
0.47
% per annum to
1.84
% per annum of the face
value of these guarantees and does
not recover any of the commission
from
third parties.
The Company has not recognized any obligation related to these guarantees in its consolidated balance sheet as of December 31,
2024. The maximum
potential amount that
the Company could
pay under these
guarantees is ZAR
35.2
million ($
2.1
million, translated
at exchange
rates applicable
as of
December 31,
2024). As
discussed in
Note 9,
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
December
31,
2024).
The
guarantees
have
reduced
the
amount
available
under
its indirect
and
derivative facilities in the Company’s
short-term credit facilities described in Note 9.
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.
47
21.
Subsequent events
Proposed acquisition of Recharger
On November 20, 2024,
the Company announced the
acquisition of Recharger (Pty)
Ltd (“Recharger”).
The acquisition is
subject
to
the
satisfaction
of
customary
closing
conditions,
including
certain
regulatory
approvals.
As
of
January
29,
2025,
all regulatory
approvals, including approval by
the Competition Commission (South
Africa), were satisfied. The acquisition
is expected to close in
the third quarter of fiscal 2025.
The purchase
consideration of
ZAR
507
million will
be paid
over
two
tranches with
the first tranche
settled at closing
and the
second tranche
a year later.
The purchase consideration
will be settled
through a
combination of
ZAR
332
million in cash
and ZAR
175
million in shares of
the Company’s
common stock. The share
price applied to determine
the number of shares
of common stock
to be
issued for
the equity
consideration will be
based on
the volume-weighted
average price
of the Company’s
common shares
for
the three-month period prior
to the disbursal
of each tranche. The
Company will also
make a ZAR
43
million contribution to Recharger
at closing which will be used exclusively to repay a loan due by Recharger
to the seller.
The Company expects the acquisition
to act as an
entry point for it
into the South African
private utilities space while
augmenting
the Enterprise division’s alternative
payment offering.
48
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
Beginning in the
second quarter of fiscal
year 2025, Lesaka has
commenced disclosing its
financial results across
three distinct
operating divisions: Merchant, Consumer
and Enterprise. We are building an
integrated multiproduct platform that
is organized around
addressing a number of customer needs.
The Consumer
Division (“Consumer”)
will remain
substantially the
same. We
offer
consumers a
transactional account,
loans
and insurance. On 1 October the Adumo Payouts business officially
became part of Consumer.
The Merchant Division (“Merchant”) serves merchants
and micro-merchants, combining existing Connect, Kazang and
Kazang
Insights (previously known
as Touchsides) operations, as
well as
the bulk of
Adumo, specifically its
merchant acquiring and
processing
business and its GAAP hospitality platform. Combined the Lesaka
offering will be amongst the most comprehensive
in the market in
meeting the
needs of
micro and
medium size
businesses in
the region.
Our integrated
multi-product range
provides merchants
with
card acquiring, cash management, lending, software and Alternative Digital Payments (“ADP”). ADP includes
our pre-paid solutions
and supplier enabled payments (previously referred to as our value-added services).
Our
Enterprise
Division
(“Enterprise”)
focuses
on
large
corporates,
mobile
network
operators,
banks,
governments
and
municipalities. Our offering includes our bill and
utility payments platform, a new
payment switch, Prism Switch, as
well as Hardware
Security Modules,
a third
party vending
and security
business. Enterprise serves
third party
corporates and
the technology
needs of
our Consumer and Merchant Divisions.
Merchant Division
This division provides merchant acquiring, software, cash management services, lending and ADP, that empower merchants and
micro-merchants to transact efficiently and fulfill their
potential.
49
Performance in Merchant has been driven by:
Merchant acquiring
Fiscal quarter ended December 31,
Q2 2025
Q2 2024
Q2 2023
Number of devices in deployment
80,178
48,199
34,216
Total Throughput
for the quarter (ZAR billions)
11.3
4.1
3.1
●
Merchant acquiring includes 80,178 devices deployed under the Adumo, Card Connect and Kazang brands. Q2 2025 is
inclusive of
approximately
27,000 devices
deployed under
the Adumo
brand with
the Adumo
transaction closing
on
October 1, 2024.
●
Throughput increased
to ZAR
11.3
billion for
the quarter,
driven mainly
by the
inclusion of
Adumo in
Q2 2025
and
supported by 19% year-on-year increase in throughput
attributable to Kazang Pay.
Software
Our software
solutions are
offered through
GAAP,
a subsidiary
of Adumo.
GAAP has
operations in
South Africa,
Botswana,
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.
Fiscal quarter ended December 31,
Q2 2025
Number of GAAP sites
9,705
Approximate ARPU per site (ZAR)
1
3,300
1.
ARPU is calculated on a
revenue per site basis, as
monthly figure based on a
three-month rolling average for the quarter
ending December 31, 2024.
●
The Adumo transaction closed on October 1, 2024. The number of
GAAP sites was 9,705 as of December 31, 2024.
●
ARPU per site, which combines hardware, software and acquiring revenue,
was approximately ZAR 3,300 per month.
Cash management
Our cash management and digitalization
solutions effectively “puts the bank” in 4,664 merchants’
stores.
Fiscal quarter ended December 31,
Q2 2025
Q2 2024
Q2 2023
2025
vs. 2024
Number of devices in deployment
4,664
4,484
4,325
4%
Cash settlements (throughput)
for the quarter
(ZAR billions)
30.4
29.9
29.5
2%
●
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 merchant
sector (Cash Connect) and are building a presence in the micro-
merchant
sector
(Kazang
Vaults),
which
enables
our
merchant
customer
base
to
mitigate
their
operational
risks
pertaining to cash management and security.
Lending
Our lending
solutions are offered to
merchants through Capital Connect
and Adumo Capital, a joint
venture with Retail Capital
(a division of Tyme Bank)
for Merchant Cash Advance (“MCA”), with a 50:50 profit share.
Fiscal quarter ended December 31,
Q2 2025
Q2 2024
Q2 2023
Total credit disbursed
(ZAR millions)
1
178
170
205
Total net loan book
size at period end (ZAR millions)
1
343
253
290
1.
Amounts reflected above includes 100% of Adumo
Capital’s
credit disbursed and net loan book.
●
Q2 2025
is inclusive
of credit
disbursed
under
the Adumo
brand
with the
Adumo
transaction closing
on October
1,
2024.
●
Capital Connect’s
lending proposition
is an important
component in
enabling the merchants
we serve
to compete
and
grow.
●
Adumo Capital, a 50:50 joint venture
with Retail Capital, enables merchants to
access working capital in exchange
for
a portion of future turnover at POS.
Merchants can apply online and have access to funds within 24 hours.
50
Alternative Digital Payments
ADP includes our pre-paid solutions and supplier enabled payments (previously
referred to as our value-added services).
Pre-paid
solutions
comprise
airtime,
electricity
and
gaming
vouchers.
Supplier
enabled
payments
predominantly
includes
supplier payments, with the balance attributable to international money transfers, bill payments, satellite (digital) television
offerings.
Fiscal quarter ended December 31,
Q2 2025
Q2 2024
Q2 2023
2025
vs. 2024
Number of devices in deployment
1
89,571
79,051
64,428
13%
Total throughput
for the quarter (ZAR billions)
11.1
8.4
6.9
32%
Pre-paid solutions throughput for the quarter
(ZAR billions)
4.9
4.6
3.7
7%
Supplier enabled payments throughput for the
quarter (ZAR
billions)
6.2
3.8
3.2
63%
1.
2025 includes
5,714 devices
attributable to
the acquisition
of Kazang
Insights (formerly
known as
Touchsides),
effective
May 1, 2024, which are not enabled for Alternative
Digital Payments.
●
We had 89,571 devices deployed
as of December
31, 2024, representing a
13% year-on-year growth compared
to 79,051
devices as of December 31, 2023. This includes 5,714 devices in Kazang Insights
(formerly known as Touchsides)
sites
that are not yet enabled for ADP.
●
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.
●
Total
throughput
increased
32%
to
ZAR
11.1
billion
year-on-year,
driven
by
a
63%
increase
in
supplier
enabled
payments.
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.
Consumer
Fiscal quarter ended December 31,
Q2 2025
Q2 2024
Q2 2023
2025
vs. 2024
Transactional accounts
(banking) - EasyPay Everywhere ("EPE")
Total active EPE transactional account base at
quarter end
(millions)
1.6
1.4
1.2
11%
Total active EPE transactional account base at
quarter end
- Permanent grant recipients (millions)
1
1.4
1.2
1.0
16%
Approximate
Gross
EPE
account
activations
for
the
quarter -Permanent grant recipients (number)
99,000
137,000
43,000
(27%)
Approximate Net EPE account activations
for the quarter
- Permanent grant recipients (number)
1
65,000
102,000
10,000
(37%)
Lending - EasyPay Loans
Approximate
number
of
loans
originated
during
the
quarter (number)
336,000
278,000
225,000
21%
Gross advances in the quarter (ZAR millions)
617
447
339
38%
Loan book size,
before allowances, at
quarter end
2
(ZAR
millions)
709
503
398
41%
Insurance - EasyPay Insurance
Approximate number
of insurance
policies written in
the
quarter (number)
50,000
42,000
29,000
19%
Total
active
insurance
policies
on
book
at
quarter
end
(number)
496,488
384,338
294,157
29%
Average
revenue
per
customer
per
month,
as
of
December 31, (permanent grant beneficiaries) (ZAR)
94
85
74
11%
Adumo Payouts
Approximate number of active cardholders
200,000
-
-
-
Approximate load value for the quarter (ZAR millions)
170
-
-
-
51
1.
Source: SASSA statistical reports portal (2024) | Permanent grant customers per SASSA’s
monthly Social Assistance report
(December 31, 2024).
2.
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 99,000
gross account activations
in
the quarter, compared to
approximately 137,000 in the second quarter of fiscal 2024
which was higher than normal
due
to operational
issues at
the
Post Bank
specific
to
that quarter;
and
approximately
71,000
gross activations
a
quarter
ago
(Q1
2025).
After
accounting
for
churn,
net
active
account
growth
(
permanent
grant
customers
per
SASSA’s
monthly Social Assistance
report for
December 31, 2024,
on the SASSA
statistical reports
portal)
for the
quarter
was
approximately
65,000
accounts,
compared
to
approximately
102,000
in
the
second
quarter
of
fiscal
2024, and 33 000 in the first quarter of fiscal 2025.
o
Our total active EPE transactional account base stood at approximately 1.6 million at the end of December 2024, of
which
approximately
1.4
million
(or
approximately
89%)
are
permanent
grant
recipients
(
permanent
grant
customers per SASSA’s
monthly Social
Assistance report
for December
31, 2024,
on the SASSA
statistical reports
portal).
The balance comprises Social Relief of Distress (“SRD”) grant recipients, which was introduced during the
COVID pandemic and extended in calendar year 2024.
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.
●
Progress on cross
selling
EasyPay Loans
o
We
originated
approximately 336,000
loans during
the quarter,
with our
consumer
loan book,
before allowances
(“gross book”), increasing 41%
to ZAR 709 million as
of December 31, 2024,
compared to ZAR 503 million
as of
December 31, 2023.
o
We have not amended our credit scoring or other lending criteria, and the growth is reflective of the demand for our
tailored
loan
product
for
this
market,
growth
in
EPE
bank
account
customer
base
and
improved
cross-selling
capabilities.
o
The
loan
conversion
rate continues
to improve
following
the implementation
of
a number
of targeted
Consumer
lending campaigns and encouraging results from our digital channels.
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,
has remained
stable at
approximately 6%
on an
annualized basis, compared to quarter two 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
35%
of
our
active
permanent
grant
account
base
as
of
December 31, 2024, compared
to 31% as of December
31, 2023. Approximately
50,000 new policies were
written
in the quarter, compared to
approximately 42,000 in the
comparable period in fiscal
2024. The total number
of active
policies has grown 29% to approximately 496,000 policies as of December 31, 2024,
compared to 384,000 policies
as of December 31, 2023.
ARPU
o
ARPU for
our permanent
client base
has increased
to approximately
ZAR 94
per month
for the
second quarter
of
fiscal 2025, from approximately ZAR 85 in the second quarter of fiscal 2024.
Adumo Payouts
o
On 1 October the Adumo Payouts business officially became part
of the Consumer Division.
o
The number of active card
holders was approximately 200,000 at
the end of the second quarter of
fiscal 2025, with
a load value of approximately ZAR 170 million for quarter ended December
31, 2024.
52
Enterprise Division
In
our
Enterprise
Division
we
deliver
software
and
payment
technology
to
enterprise
clients,
who
are
generally
large-scale
corporate
and government
organizations,
including
but not
limited
to banks,
mobile network
operators
and
municipalities, driving
efficiency and innovation.
Fiscal quarter ended December 31,
Q2 2025
Q2 2024
2025
vs. 2024
Bill Payments
Total Throughput
for the quarter (ZAR billions)
8.3
7.3
13%
Utility Payments
Total Throughput
for the quarter (ZAR billions)
1.6
2.0
(16%)
Hardware Security Modules
Units
147
138
7%
Switching
1
Approximate number of transactions (million)
34
-
-
1.
Our
new
payment
switch,
Prism Switch
has
been
in production
since
June
2024 thus
prior
period
comparatives
are
not
applicable.
Acquisition of Recharger
On November 20,
2024, we announced
the acquisition of
Recharger (Pty) Ltd (“Recharger”),
an acquisition subject
to satisfaction
of customary closing
conditions. As of
January 29, 2025,
all regulatory approvals,
including approval by
the Competition Commission,
have been satisfied. The
transaction is expected to
close in the third quarter
of fiscal 2025, once
the remaining procedural customary
closing conditions are satisfied.
The purchase
consideration of
ZAR 507
million will
be paid
over two
tranches with
the first tranche
settled at closing
and the
second tranche
a year later.
The purchase consideration
will be settled
through a
combination of
ZAR 332 million
in cash and
ZAR
175 million
in shares
of our
common stock.
The share
price applied
to determine
the number
of shares
of our
common stock
to be
issued for the equity consideration will be based on the volume-weighted average price
of our shares for the three-month period prior
to
the
disbursal
of
each
tranche.
We
will
also
make
a
ZAR
43
million
contribution
to
Recharger
at
closing
which
will
be
used
exclusively to repay a loan due by Recharger to the seller.
We
expect
the
acquisition
to
act
as an
entry
point
for
us
into
the
South
African
private utilities
space
while
augmenting
the
Enterprise division’s alternative
payment offering.
Improvement in our Broad Based Black Economic
Empowerment (“B-BBEE”) rating to level 3
B-BBEE is
a key
strategic priority
for us. Achievement
of B-BBEE
objectives is
measured by
a scorecard
which establishes
a
weighting
for
various
elements.
Scorecards
are
independently
reviewed
by
accredited
BEE
verification
agencies
which
issue
a
certificate that presents an entity’s BEE Contributor Status Level, with
level 1 being the highest
and “no rating” (a level
below level 8)
as the lowest. During fiscal 2025 we reported that our independently verified B-BBEE rating improved to a level 3 rating from a level
4 rating achieved in fiscal year 2024.
53
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 December 31, 2024
Refer
to
Note
1
to
our
unaudited
condensed
consolidated
financial
statements
for
a
full
description
of
recent
accounting
pronouncements
not
yet
adopted
as
of
December
31,
2024,
including
the
expected
dates
of
adoption
and
effects
on
our
financial
condition, results of operations and cash flows.
Currency Exchange Rate Information
Actual exchange rates
The actual exchange rates for and at the end of the periods presented were
as follows:
Table 1
Three months ended
Six months ended
Year
ended
December 31,
December 31,
June 30,
2024
2023
2024
2023
2024
ZAR : $ average exchange rate
17.9054
18.7313
17.9327
18.6885
18.7070
Highest ZAR : $ rate during period
18.8296
19.4568
18.8296
19.4568
19.4568
Lowest ZAR : $ rate during period
17.3354
18.2076
17.1144
17.6278
17.6278
Rate at end of period
18.8296
18.2982
18.8296
18.2982
18.1808
54
Translation exchange
rates for financial reporting purposes
We are required
to translate our results of operations from ZAR to U.S. dollars on a monthly
basis. Thus, the average rates used
to translate this
data for
the three and
six months ended
December 31, 2024
and 2023, vary
slightly from the
averages shown
in the
table above. Except as
described below,
the translation rates we
use in presenting our
results of operations are
the rates shown in
the
following table:
Three months ended
Six months ended
Year
ended
Table 2
December 31,
December 31,
June 30,
2024
2023
2024
2023
2024
Income and expense items: $1 = ZAR
17.8495
18.7108
17.7967
18.7124
18.6844
Balance sheet items: $1 = ZAR
18.8296
18.2982
18.8296
18.2982
18.1808
We
have translated
the results
of operations
and operating
segment information
for the
three and
six months
ended December
31, 2024
and 2023,
provided in
the tables
below using
the actual
average exchange
rates per
month (i.e.
for each
of October
2024,
November
2024,
and
December
2024
for
the
second
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.
55
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
18
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 represent 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
(and
now
Merchant,
Consumer
and
Enterprise)
operating segments.
Group
Adjusted
EBITDA
represents
Segment
Adjusted
EBITDA
after
deducting
group
costs.
Refer
also
“Results
of
Operations—Use of Non-GAAP Measures” below.
Our fiscal 2025 financial
results include Adumo from
October 1, 2024. Adumo
is not included in our
financial results for fiscal
2024.
We
analyze our
business and
operations
in terms
of three
inter-related
but independent
operating segments:
(1) Merchant
(2)
Enterprise and (3) Consumer.
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.
Second quarter of fiscal 2025 compared to second quarter
of fiscal 2024
The following factors had
a significant impact on
our results of operations
during the second quarter
of fiscal 2025 as compared
with the same period in the prior year:
●
Lower revenue in ZAR:
Our revenues decreased 2% in ZAR, primarily due
to fewer low margin prepaid airtime sales and a
lower contribution from Enterprise, which
was partially offset by
the inclusion of Adumo,
an increase in value-added
services
activity in Merchant, as well as higher transaction, insurance and lending
revenues in Consumer;
●
Operating income
decrease:
Operating income
decreased primarily
due to higher
costs and the
increase in amortization
of
acquisition-related
intangible assets
related
to
the
acquisition
of
Adumo,
which
was partially
offset
by
contribution
from
Adumo from October 1, 2024;
●
Non-cash fair value adjustment related to equity securities:
We recorded a non
-cash fair value loss of $33.7 million during
the second quarter of fiscal 2025 related to our investment in MobiKwik;
●
Higher net interest
charge:
Net interest charge
increased to $5.5
million (ZAR 97.7
million) from $4.3
million (ZAR 81.2
million) primarily due to higher
overall borrowings, which was partially
offset by an increase in
interest received as a result
of the inclusion of Adumo; and
●
Foreign exchange
movements:
The U.S.
dollar was
5% weaker
against the
ZAR during
the second
quarter of
fiscal 2025
compared to the prior period, which positively impacted our U.S. dollar
reported results.
56
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 December 31,
2024
2023
%
$ ’000
$ ’000
change
Revenue
146,818
143,893
2%
Cost of goods sold, IT processing, servicing and support
101,298
114,266
(11%)
Selling, general and administration
36,520
21,541
70%
Depreciation and amortization
8,223
5,813
41%
Operating income
777
2,273
(66%)
Change in fair value of equity securities
(33,731)
-
nm
Loss on disposal of equity-accounted investments
161
-
nm
Interest income
721
485
49%
Interest expense
6,174
4,822
28%
Loss before income tax (benefit) expense
(38,568)
(2,064)
1,769%
Income tax (benefit) expense
(6,412)
686
nm
Net loss before earnings from equity-accounted investments
(32,156)
(2,750)
1,069%
Earnings from equity-accounted investments
50
43
16%
Net loss
(32,106)
(2,707)
1,086%
Less net income attributable to non-controlling interest
28
-
nm
Net loss attributable to us
(32,134)
(2,707)
1,087%
Table 4
In South African Rand
Three months ended December 31,
2024
2023
%
ZAR ’000
ZAR ’000
change
Revenue
2,629,200
2,694,506
(2%)
Cost of goods sold, IT processing, servicing and support
1,814,111
2,139,730
(15%)
Selling, general and administration
653,756
403,443
62%
Depreciation and amortization
147,086
108,863
35%
Operating income
14,247
42,470
(66%)
Change in fair value of equity securities
(614,710)
-
nm
Loss on disposal of equity-accounted investments
2,886
-
nm
Interest income
12,886
9,080
42%
Interest expense
110,580
90,329
22%
Loss before income tax (benefit) expense
(701,043)
(38,779)
1,708%
Income tax (benefit) expense
(116,954)
12,845
nm
Net loss before earnings from equity-accounted investments
(584,089)
(51,624)
1,031%
Earnings from equity-accounted investments
891
805
11%
Net loss
(583,198)
(50,819)
1,048%
Less net income attributable to non-controlling interest
496
-
nm
Net loss attributable to us
(583,694)
(50,819)
1,049%
Revenue
increased
by $2.9
million (or
2.0%)
but decreased
by ZAR
65.3
million
(or
2.4%), and
in ZAR,
the decreased
was
primarily
due to
fewer
low margin
prepaid
airtime sales,
which was
partially offset
by the
inclusion of
Adumo, an
increase in
the
volume of value-added
services provided (prepaid
airtime and gaming), 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.
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 decreased
by $13.0
million (ZAR
325.6
million) or
11.3%
(in ZAR
15.2%),
primarily
due
to
the decrease
in low
margin
prepaid
airtime
sales, which
was partially
offset
by the
inclusion
of Adumo,
higher commissions paid related to VAS
revenue generated, and higher insurance-related claims and third-party
transaction fees.
57
Selling, general
and administration
expenses increased
by $15.0
million (ZAR
250.3 million),
or 69.5%
(in ZAR
62.0%). The
increase
was
primarily
due
to
the
inclusion
of
Adumo;
higher
employee-related
expenses
(including
the
impact
of
annual
salary
increases);
higher stock-based compensation
charges,
audit and
travel expenses; and
the year-over-year impact
of inflationary increases
on certain expenses.
Depreciation and amortization
expense increased by
$2.4 million (ZAR 38.2
million),
or 41.5% (35.1%). The
increase was due
to
the
inclusion
of
acquisition-related
intangible
asset
amortization
related
to
intangible
assets
identified
pursuant
to
the
Adumo
acquisition and an increase in depreciation expense related to
additional POS devices deployed.
Our operating income
margin for the
second quarter of
fiscal 2025 and
2024 was 0.5%
and 1.6%, respectively.
We
discuss the
components of operating loss margin under “—Results of operations
by operating segment.”
The change in fair value of
equity securities of $33.7 million during
the first half of fiscal 2025 represents
a non-cash fair value
adjustment loss
related to
MobiKwik. We
did not
record any
changes in
the fair
value of
equity interests
in MobiKwik
during the
second quarter of fiscal 2024, or
any fair value adjustments for
Cell C during the second quarter
of fiscal 2025 or 2024, respectively.
We
continue
to carry
our investment
in Cell
C at
$0 (zero).
Refer to
Note 5
for the
methodology and
inputs used
in the
fair value
calculation for MobiKwik and Cell C.
We recorded a loss of $0.2
million related to the change in
our investment in an equity security
recorded under the equity method
to consolidation during fiscal 2025. Refer
to Note 2 to our consolidated financial statements
for additional information regarding
this
loss.
Interest on surplus cash increased
to $0.7 million (ZAR 12.9 million)
from $0.5 million (ZAR 9.1 million),
primarily due to the
inclusion of Adumo.
Interest expense increased
to $6.2 million (ZAR 110.6
million) from $4.8 million
(ZAR 90.3 million. In
ZAR, the increase was
primarily
by higher
overall borrowings
during the
second quarter
of fiscal
2025 compared
with the
comparable period
in the
prior
quarter.
Fiscal 2025 tax expense
was $(6.4) million (ZAR (117.0)
million) compared to $0.7
million (ZAR 12.8 million)
in fiscal 2024.
Our effective tax rate for fiscal 2025 was impacted by deferred tax impact related to the fair value adjustment to our equity securities,
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.
The table below presents the relative earnings (loss) from our equity-accounted
investments:
Table 5
Three months ended December 31,
2024
2023
$ %
$ ’000
$ ’000
change
Other
50
43
16%
Total
income (loss) from equity-accounted investments
50
43
16%
58
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 December 31,
2024
% of
2023
% of
% change
Operating Segment
$ ’000
total
$ ’000
total
Consolidated revenue:
Merchant
115,811
79%
117,182
81%
(1%)
Consumer
22,929
16%
16,707
12%
37%
Enterprise
8,933
6%
11,921
8%
(25%)
Subtotal: Operating segments
147,673
101%
145,810
101%
1%
Eliminations
(855)
(1%)
(1,917)
(1%)
(55%)
Total
consolidated revenue
146,818
100%
143,893
100%
2%
Group Adjusted EBITDA:
Merchant
(1)(2)
10,319
87%
7,497
84%
38%
Consumer
(1)(2)
4,342
37%
2,575
29%
69%
Enterprise
(2)
(31)
-
891
10%
nm
Group costs
(2,820)
(24%)
(2,011)
(23%)
40%
Group Adjusted EBITDA (non-GAAP)
(3)
11,810
100%
8,952
100%
32%
(1) Segment Adjusted
EBITDA for the
three months ended December
31, 2024, includes
retrenchments costs for
Consumer of
$0.01
million.
Segment
Adjusted
EBITDA
for
Merchant
includes
retrenchment
costs
of
$0.01
million
and
Consumer
includes
retrenchment costs of $0.1 million for the three months ended December 31, 2023.
(2) Lease expenses which were previously presented on
a separately line in fiscal
2024 are now included in Merchant,
Consumer
and Enterprise Segment
Adjusted EBITDA. The prior
period has been
re-presented to conform
with current period presentation.
See
also “—Results
of Operations
—
Presentation of
Merchant, Consumer
and Enterprise
by segment
for fiscal
2025 to
date and
fiscal
2024”.
(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 December 31,
2024
% of
2023
% of
% change
Operating Segment
ZAR ’000
total
ZAR ’000
total
Consolidated revenue:
Merchant
2,074,003
79%
2,194,260
81%
(5%)
Consumer
410,687
16%
312,767
12%
31%
Enterprise
159,846
6%
223,193
8%
(28%)
Subtotal: Operating segments
2,644,536
16%
2,730,220
12%
(3%)
Eliminations
(15,336)
84%
(35,714)
88%
(57%)
Total
consolidated revenue
2,629,200
100%
2,694,506
100%
(2%)
Group Adjusted EBITDA:
Merchant
(1)(2)
185,108
87%
140,429
84%
32%
Consumer
(1)(2)
77,488
37%
48,233
29%
61%
Enterprise
(2)
(537)
-
16,779
10%
nm
Group costs
(50,265)
(24%)
(37,663)
(23%)
33%
Group Adjusted EBITDA (non-GAAP)
(3)
211,794
100%
167,778
100%
26%
(1) Segment
Adjusted EBITDA
Merchant and
Segment Adjusted
EBITDA Consumer
include retrenchment
costs of
ZAR 0.1
million, respectively,
for the second quarter
of fiscal 2025. Segment
Adjusted EBITDA for
Merchant includes retrenchment
costs of
ZAR 0.1 million and Consumer includes retrenchment costs of ZAR 1.3 million
for the three months ended December 31, 2023.
(2) Lease expenses which were previously presented
on a separately line in
fiscal 2024 are now included in Merchant,
Consumer
and Enterprise 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”.
59
Merchant
Segment revenue primarily decreased due fewer low margin
prepaid airtime sales (“Pinned airtime”), which was partially offset
by the inclusion of Adumo,
a higher volume of value-added
services provided (prepaid airtime
and gaming). In ZAR,
the increase in
Segment
Adjusted
EBITDA
is primarily
due
to
the
inclusion
of
Adumo,
which
was partially
offset
by
higher
operating
expenses
incurred,
especially
employment-related
expenditures,
to expand
our
offering.
We
recorded
a significant
proportion
of our
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.
From the first quarter
of fiscal 2025, we
have experienced a shift
in the
mix between
the sale of
Pinned Airtime and
distribution of pinless
prepaid airtime
(“Pinless Airtime”), and
this trend has
continued
through to the second quarter of fiscal
2025, with the volume of Pinned Airtime sales
decreasing, which results in a lower revenue and
related cost of sales, and an overall improved margin.
Our Segment Adjusted EBITDA margin for the
second quarter of fiscal 2025 and 2024 was 8.9% and 6.4%, respectively.
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,
lending
revenues following an increase in loan originations and the inclusion of
Adumo. This increase in revenue has translated into
improved
profitability, which was partially offset by a higher allowance for credit losses following an increase in loan originations in December
2024, higher insurance-related claims, interest
expense (of approximately ZAR 13.6
million) incurred to fund
our lending book,
higher
computer software license costs, and the year-over-year impact of inflationary increases on certain expenses. As noted during the first
quarter of fiscal 2025, 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
refinancing
of
the
Company’s
facilities.
Therefore,
we
have
included
an
intercompany
interest
expense
in
our
Consumer Segment Adjusted EBITDA for the second quarter
of fiscal 2025 compared with the second quarter of fiscal 2024.
Our Segment Adjusted EBITDA margin for the
second quarter of fiscal 2025 and 2024 was 18.9%
and 15.4%, respectively.
Enterprise
Segment revenue
decreased primarily
due to
fewer ad
hoc hardware
sales as well
as lower
revenue generated
from the
sale of
prepaid airtime vouchers.
In ZAR, the
significant decrease in Segment Adjusted
EBITDA is primarily due
to the impact of
fewer sales.
Our Segment Adjusted
(loss) EBITDA margin
for the second
quarter of fiscal
2025 and 2024
was (0.35)% and
7.5%, 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,
travel, audit, consulting and legal fees.
First half of fiscal 2025 compared to first half of fiscal 2024
The following
factors had a
significant impact on
our results of
operations during
the first half
of fiscal 2025
as compared with
the same period in the prior year:
●
Flat revenue:
Our revenues
were flat and
increased 0.2% in
ZAR, primarily
due to the
inclusion of Adumo,
an increase in
value-added services activity in Merchant, as well as higher transaction, insurance and lending revenues in Consumer, which
was partially offset by fewer Pinned Airtime sales and
a lower contribution from Enterprise;
●
Operating income decrease, before transaction costs:
Operating income, before Adumo-related transaction costs, decreased
primarily
due
to
increased
costs
and
the
increase
in
amortization
of
acquisition-related
intangible
assets
related
to
the
acquisition of Adumo, which was partially offset by contribution
from Adumo from October 1, 2024;
●
Non-cash fair value adjustment related to equity securities:
We recorded a non
-cash fair value loss of $33.7 million during
the first half of fiscal 2025 related to our investment in MobiKwik;
●
Higher net interest charge:
Net interest charge increased to $9.9 million (ZAR 177.5
million) from $8.8 million (ZAR 164.3
million) primarily due to higher
overall borrowings, which was partially
offset by an increase in
interest received as a result
of the inclusion of Adumo; and
●
Foreign exchange movements:
The U.S. dollar was
5% weaker against the
ZAR during the first
half of fiscal 2025
compared
to the prior period, which adversely impacted our U.S. dollar reported
results.
60
Consolidated overall results of operations
This discussion is based on the amounts prepared in accordance with U.S. GAAP.
The following tables show the changes in the items comprising our statements of operations,
both in U.S. dollars and in ZAR:
Table 8
In United States Dollars
Six months ended December 31,
2024
2023
%
$ ’000
$ ’000
change
Revenue
292,364
279,982
4%
Cost of goods sold, IT processing, servicing and support
212,185
221,756
(4%)
Selling, general and administration
63,246
44,056
44%
Depreciation and amortization
14,499
11,669
24%
Transaction costs related to Adumo acquisition
1,702
-
nm
Operating income
732
2,501
(71%)
Change in fair value of equity securities
(33,731)
-
nm
Loss on disposal of equity-accounted investments
161
-
nm
Reversal of allowance for EMI doubtful debt receivable
-
250
nm
Interest income
1,307
934
40%
Interest expense
11,206
9,731
15%
Loss before income tax (benefit) expense
(43,059)
(6,046)
612%
Income tax (benefit) expense
(6,334)
950
nm
Net loss before income (loss) from equity-accounted investments
(36,725)
(6,996)
425%
Income (Loss) from equity-accounted investments
77
(1,362)
nm
Net loss
(36,648)
(8,358)
338%
Less net income attributable to non-controlling interest
28
-
nm
Net loss attributable to us
(36,676)
(8,358)
339%
Table 9
In South African Rand
Six months ended December 31,
2024
2023
%
ZAR ’000
ZAR ’000
change
Revenue
5,244,890
5,232,165
0%
Cost of goods sold, IT processing, servicing and support
3,807,752
4,144,195
(8%)
Selling, general and administration
1,133,433
823,304
38%
Depreciation and amortization
259,746
218,029
19%
Transaction costs related to Adumo acquisition
29,997
-
nm
Operating income
13,962
46,637
(70%)
Change in fair value of equity securities
(614,710)
-
nm
Loss on disposal of equity-accounted investments
2,886
-
nm
Reversal of allowance for EMI doubtful debt receivable
-
4,741
nm
Interest income
23,403
17,448
34%
Interest expense
200,908
181,758
11%
Loss before income tax (benefit) expense
(781,139)
(112,932)
592%
Income tax (benefit) expense
(115,552)
17,670
nm
Net loss before income (loss) from equity-accounted investments
(665,587)
(130,602)
410%
Income (Loss) from equity-accounted investments
1,366
(25,852)
nm
Net loss
(664,221)
(156,454)
325%
Less net income attributable to non-controlling interest
496
-
nm
Net loss attributable to us
(664,717)
(156,454)
325%
Revenue increased by
$12.4 million (ZAR 12.7
million), or 4.4% (in
ZAR, 0.2%), primarily due
to the inclusion of
Adumo, an
increase in the
volume of value-added
services provided (Pinless
Airtime and gaming),
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
Pinned Airtime sales.
Cost of goods
sold, IT processing,
servicing and
support decreased
by $9.6
million (or 4.3%)
and, in
ZAR, decreased
by ZAR
336.4 million (or 8.1%), primarily due to the decrease in
Pinned Airtime sales, which was partially offset by the inclusion of
Adumo,
higher commissions paid related to VAS
revenue generated, and higher insurance-related claims and third-party
transaction fees.
61
Selling, general
and administration
expenses increased
by $19.2
million (ZAR
310.1 million),
or 43.6%
(in ZAR
37.7%). The
increase was primarily due to the inclusion of Adumo; higher employee-related expenses (including annual bonuses and
annual salary
increases); higher stock-based
compensation charges,
consulting fees, audit
fees, and travel expenses;
and the year-over-year
impact
of inflationary increases on certain expenses.
Depreciation and amortization
expense increased by $2.8
million (ZAR 41.7 million),
or 24.3% (19.1%). The
increase was due
to
the
inclusion
of
acquisition-related
intangible
asset
amortization
related
to
intangible
assets
identified
pursuant
to
the
Adumo
acquisition and 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 half
of fiscal 2025
and 2024 was
0.3% and 0.9%,
respectively.
We
discuss the
components of operating loss margin under “—Results of operations
by operating segment.”
The change in fair value of
equity securities of $33.7 million during
the first half of fiscal 2025 represents
a non-cash fair value
adjustment loss related to MobiKwik. We did not record any changes in the fair value of equity interests in MobiKwik during the first
half of fiscal
2024, or any fair
value adjustments for
Cell C during
the first half of
fiscal 2025 or
2024, respectively.
We
continue to
carry our investment in Cell C at $0 (zero).
We recorded a loss of $0.2
million related to the change in
our investment in an equity security
recorded under the equity method
to consolidation during fiscal 2025. Refer
to Note 2 to our consolidated financial statements
for additional information regarding
this
loss.
Interest on surplus cash increased to $1.3 million (ZAR 23.4 million) from $0.9 million (ZAR 17.4 million), primarily due to the
inclusion of Adumo and higher overall average cash balances on deposit during
the first half of fiscal 2025 compared with 2024.
Interest expense
increased to
$11.2
million from
$9.7 million
and, in
ZAR, decreased
to ZAR
200.9 million
from ZAR
181.8
million. In ZAR, the increase was primarily as a result of higher overall borrowings during the first half of fiscal 2025 compared with
the comparable period
in the prior quarter,
which was partially offset
by lower interest expense
incurred on certain of
our borrowing
for which we were able to negotiate lower rates of interest towards the end of
calendar 2024.
Fiscal 2025 tax expense
was $(6.3) million (ZAR (115.6)
million) compared to $1.0
million (ZAR 17.7 million)
in fiscal 2024.
Our effective tax rate for fiscal 2025 was impacted by deferred tax impact related to the fair value adjustment to our equity securities,
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 half and its
annual results
during our fourth quarter. We sold our entire
remaining interest in Finbond
during the first
half of fiscal 2024.
The table below
presents
the relative (loss) earnings from our equity-accounted investments:
Table 10
Six months ended December 31,
2024
2023
$ %
$ ’000
$ ’000
change
Finbond
-
(1,445)
nm
Share of net loss
-
(278)
nm
Impairment
-
(1,167)
nm
Other
77
83
(7%)
77
(1,362)
nm
62
Results of operations by operating segment
The composition of revenue and the contributions of our business activities to operating
loss are illustrated below:
Table 11
In United States Dollars
Six months ended December 31,
2024
% of
2023
% of
% change
Operating Segment
$ ’000
total
$ ’000
total
Consolidated revenue:
Merchant
231,441
80%
229,243
82%
1%
Consumer
44,001
15%
32,287
12%
36%
Enterprise
20,815
7%
21,388
8%
(3%)
Subtotal: Operating segments
296,257
102%
282,918
102%
5%
Eliminations
(3,893)
(2%)
(2,936)
(2%)
33%
Total
consolidated revenue
292,364
100%
279,982
100%
4%
Group Adjusted EBITDA:
Merchant
(1)(2)
17,873
84%
14,407
85%
24%
Consumer
(1)(2)
8,738
41%
4,695
28%
86%
Enterprise
(1)(2)
331
2%
1,706
10%
(81%)
Group costs
(5,769)
(27%)
(3,833)
(23%)
51%
Group Adjusted EBITDA (non-GAAP)
(3)
21,173
100%
16,975
100%
25%
(1)
Segment
Adjusted
EBITDA
Consumer
and
Segment
Adjusted
EBITDA
Enterprise
include
retrenchment
costs
of
$0.01
million
and
$0.00
million,
respectively,
for
the
first
half
of
fiscal
2025.
Segment
Adjusted
EBITDA
for
Merchant
includes
retrenchment costs of $0.2 million and Consumer includes retrenchment
costs of $0.2 million for the first half of fiscal 2024.
(2) Lease expenses which were previously presented
on a separately line in
fiscal 2024 are now included in Merchant,
Consumer
and Enterprise 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”.
Table 12
In South African Rand
Six months ended December 31,
2024
% of
2023
% of
% change
Operating Segment
ZAR ’000
total
ZAR ’000
total
Consolidated revenue:
Merchant
4,152,856
80%
4,283,655
82%
(3%)
Enterprise
373,825
7%
399,914
8%
(7%)
Consumer
788,750
15%
603,396
12%
31%
Subtotal: Operating segments
5,315,431
101%
5,286,965
101%
1%
Eliminations
(70,541)
(1%)
(54,800)
(1%)
29%
Total
consolidated revenue
5,244,890
100%
5,232,165
100%
0%
Group Adjusted EBITDA:
Merchant
(1)(2)
320,618
84%
269,145
85%
19%
Enterprise
(1)(2)
6,031
2%
31,973
10%
(81%)
Consumer
(1)(2)
156,169
41%
87,845
28%
78%
Group costs
(102,919)
(27%)
(71,643)
(23%)
44%
Group Adjusted EBITDA (non-GAAP)
(3)
379,899
100%
317,320
100%
20%
(1) Segment
Adjusted EBITDA
Consumer and
Segment Adjusted
EBITDA Enterprise
include retrenchment
costs of ZAR
0.1
million
and
ZAR
0.0
million,
respectively,
for
the
first
half
of
fiscal
2025.
Segment
Adjusted
EBITDA
for
Merchant
includes
retrenchment costs of ZAR 4.7 million and Consumer includes retrenchment costs of ZAR 2.8 million for the first half of fiscal 2024.
(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”.
63
Merchant
Segment revenue
primarily increased
due the
inclusion of
Adumo, a
higher volume
of value-added
services provided
(Pinless
Airtime and gaming), which
was partially offset by
fewer Pinned Airtime sales.
In ZAR, the increase
in Segment Adjusted EBITDA
is primarily due to the inclusion of Adumo, which was partially offset by higher operating expenses incurred, especially employment-
related expenditures, to expand our offering. From the first quarter of fiscal 2025,
we have experienced a shift in the mix between the
sale of Pinned
Airtime and distribution
of Pinless Airtime, and
this trend has continued
through to the second
quarter of fiscal 2025,
with the volume of
Pinned Airtime sales decreasing,
which results in
a lower revenue and
related cost of sales,
and an overall
improved
margin.
Our Segment
Adjusted EBITDA
margin
(calculated as
Segment Adjusted
EBITDA divided
by revenue)
for the
first half
of
fiscal 2025 and 2024 was 7.7% and 6.3%, respectively.
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,
lending
revenues following an increase in loan originations and the inclusion of
Adumo. This increase in revenue has translated into improved
profitability, which was partially offset by a higher allowance for credit losses following an increase in loan originations in December
2024, higher insurance-related claims, interest
expense (of approximately ZAR 28.5
million) incurred to fund
our lending book, higher
computer
software
license
costs,
and
the
year-over-year
impact
of
inflationary
increases
on
certain
expenses.
As discussed
in
our
commentary
for
the
second
quarter
of fiscal
2025,
we
have included
an intercompany
interest expense
in our
Consumer
Segment
Adjusted EBITDA for first half of fiscal 2025 compared with the first half
of fiscal 2024.
Our Segment Adjusted EBITDA margin for the
first half of fiscal 2025 and 2024 was 19.9% and 14.5%, respectively.
Enterprise
Segment revenue
decreased primarily
due to
fewer ad
hoc hardware
sales as well
as lower
revenue generated
from the
sale of
prepaid airtime vouchers.
In ZAR, the significant decrease in Segment Adjusted EBITDA is primarily due
to the impact of few sales.
Our Segment Adjusted EBITDA margin for the first half
of fiscal 2025 and 2024 was 1.6% and 8.0%, respectively.
Group costs
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, audit, consulting
and
legal fees.
Presentation of Merchant, Consumer and Enterprise by segment for fiscal 2025 to date and fiscal 2024
The tables below present Merchant, Consumer and Enterprise revenue
and EBITDA for fiscal 2025
to date and fiscal 2024,
including lease charges, as well as the U.S. dollar/ ZAR exchange
rates applicable per fiscal quarter and year:
Table 13
Fiscal 2025
In United States dollars
Quarter 1
Quarter 2
F2025
$ ’000
$ ’000
$ ’000
Revenue
Merchant
115,630
115,811
231,441
Consumer
21,072
22,929
44,001
Enterprise
11,882
8,933
20,815
Subtotal: Operating segments
148,584
147,673
296,257
Eliminations
(3,038)
(855)
(3,893)
Total
consolidated revenue
145,546
146,818
292,364
Group Adjusted EBITDA:
Merchant
7,554
10,319
17,873
Consumer
4,396
4,342
8,738
Enterprise
362
(31)
331
Group costs
(2,949)
(2,820)
(5,769)
Group Adjusted EBITDA (non-GAAP)
9,363
11,810
21,173
Income and expense items: $1 = ZAR
17.72
17.85
17.80
64
Table 14
Fiscal 2024
In United States dollars
Quarter 1
Quarter 2
Quarter 3
Quarter 4
F2024
$ ’000
$ ’000
$ ’000
$ ’000
$ ’000
Revenue
Merchant
112,061
117,182
111,801
118,746
459,790
Consumer
15,580
16,707
17,904
19,020
69,211
Enterprise
9,467
11,921
11,322
14,187
46,897
Subtotal: Operating segments
137,108
145,810
141,027
151,953
575,898
Eliminations
(1,019)
(1,917)
(2,833)
(5,907)
(11,676)
Total
consolidated revenue
136,089
143,893
138,194
146,046
564,222
Group Adjusted EBITDA:
Merchant
6,910
7,497
7,420
7,343
29,170
Consumer
2,120
2,575
3,757
4,227
12,679
Enterprise
815
891
725
500
2,931
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
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,
change
in
fair
value
of
equity
securities),
(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.
65
The table below presents the reconciliation between GAAP net loss attributable
to Lesaka to Group Adjusted EBITDA:
Table 15
Three months ended
December 31,
Six months ended
December 31,
2024
2023
2024
2023
$ ’000
$ ’000
$ ’000
$ ’000
Loss attributable to Lesaka - GAAP
(32,134)
(2,707)
(36,676)
(8,358)
Less net income attributable to non-controlling interest
(28)
-
(28)
-
Net loss
(32,106)
(2,707)
(36,648)
(8,358)
(Earnings) loss from equity accounted investments
(50)
(43)
(77)
1,362
Net loss before (earnings) loss from equity-accounted investments
(32,156)
(2,750)
(36,725)
(6,996)
Income tax (benefit) expense
(6,412)
686
(6,334)
950
Loss before income tax expense
(38,568)
(2,064)
(43,059)
(6,046)
Interest expense
6,174
4,822
11,206
9,731
Interest income
(721)
(485)
(1,307)
(934)
Reversal of allowance for doubtful EMI loan receivable
-
-
-
(250)
Net loss on disposal of equity-accounted investment
161
-
161
-
Change in fair value of equity securities
33,731
-
33,731
-
Operating income
777
2,273
732
2,501
PPA amortization
(amortization of acquired intangible assets)
4,867
3,592
8,614
7,200
Depreciation and amortization
3,356
2,221
5,885
4,469
Stock-based compensation charges
2,644
1,804
5,021
3,563
Interest adjustment
(757)
-
(1,588)
-
Once-off items
(1)
488
(816)
2,293
(738)
Unrealized loss (gain) FV for currency adjustments
435
(122)
216
(20)
Group Adjusted EBITDA - Non-GAAP
11,810
8,952
21,173
16,975
(1) The table below presents the components of once-off
items for the periods presented:
Table 16
Three months ended
December 31,
Six months ended
December 31,
2024
2023
2024
2023
$ ’000
$ ’000
$ ’000
$ ’000
Transaction costs
684
102
787
180
Transaction costs related to Adumo acquisition
-
34
1,702
34
Indirect taxes provision release
(196)
-
(196)
-
Income recognized related to closure of legacy businesses
-
(952)
-
(952)
Total once-off
items
488
(816)
2,293
(738)
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.
Indirect tax
provision release
relates to
the reversal
of a
non-recurring indirect
tax provision
created in
fiscal 2023
which was
resolved
in
fiscal
2025
following
settlement
of
the
matter
with
the
tax
authority.
Income
recognized
related
to
closure
of
legacy
businesses represents
(i) gains
recognized
related to
the release
of the
foreign currency
translation reserve
on deconsolidation
of a
subsidiaries and
(ii) costs
incurred related
to subsidiaries
which we
are in
the process
of deregistering/
liquidation and
therefore we
consider these costs non-operational and ad hoc in nature.
Liquidity and Capital Resources
As of December 31, 2024, our cash and cash
equivalents were $60.6 million and comprised of U.S. dollar-denominated balances
of $3.1 million,
ZAR-denominated balances of
ZAR 961.0 million
($55.9 million), and
other currency deposits,
primarily Botswana
pula, of $1.6
million, all amounts
translated at exchange
rates applicable as
of December 31,
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
.
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.
66
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,
as well as
Note 9 to
these condensed consolidated financial statements for additional
information related to our borrowings.
Available short-term
borrowings
Summarized below are our short-term facilities available and utilized as of
December 31, 2024:
Table 17
RMB GBF
RMB Indirect
RMB Connect
Nedbank
$ ’000
ZAR ’000
$ ’000
ZAR ’000
$ ’000
ZAR ’000
$ ’000
ZAR ’000
Total
short-term facilities
available, comprising:
Total overdraft
48,594
915,000
-
-
14,339
270,000
-
-
Indirect and derivative
facilities
(1)
-
-
7,170
135,000
-
-
8,314
156,556
Total
short-term facilities
available
48,594
915,000
7,170
135,000
14,339
270,000
8,314
156,556
Utilized short-term
facilities:
Overdraft
40,086
762,382
-
-
11,066
208,364
-
-
Indirect and derivative
facilities
(1)
-
-
1,758
33,095
-
-
112
2,106
Total
short-term facilities
available
40,086
762,382
1,758
33,095
11,066
208,364
112
2,106
Interest
rate, based
on South
African prime rate
13.05%
N/A
11.15%
N/A
(1) 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
3.6
billion
($188.7
million
translated
at
exchange
rates
as
of
December 31, 2024)
as described in Note
9. 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
utilized
ZAR
199.0
million of this facility as of December 31, 2024. 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 December 31, 2024, of ZAR 1.2 billion. We also have a revolving credit facility, of ZAR 300.0 million which is utilized
to fund a portion of our merchant finance loans receivable book.
On September 30, 2024,
we obtained a
ZAR 665.0 million funding
facility from RMB which
has been used
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.
On December 10, 2024, we obtained a ZAR 250.0 million general banking facility from RMB which is repayable in full by
the end of February 2025. We have included
additional information regarding this general banking facility under available short-term
borrowings.
Restricted cash
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 December 31, 2024, includes restricted cash of
$0.1 million that has been ceded and pledged.
67
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
Second quarter
Net cash
used operating
activities during
the second
quarter of
fiscal 2025
was $9.2 million
(ZAR 163.6
million) compared
to
net cash provided
by operating activities
of $0.6 million
(ZAR 10.9 million)
during the second
quarter of fiscal
2024. Excluding the
impact of
income taxes,
our cash
used in
operating activities
during the
second quarter
of fiscal
2025 includes
cash utilized
for the
significant net
growth in our
Consumer finance
loans receivable book,
which was partially
offset by
was positively impacted
by the
contribution from our Merchant and Consumer businesses.
During the second
quarter of fiscal
2025, we paid
first provisional South
African tax payments
of $3.1 million
(ZAR 56.3 million)
related to our 2025. We also paid taxes
totaling $0.1 million in other tax
jurisdictions, primarily in Botswana during the
second quarter
of fiscal 2025.
During the second
quarter of fiscal
2024, we paid
first provisional South
African tax payments
of $2.7 million
(ZAR
49.5 million) related
to our 2024 tax
year and South
African tax payments
related to prior years
of $0.07 million
(ZAR 1.3 million).
We also paid taxes totaling
0.1 million in other tax jurisdictions, primarily in Botswana.
Taxes paid (refunded)
during the second quarter of fiscal 2025 and 2024 were as follows:
Table 18
Three months ended December 31,
2024
2023
2024
2023
$
$
ZAR
ZAR
‘000
‘000
‘000
‘000
First provisional payments
3,088
2,662
56,264
49,516
Taxation paid related
to prior years
93
69
1,660
1,328
Total South African
taxes paid
3,181
2,731
57,924
50,844
Foreign taxes paid
72
75
1,332
1,409
Total
tax (refund) paid
3,253
2,806
59,256
52,253
First half
Net cash
used operating
activities during
the first
half of
fiscal 2025
was $13.3
million (ZAR
236.7 million)
compared to
net
cash provided by operating
activities of $4.0 million
(ZAR 74.0 million) during
the first half of
fiscal 2024. Excluding
the impact of
income
taxes,
our
cash
used
in
operating
activities
during
the
first
half
of
fiscal
2025
includes
cash
utilized
for
the
settlement
of
working capital movements within our Merchant and Enterprise
businesses 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
the
significant net
growth in our
Consumer finance
loans receivable book,
which was partially
offset by
was positively impacted
by the
contribution from Merchant and Consumer businesses.
During the
first half
of fiscal
2025, we
paid first
provisional South
African tax
payments of
$3.1 million
(ZAR 56.3
million)
related to our
2025. We
also paid taxes
totaling $0.1 million
in other tax
jurisdictions, primarily
in Botswana during
the first half
of
fiscal
2025.
During
the
first
half
of
fiscal
2024,
we
paid
first
provisional
South
African
tax
payments
of
$2.7
million
(ZAR
49.5
million) related
to our 2024
tax year and
South African tax
payments related
to prior years
of $0.6
million (ZAR
12.2 million).
We
also paid taxes totaling $0.1 million in other tax jurisdictions, primarily in Botswana.
68
Taxes (refunded)
paid during the first half of fiscal 2025 and 2024 were as follows:
Table 19
Six months ended December 31,
2024
2023
2024
2023
$
$
ZAR
ZAR
‘000
‘000
‘000
‘000
First provisional payments
3,088
2,662
56,264
49,516
Taxation paid related
to prior years
93
641
1,660
12,187
Tax refund received
(113)
(31)
(2,053)
(640)
Total South African
taxes paid
3,068
3,272
55,871
61,063
Foreign taxes paid
140
138
2,545
2,605
Total
tax paid
3,208
3,410
58,416
63,668
Cash flows from investing activities
Second quarter
Cash used in investing activities
for the second quarter of
fiscal 2025 included capital expenditures
of $6.3 million (ZAR 112.8
million), primarily
due to the
acquisition of
vaults and
POS devices.
During the
second quarter of
fiscal 2025,
we paid $4.0
million
related to acquisition of certain businesses, including Adumo.
Cash used in
investing activities
for the
second quarter
of fiscal 2024
included
capital expenditures
of $2.2
million (ZAR 41.1
million), primarily due
to the acquisition of
vaults and POS devices
.
During the second
quarter of fiscal
2024, we received proceeds
of $3.5 million related to the sale of remaining interest in Finbond and $0.25 million related to the second (and final) tranche from the
disposal of our entire equity interest in Carbon.
First half
Cash used in
investing activities for
the first half
of fiscal 2025
included capital expenditures
of $6.3 million
(ZAR 112.8 million),
primarily
due
to
the
acquisition
of
vaults
and
POS
devices.
During
the
first
half
of
fiscal
2025,
we
paid
$4.0
million
related
to
acquisition of certain businesses, including Adumo.
Cash used in investing activities for the
first half of fiscal 2024
included capital expenditures of $2.2 million
(ZAR 41.1 million),
primarily due to the acquisition of
vaults. During the first half of fiscal
2024, we received proceeds of $3.5
million related to the sale
of remaining
interest in
Finbond and
$0.25 million
related
to the
second (and
final) tranche
from the
disposal of
our entire
equity
interest in Carbon.
Cash flows from financing activities
Second quarter
During the second quarter of fiscal 2025, we utilized $48.9 million from our South
African overdraft facilities to fund our ATMs
and our cash management business through Connect, and repaid
$4.5 million of those facilities. We utilized $12.9 million of our long-
term borrowings to
settle a
portion of the
Adumo purchase consideration,
pay certain transaction
expenses, repay Adumo’s borrowings,
repurchase shares of our common stock, fund the acquisition of certain capital expenditures and for working capital requirements. We
repaid
$8.3
million
of
long-term
borrowings
in
accordance
with
our
repayment
schedule
and
paid
$7.2
million
to
settle Adumo’s
borrowings.
We
also paid
an origination
fee of
$0.4 million
to secure
additional borrowings
as well
as paid
dividends
to the
non-
controlling interest of $0.3 million.
During the second quarter of fiscal 2024,
we utilized $69.0 million from our South African overdraft facilities to
fund our ATMs
and our cash management business through Connect, and repaid
$66.0 million of those facilities. We utilized $8.6 million of our long-
term borrowings to fund
the acquisition of certain
capital expenditures and for
working capital requirements. We
repaid $3.2 million
of
long-term
borrowings
in
accordance
with
our
repayment
schedule
as
well
as
to
settle
a
portion
of
our
revolving
credit
facility
utilized. We
also paid $0.2
million to repurchase
shares from employees
in order for
the employees to
settle taxes due
related to the
vesting of shares of restricted stock.
69
First half
During the first half
of fiscal 2025, we
utilized $48.9 million from
our South African overdraft
facilities to fund our
ATMs
and
our
cash
management
business
through
Connect,
and
repaid
$4.5
million
of
those
facilities.
We
utilized
$12.9
million
of
our
borrowings to
settle a
portion of
the Adumo
purchase consideration,
pay certain
transaction expenses,
repay Adumo’s
borrowings,
repurchase shares of our common stock, fund the acquisition of certain capital expenditures and for working capital requirements. We
repaid
$8.3
million
of
long-term
borrowings
in
accordance
with
our
repayment
schedule,
paid
$7.2
million
to
settle
Adumo’s
borrowings,
and settled
a portion
of our
revolving credit
facility utilized.
We
also paid
an origination
fee of
$0.4 million
to secure
additional borrowings as well as paid dividends to the non-controlling
interest of $0.3 million.
During the first half
of fiscal 2024, we
utilized $69.0 million from
our South African overdraft
facilities to fund our
ATMs
and
our cash
management business
through Connect,
and repaid
$66.0 million
of those
facilities. We
utilized $8.6
million of
our long-
term borrowings to fund
the acquisition of certain
capital expenditures and for
working capital requirements. We
repaid $3.2 million
of
long-term
borrowings
in
accordance
with
our
repayment
schedule
as
well
as
to
settle
a
portion
of
our
revolving
credit
facility
utilized. We
also paid $0.2
million to repurchase
shares from employees
in order for
the employees to
settle taxes due
related to the
vesting of shares of restricted stock.
Off-Balance Sheet Arrangements
We have no off
-balance sheet arrangements.
Capital Expenditures
We
expect
capital spending
for the
third 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 second
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 December 31, 2024, of $0.5 million. We expect
to fund these expenditures through internally generated funds and
available facilities.
70
Item 3. Quantitative and Qualitative Disclosures About
Market Risk
In addition to the tables below, see
Note 5 to the unaudited condensed consolidated financial statements for
a discussion of
market risk.
We
have
short and
long-term borrowings
in South
Africa which
attract interest
at rates
that fluctuate
based on
changes in
the
South African prime
and 3-month JIBAR
interest rates. The
following table illustrates
the effect on
our annual expected
interest charge,
translated at exchange rates applicable
as of December 31, 2024,
as a result of
changes in the South
African prime and 3-month JIBAR
interest rates,
using our
outstanding short
and long-term
borrowings as
of December
31, 2024. The
effect of
a hypothetical
1% (i.e.
100 basis points)
increase and a
1% decrease in
the interest rates
applicable to the
borrowings as of
December 31, 2024,
are shown.
The selected 1% hypothetical change does not reflect what could be considered
the best- or worst-case scenarios.
Table 20
As of December 31, 2024
Annual expected
interest charge
($ ’000)
Hypothetical
change in
interest rates
Estimated annual
expected interest
charge after
hypothetical change
in interest rates
($ ’000)
Interest on South African borrowings
17,874
1%
25,855
(1%)
23,390
The following table summarizes our
exchange-traded equity security with equity and
liquidity price risk as
of December 31, 2024.
The effects of a hypothetical 10% increase and a 10% decrease in market prices as of December 31, 2024, is also shown. The selected
10% hypothetical change does not reflect what could be
considered the best or worst case scenarios. Indeed, results
could be far worse
due both to the nature of equity markets and the liquidity risk associated with the
equity security.
Table 21
As of December 31, 2024
Fair value
($ ’000)
Hypothetical
price change
Estimated fair value
after hypothetical
change in price
($ ’000)
Percentage Increase
(Decrease) in
Shareholders’ Equity
Exchange-traded equity securities
42,566
10%
46,823
2%
10%
38,309
(2%)
71
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
December 31, 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 December 31, 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.
Remediation Plan
Management
is actively
working
to remediate
the identified
material
weakness and
is committed
to remediating
the material
weakness in a timely manner. Our
remediation process is ongoing and includes, but is not limited to, the following steps:
-
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 December 31, 2024,
that have materially affected,
or are reasonably likely
to
materially affect, our internal control over financial reporting.
72
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).
73
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 2. Unregistered Sales of Equity Securities and
Use of Proceeds
On
February
5,
2020,
our
board
of
directors
approved
the
replenishment
of
our
existing
share
repurchase
authorization
to
repurchase up to an aggregate of $100 million of common stock. The authorization
has no expiration date.
The table
below presents
information relating
to purchases
of shares
of our
common stock
during the
second quarter
of fiscal
2025:
Table 22
(a)
(b)
(c)
(d)
Period
Total
number
of shares
purchased
Average price
paid per share
(US dollars)
Total
number of shares
purchased as part of publicly
announced plans or
programs
Maximum dollar value of
shares that may yet be
purchased under the plans
or programs
Oct 1, 2024 - Oct 31, 2024
(1)
2,601,410
4.59
-
100,000,000
Nov 1, 2024 - Nov 30, 2024
(2)
61,821
4.96
-
100,000,000
Dec 1, 2024 - Dec 31, 2024
(2)
70,326
4.99
-
100,000,000
Total
2,733,557
-
(1)
Relates to
the repurchase
of
2,601,410
shares of
our
common
stock from
Crossfin
Holdings
(RF)
Proprietary
Limited
in
connection with our acquisition of Adumo. These shares do not reduce the
repurchase authority under the share repurchase program.
(2) Relates to the delivery of 61,821 and 70,326 shares of our common stock in November and December, respectively,
to us by
certain
of our
employees to
settle their
income
tax liabilities.
These shares
do not
reduce the
repurchase
authority under
the
share
repurchase program.
Other than as
reported in a
Current Report on
Form 8-K, we
did not
sell any
securities that
were not registered
under the Securities
Act during the second quarter of fiscal 2025.
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 December 31, 2024,
no officers or
directors, as defined
in Rule 16a-1(f),
adopted
, modified, or
terminated
a “Rule 10b5-1 trading arrangement” or a “
non-Rule
10b5-1
trading arrangement,”
as defined in Item 408 of Regulation S-K.
74
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
10.40
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
10-Q
10.41
November 6,
2024
10.42
First Addendum to the Facility Letter dated December 10,
2024 between Lesaka Technologies (Proprietary) Limited
and FirstRand Bank Limited (acting through its Rand
Merchant Bank division)
8-K
10.1
December 10,
2024
10.43
Amended & Restated Policy Agreement, dated October 28,
2024, among Lesaka Technologies, Inc. and the IFC
Investors
X
10.44
Trust Deed of the Lesaka Employee Share Trust entered
into between Lesaka Technologies, Inc. and Nomaxabiso
Norma Teyise and Zwelethu Masinga
14A
A
October 2, 2024
10.45
Relationship Agreement between Lesaka Technologies,
Inc. and the Trustees for the time being of the Lesaka
Employee Share Trust
14A
B
October 2, 2024
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
75
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 February
5, 2025.
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