What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-11-08 compared with 2022-05-10 · 164 added, 392 removed, 159 unchanged (78% of the section changed)

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Recent Developments

Adopting a new brand and identity

As we embarked on creating a world class financial technology platform and repositioning ourselves for growth, it became evident we required a new identity that would resonate with our customers and employees.

It was important for our new identity to authentically express our commitment to the local communities we serve and our ambition to drive financial inclusion by giving ordinary people and small businesses access to essential financial services.

For thousands of years livestock have been seen as a symbol of security, community and wealth and protecting one’s livestock was central to preserving the dignity and pride of a community.

To ensure the best possible protection, an enclosure commonly known as a “kraal” in South Africa, was built in the center of the community.

A kraal is seen as the social and economic heart of a village and only the most reliable people are entrusted with its care and protection.

The word Lesaka means Kraal in Setswana and Sesotho, two of South Africa’s official languages, and it was agreed by our shareholders that the existing company name Net1, should change to Lesaka, which aptly represents our new group and its vision.

As Lesaka, we are on a mission to build and protect the financial wellbeing of our communities and our intention is to protect the vulnerable and underserved, by providing widespread access to essential financial services.

Update on our strategic focus areas

In the prior quarter we communicated the following four key pillars, that remain critical to the successful transformation of our company, to becoming a leading South African full-service fintech platform:

Growing the existing merchant business;

Returning the consumer business to breakeven;

Transforming our organization into a world class fintech platform;

Strengthening our relationships with key stakeholders.

Focused effort throughout the third quarter to deliver on each of these pillars delivered positive momentum, repositioning the business to capture the long-term growth opportunities across both our merchant and consumer businesses.

Growing the existing Merchant business

On April 14, 2022, we announced the closing of the Connect Group acquisition for a consideration of ZAR 3.8 billion ($264.0 million).

This transformational acquisition positions the Group as a leading fintech company, offering a broad range of financial services and products to consumers (“B2C”) and merchants (“B2B”) across both the formal and informal sectors.

There are approximately 1.4 million informal and approximately 700,000 formal micro, small and medium enterprises (“MSME”) in South Africa.

With market leading affordable products and technologies, the Connect Group is well positioned to continue its growth in the MSME sector.

The Connect Group’s MSME offering, combined with our EasyPay platform targeting the larger merchants, and our point-of-sale business, provides a suite of products and services to address the needs of the entire spectrum of merchants in South Africa.

Steve Heilbron, CEO of the Connect Group, joined our board on April 14, 2022, and will be responsible for heading up our Merchant business.

Integrating the Connect Group will be a focus area for us for the remainder of the fiscal year, to ensure we capitalize on the growth opportunity delivered by this acquisition.

Refer to Note 20 to our unaudited condensed consolidated financial statements for additional information related to the acquisition.

Returning the Consumer business to breakeven

We have made significant progress in returning the Consumer segment to break-even and are encouraged with the Segment Adjusted EBITDA loss of $6.9 million (which includes reorganization costs of $5.9 million), or $1.0 million after adjusting for the $5.9 million of reorganization costs related to Project Spring.

However, transforming the business and culture, from one which was focused on the logistics of efficiently distributing grant to over ten million grant recipients each month, to a sales focused organization remains a challenge we are focused on.

We have commenced the work on training and building our sales force, but this will take time.

We continue to work towards achieving a monthly Segment Adjusted EBITDA break-even position for our consumer business by the end of the fourth quarter, however certain elements may take longer than originally anticipated.

The Consumer segment continues to show considerable improvement in performance from a year ago and positive momentum was achieved during the third quarter of fiscal 2022, through focusing on the three levers previously communicated:

Increasing active EPE account numbers, through driving customer acquisition;

Improving ARPU, underpinned by increased cross selling;

Optimizing the cost structure, in line with a focus on customer centricity.

Progress on driving customer acquisition

We grew our total customer base by approximately 38,300 net active customers of which around 9,700 were EPE lite customers and around 28,600 were EPE customers, ending the quarter with just over 1.1 million active customers.

This active account growth is slower than what we had anticipated.

We did, however, register 136,000 gross account openings during the quarter, and have initiated a workstream focusing on improving account activation and utilization.

This included the introduction of a dedicated call center focused on assisting customers with activating their accounts and proactively resolving any issues they may be facing during the activation process.

Additionally, our salesforce is now incentivized on account activations and not account openings.

Utilizing improved data analytics and ongoing market research, we continue to gain better insights into our customers and their needs, allowing us to develop effective marketing campaigns and incentives to drive customer growth.

A promotional campaign was launched late March 2022, which had a positive impact on new account openings and activations, and we expect this momentum to continue into the fourth quarter of fiscal 2022.

Lesaka has continued on its journey of renewal in the quarter, building further on the process that commenced in earnest in Q2 of fiscal 2022.

The progress that has been made over this period has been transformational and is clear in the significant improvement in financial performance over this period.

The progress is particularly clear if this quarter’s performance is compared against the same quarter in fiscal 2022.

Lesaka’s core purpose is to improve people’s lives by bringing financial inclusion to South Africa’s underserved consumers, and by helping small businesses access the financial services they need to prosper.

This is achieved through Lesaka’s ability to efficiently digitize the last mile of financial inclusion, and by providing a full-service fintech platform across cash and digital, serving the needs of both, while also facilitating the secular shift to digital that is currently taking place.

The Lesaka platform serves micro and small merchants together with the consumers who typically shop in their stores.

Both the Merchant and the Consumer business have large addressable markets and significant growth opportunities in their own right.

Taken together, Lesaka has the opportunity to develop a self-reinforcing ecosystem which creates synergies and further opportunities to accelerate growth and expand Lesaka’s value proposition.

Rapid growth of our Merchant business

Our Merchant business has been transformed by the successful conclusion of the Connect acquisition.

Connect’s micro, small and medium enterprises (“MSMEs”).

offering has been combined with our EasyPay platform to target the larger merchants, and along with our point-of-sale business, provides a suite of products and services to address the needs of the entire spectrum of merchants in South Africa.

These are two complementary and mutually reinforcing businesses that combined represent an exciting growth story rather than a cost optimization opportunity.

Connect fills the gaps in Lesaka’s MSME offering and completes the end-to-end financial ecosystem.

Progress to date includes:

Merging EasyPay and Kazang under a single leadership team;

The integration of the Cash Connect vault business and the ATM business, creating a complete cash solution proposition for key merchants;

The EasyPay Money Market concept which had been launched in select Merchant stores;

The Activation of cash-out for customers which allows consumers to withdraw grants at Kazang Merchants.

Lesaka’s Merchant offering continues to grow:

In the Value-Added-Service (“VAS”) and bill and supplier payments business Lesaka had approximately 57,000 devices in field as of September 30, 2022, compared to approximately 51,000 as of June 30, 2022, and approximately 41,000 devices a year ago;

Our vault business effectively puts the bank in approximately 4,200 merchants’ stores (compared to approximately 3,700 merchants’ stores a year ago).

Historically Connect has been placing vaults into formal sector merchant stores but are now also penetrating the informal sector.

This has provided significant operational and risk benefits for our informal merchant customer base;

In the card acquiring business, card-enabled POS devices increased to approximately 27,700 as of September 30, 2022, compared to approximately 12,600 a year ago, and approximately 22,600 as of June 30, 2022;

We provide merchants quick access to working capital and grew our book to record levels during the first quarter of fiscal 2023, disbursing over ZAR 190 million during this quarter, compared to ZAR 108 million in the comparable period.

Returning the Consumer business to profitability and positioning this segment for growth

Significant progress has been made toward returning the Consumer segment to profitability and Lesaka remains on track to achieve a Consumer monthly Segment Adjusted EBITDA break-even point during the second quarter of fiscal 2023.

Our progress on our three key initiatives to drive the turnaround is as follows:

Driving customer acquisition

Lesaka believes it now has the right team and right products in place ending the first quarter of fiscal 2023 with 1.17 million active EPE clients (excluding EPE lite) compared to 1.04 million at the end of the first quarter of fiscal 2022.

Lesaka achieved approximately 85,000 EPE account activations in the first quarter of fiscal 2023 and the churn rate for the first quarter of fiscal 2023 averaged well below 5% evidencing traction in our focused consumer strategy mentioned above.

Notably churn is at the higher end of Lesaka’s expected churn rate range partly attributable to volatility in the SRD grant base

Lesaka continues to refine its points of presence and is pursuing a strategy of partnering with various retailers rather than maintaining a distinct branch network in order to improve visibility, awareness and service levels.

Progress on cross selling

ARPU remains broadly in line with our targeted ARPU range.

We had approximately 415,000 active loans at the end of the quarter, representing a 38% penetration of our active EPE customer base, with a total loan book of ZAR 359 million ($24.7 million) as of March 31, 2022, up 6% in ZAR compared with March 2021.

Despite the average loan size growing to R1,417, up 10% year on year, the portfolio loss ratio, calculated as the loans written off during the period as a percentage of the total loan book, remains encouragingly low at around 1.0% for the quarter, as a result of our ongoing application of prudent credit scoring and a culture of responsible lending.

Our funeral insurance product provides an important growth opportunity for our cross-selling strategy, with penetration levels averaging 18% of the active account base.

Over 5,500 new standalone policies were initiated during the quarter, growing the total number of active policies to approximately 247,300, up 3.8% compared with March 2021.

A delivery of fifty-two ATMs were received during the quarter.

These ATMs will provide additional cross-selling opportunities as the year progresses, as they are enabled to include the added functionality of selling value added services, loans and insurance.

Their “through the wall” installations allow them to be deployed in locations which are accessible to customers 24/7.

We issued approximately 78,000 new loans in the quarter, achieving a consistent penetration of our active EPE client base.

The average loan size grew 4% to ZAR 1,476, while the portfolio loss ratio, calculated as the loans written off during the period as a percentage of the total loan book, remains encouragingly low at around 1.00% for the quarter (i.e.

approximately 4% per annum), as a result of our ongoing application of prudent credit scoring and a culture of responsible lending.

The average take-up rate of loans is above 80% highlighting progress made in understanding the needs of our customers and executing on implementing a refined, affordable, and compelling value proposition for customers.

Our funeral insurance product provides an important growth opportunity for our cross-selling strategy, with penetration levels now around 23% of the active account base.

Over 24,000 new standalone policies were initiated during the first quarter of fiscal 2023, growing the total number of active policies to approximately 268,000, up 10% compared with the first quarter of fiscal 2022.

Sales in the first quarter of fiscal 2023 were at their highest level since the loss of the grant payment contract.

Our low loss rate and high cash collection rate in insurance emphasizes our compelling value proposition in offering fit for purpose solutions to millions of consumers desperately needing financial services.

Average revenue per user (“ARPU”) for the first quarter of fiscal 2023 remains broadly within our targeted ARPU range.

Lesaka remains focused on cross-selling opportunities to the current client base, to increase ARPU.

Progress on cost optimization

In order to optimize the overall cost base and to move the business towards a sales-focused and client solution driven financial services organization, we launched Project Spring during the 2022 financial year.

Project Spring focused on the restructuring of our financial services business and the rationalization of the distribution network.

Pursuant to Project Spring, a detailed review of the distribution network was performed, to identify underperforming branches and optimize our points of presence, while a significant exercise is underway to ensure our ATM footprint meets the needs of our customer base.

We also embarked on a retrenchment process pursuant to Section 189A of the South African Labour Relations Act (“Labour Act”).

The Section 189A process requires an employer, before retrenching, to consult with any person affected by the retrenchment process for 60 days.

We commenced this process on January 10, 2022, and completed the process during March 2022, recording a total charge during the third quarter of fiscal 2022 of $5.9 million.

Please refer to Note 1 to our unaudited condensed consolidated financial statements for additional information.

The Section 189A process, which is now complete, was a difficult and uncertain time for many employees.

Significant progress has been made on optimizing the cash distribution and ATM network.

Our large fleet of mobile ATMs and the associated distribution and security costs have been eliminated.

Following a review of the ATM placements, over 50% of our ATM network are now positioned in retailers, providing greater footfall and longer operating hours compared to our branches.

We estimate that the aggregate annualized cost saving for Project Spring is over ZAR 300.0 million.

Transforming our organization into a world class fintech platform

Building a world class fintech platform requires highly talented people, an environment where they can outperform and a clear vision and strategy, where everyone is aligned and understands their role in achieving that vision.

On March 1, 2022, Mr.

Naeem Kola joined our board and became our Group CFO.

On the same date, Mr.

Alex Smith stepped down as CFO, resigned from our board and took up his new role as Chief Accounting Officer.

During this quarter, we also successfully recruited a head of Legal and Company Secretarial, Verna Douman.

Verna is a qualified seasoned attorney, with over 25 years experience in corporate, banking and finance sectors.

The majority of the new senior leadership team has been finalized and have all now commenced their employment contracts.

The leadership team has deep and relevant experience to deliver on the mission of the Company, with the necessary governance structures in place.

Further to the South African Competition Tribunal’s approval of the Connect Group acquisition, their approval was subject to the company implementing an employee share transaction (“ESOP”) of at least 3% of the issued shares of the company, to increase the spread of ownership by historically disadvantaged people and workers.

If within 24 months of the implementation date of the Connect Group transaction, the company generates a positive net profit for 3 consecutive quarters, the ESOP shall increase to 5% of the issued shares.

The final structure of the ESOP is contingent on shareholder approval and relevant regulatory and governance approvals.

Improving stakeholder engagements

We continue to build our relationship with SASSA, through proactive engagement at a local, provincial and national level, to gain a better understanding of their needs and how we can help and improve the delivery of social grants to over 12 million grant recipients.

Good progress has been made in this regard during the quarter.

There has been no change to the carrying value of our investment in MobiKwik during this quarter.

MobiKwik filed its draft red herring prospectus in July 2021, with the original intention of completing its initial public offering in November 2021.

MobiKwik decided to delay its initial public offering given prevailing market conditions and will reassess their options as market conditions change.

MobiKwik has been focusing on its buy now pay later (BNPL) offering and has seen significant growth in that area in the last year.

On March 15, 2022, Blue Label Telecoms Limited, the largest shareholder in Cell C, announced that it has concluded a non-binding term sheet (“Umbrella Restructure Term Sheet”) with Cell C and various Cell C financial stakeholders.

In terms of the Umbrella Restructure Term Sheet, Cell C will be restructured and refinanced with the purpose of deleveraging its balance sheet, providing it with liquidity with which to operate and grow its businesses and to position itself to achieve long term success for the benefit of its customers, employees, creditors, shareholders, and other stakeholders.

The long form agreements, which will be binding, are currently in process of preparation and will incorporate the terms and conditions contained in the Umbrella Restructure Term Sheet.

Our investment in Cell C is held at a carrying value of $0 (zero) as of March 31, 2022.

We put all of the members of our sales team through a performance review process during the first quarter of fiscal 2023, which resulted in approximately 400 people leaving us.

This has not had a significant impact on sales performance and the intention is to replace some of these positions with suitably qualified individuals.

Strengthening our relationships with key stakeholders

We continue to build our relationship with the South African Social Security Agency (“SASSA”) through proactive engagement at a local, provincial and national level, to gain a better understanding of their needs and how we can help and improve the delivery of social grants to over 12 million grant recipients.

We have also made good progress on building relationships with our various key stakeholders, be it shareholders, regulators, suppliers and other participants in our sectors.

There has been no change in the carrying value of our investment in MobiKwik in the quarter.

MobiKwik’s regulatory approval for an IPO has now expired and while this remains the strategic aim, their board will keep market conditions under review before re-obtaining the necessary approvals to IPO.

The underlying business continues to grow strongly, particularly in the buy now pay later business, and is optimistic about achieving annual EBITDA profitability within the next two financial years.

The recapitalization of Cell C became effective on September 30, 2022, following a very lengthy process aimed at right-sizing the debt on the balance sheet to create a sustainable business that can achieve long term success for the benefit of all its stakeholders.

This conclusion was a major milestone in the recovery of Cell C and over time we expect to see some recovery in the value of our remaining equity stake.

Our equity stake in Cell C reduced from 15% to a little over 5% as a result of the recapitalization as we did not actively participate in the process.

We continue to hold our investment at $0 (zero) carrying value as at September 30, 2022, and we will continue to monitor Cell C’s post recapitalization performance for indications of an increase in its value.

During the first quarter of fiscal 2023 we sold our 25% stake in Carbon to the founders for $0.5 million on deferred payment terms.

Refer to Note 5 to the unaudited condensed consolidated financial statements for additional information.

Impact of COVID-19

While we have not experienced significant disruptions thus far from the COVID-19 outbreak, we are unable to accurately predict the impact that COVID-19 will have due to numerous uncertainties, including the severity of the disease, the duration of the outbreak, actions that may be taken by governmental authorities, the impact on our customers and other factors identified in Part I, Item 1A.

During the most recent quarter, we did not experience any significant disruptions from the COVID-19 outbreak, and the risk relating to the outbreak appears to have substantially reduced.

Refer to Part I, Item 1A.

“Risk Factors— We are unable to ascertain the full impact the COVID-19 pandemic will have on our future financial position, operations, cash flows and stock price” in our Annual Report on Form 10-K for the year ended June 30, 2022.

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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, 2022:

Valuation of investment in Cell C;

Recoverability of equity-accounted investments and other equity securities;

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;

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Refer to Note 1 to our unaudited condensed consolidated financial statements for a full description of accounting pronouncements adopted, including the dates of adoption and the effects on our unaudited condensed consolidated financial statements.

Recent accounting pronouncements not yet adopted as of March 31, 2022

Refer to Note 1 to our unaudited condensed consolidated financial statements for a full description of recent accounting pronouncements not yet adopted as of March 31, 2022, including the expected dates of adoption and effects on our financial condition, results of operations and cash flows.

Recent accounting pronouncements not yet adopted as of September 30, 2022

Refer to Note 1 to our unaudited condensed consolidated financial statements for a full description of recent accounting pronouncements not yet adopted as of September 30, 2022, including the expected dates of adoption and effects on our financial condition, results of operations and cash flows.

Currency Exchange Rate Information

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Three months ended

Nine months ended

September 30,

$ average exchange rate

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dollars on a monthly basis.

Thus, the average rates used to translate this data for the three and nine months ended March 31, 2022 and 2021, vary slightly from the averages shown in the table above.

Thus, the average rates used to translate this data for the three months ended September 30, 2022 and 2021, vary slightly from the averages shown in the table above.

The translation rates we use in presenting our results of operations are the rates shown in the following table:

Three months ended

Nine months ended

September 30,

Income and expense items:

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A reconciliation between total operating segment revenue and revenue presented in our unaudited condensed consolidated financial statements is included in Note 17 to those statements.

Our CODM 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”).

We do not allocate depreciation and amortization, impairment of goodwill or other intangible assets, certain lease charges (“Lease adjustments”), non-recurring 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.

The Lease adjustments reflect lease charges excluded from the calculation of Segment Adjusted EBITDA and are therefore reported as a reconciling item to reconcile the reportable segments’ Segment Adjusted EBITDA to the Company’s loss before income tax expense.

A reconciliation of this Segment Adjusted EBITDA to the nearest GAAP measure (net income (loss) before income tax) is included in Note 17 to our unaudited condensed consolidated financial statements.

Our chief operating decision is maker is our Group Chief Executive Officer 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”).

We do not allocate depreciation and amortization, impairment of goodwill or other intangible assets, certain lease charges (“Lease adjustments”), stock-based compensation charges (“Stock-based compensation adjustments”), 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.

The Lease adjustments reflect lease charges and the Stock-based compensation adjustments reflect stock-based compensation expense and are both excluded from the calculation of Segment Adjusted EBITDA and are therefore reported as reconciling items to reconcile the reportable segments’ Segment Adjusted EBITDA to the Company’s loss before income tax expense.

Unless otherwise stated, reference to EBITDA in the discussion below relates to Segment Adjusted EBITDA.

Fiscal 2023 includes Connect for the entire quarter, and this business is not included in the results for fiscal 2022.

We analyze our business and operations in terms of three inter-related but independent operating segments:

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In addition, corporate and corporate office activities that are impracticable to allocate directly to any of the other operating segments, as well as any inter-segment eliminations, are included in Corporate/Eliminations.

Third quarter of fiscal 2022 compared to third quarter of fiscal 2021

The following factors had a significant impact on our results of operations during the third quarter of fiscal 2022 as compared with the same period in the prior year:

First quarter of fiscal 2023 compared to first quarter of fiscal 2022

The following factors had a significant impact on our results of operations during the first quarter of fiscal 2023 as compared with the same period in the prior year:

Higher revenue:

Our revenues increased 27% in ZAR primarily due to an increase in hardware sales, an increase in merchant transaction processing fees, and moderate increases in lending and insurance revenues, which was partially offset by lower prepaid airtime sales;

Our revenues increased 324% in ZAR, primarily due to the contribution from Connect and a moderate increase in account fees, lending and insurance revenues which was partially offset by a decrease in hardware sales due to shipping delays;

Lower operating losses:

Operating losses decreased, delivering an improvement of 31% in ZAR compared with the prior period primarily due to an increase in revenue, the closure of the loss-making IPG operations and the implementation of various cost reduction initiatives in our Consumer business.

During the quarter, we recorded a reorganization charge of $5.9 million related to the retrenchment process we commenced in January 2022;

Operating losses decreased, delivering an improvement of 51% in ZAR compared with the prior period primarily due to the contribution from Connect, and the implementation of various cost reduction initiatives in our Consumer business, which was partially offset by an increase in acquisition related intangible asset amortization;

Higher net interest charge:

The net interest charge increased to ZAR 62.0 million from ZAR 6.0 million due to the additional borrowings incurred in order to fund the acquisition of Connect as well as the debt within the Connect business itself;

Foreign exchange movements:

dollar was 4% stronger against the ZAR during the third quarter of fiscal 2022, which impacted our reported results.

dollar was 17% stronger against the ZAR during the first quarter of fiscal 2023, which impacted our reported results.

Consolidated overall results of operations

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In United States Dollars

Three months ended March 31,

Three months ended September 30,

Cost of goods sold, IT processing, servicing and support

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Depreciation and amortization

Reorganization costs

Transaction costs related to Connect Group acquisition

Operating loss

Change in fair value of equity securities

Gain related to fair value adjustment to currency options

Loss on disposal of equity-accounted investment

Gain on disposal of equity securities

Loss on disposal of equity-accounted investment - Bank Frick

Net gain on disposal of equity-accounted investments

Interest income

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Income tax expense

Net loss before earnings from equity-accounted investments

Earnings from equity-accounted investments

Net loss before loss from equity-accounted investments

Loss from equity-accounted investments

Net loss attributable to us

In South African Rand

Three months ended March 31,

Three months ended September 30,

Cost of goods sold, IT processing, servicing and support

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Depreciation and amortization

Reorganization costs

Transaction costs related to Connect Group acquisition

Operating loss

Change in fair value of equity securities

Gain related to fair value adjustment to currency options

Loss on disposal of equity-accounted investment

Gain on disposal of equity securities

Loss on disposal of equity-accounted investment - Bank Frick

Net gain on disposal of equity-accounted investments

Interest income

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Income tax expense

Net loss before earnings from equity-accounted investments

Earnings from equity-accounted investments

Net loss before loss from equity-accounted investments

Loss from equity-accounted investments

Net loss attributable to us

The increase in revenue was primarily due to an increase in hardware sales, an increase in merchant transaction processing fees, and moderate increases in lending and insurance revenues, which was partially offset by lower prepaid airtime sales.

The increase in cost of goods sold, IT processing, servicing and support was primarily due to higher costs related to hardware sales and higher expenses related to an increase in merchant transaction processing activities, which was partially offset by the implementation of various cost reduction initiatives in our Consumer business, as well as a lower cost of prepaid airtime.

In ZAR, the decrease in selling, general and administration expense was due to both lower IPG-related expenses incurred following its closure and some benefits from our cost reduction initiatives, which were partially offset by higher employee-related expenses related to the growth in our senior management team, and the year-over-year impact of inflationary increases on employee-related expenses.

Depreciation and amortization decreased primarily due to lower overall depreciation related to tangible assets that were fully depreciated during the last 12 months.

We embarked on a retrenchment process on January 10, 2022, and incurred reorganization expenses of $5.9 million during the third quarter of fiscal 2022.

Transaction costs related to the Connect Group acquisition include fees paid to external service providers for various advisory services procured.

Our operating loss margin for the third quarter of fiscal 2022 and 2021 was (22.9%) and (41.8%), respectively.

The increase in revenue was primarily due to the inclusion of Connect, which has substantial low margin prepaid airtime sales in addition to its core processing revenue and a modest increase in account fees, lending and insurance revenues, which was partially offset by a decrease in hardware sales due to shipping delays.

The increase in cost of goods sold, IT processing, servicing and support was primarily due to the inclusion of Connect and higher costs related to transaction fees in our Consumer business, which were partially offset by the benefits of various cost reduction initiatives in our Consumer business and lower insurance-related claims.

In ZAR, the increase in selling, general and administration expenses was primarily due to higher employee-related expenses related to the expansion of our senior management team, the year-over-year impact of inflationary increases on employee-related expenses and the inclusion of expenses related to Connect’s operations, which were partially offset by the benefits of various cost reduction initiatives in our Consumer business.

Depreciation and amortization expense increased in the first quarter of fiscal 2023 compared with the first quarter of fiscal 2022 due to the inclusion of acquisition-related intangible asset amortization related to intangible assets identified pursuant to the Connect acquisition, as well as the inclusion of depreciation expense related to Connect’s property, plant and equipment.

Transaction costs related to the Connect Group acquisition include fees paid to external service providers for various advisory services procured during fiscal 2022.

Our operating loss margin for the first quarter of fiscal 2023 and 2022 was (3.7%) and (32.5%), respectively.

We discuss the components of operating loss margin under “—Results of operations by operating segment.”

The change in fair value of equity securities during the third quarter of fiscal 2021, represents a non-cash fair value adjustment gain related to MobiKwik.

We did not record any changes in the fair value of equity interests in MobiKwik and Cell C during the first quarter of fiscal 2023 and 2022, respectively.

We continue to carry our investment in Cell C at $0 (zero).

Refer to Note 5 to our unaudited condensed consolidated financial statements for the methodology and inputs used in the fair value calculation for MobiKwik and Note 4 for the methodology and inputs used in the fair value calculation for Cell C.

Gain related to fair value adjustment to currency options represents the net mark-to-market adjustments to foreign exchange option contracts entered into in November 2021 in order to manage the risk of currency volatility and to fix the USD amount to be utilized for part of the Connect Group purchase consideration settlement.

The foreign exchange option contract matured on February 24, 2022.

Refer to Note 4 to our unaudited condensed consolidated financial statements for additional information related to these currency options.

We recorded a gain of $0.7 million related to the disposal of our entire interest in an equity security during the third quarter of fiscal 2022.

Refer to Note 5 to our unaudited condensed consolidated financial statements for additional information regarding this gain.

We recorded a loss of $0.3 million related to the disposal of a minor portion of our investment in Finbond during the third quarter of fiscal 2022.

Refer to Note 4 for the methodology and inputs used in the fair value calculation for Cell C.

We recorded a gain of $0.3 million related to the disposal of our entire interest in Carbon during the first quarter of fiscal 2023.

Refer to Note 5 to our unaudited condensed consolidated financial statements for additional information regarding this disposal.

We recorded a loss of $0.5 million related to the disposal of Bank Frick during the third quarter of fiscal 2021.

Interest on surplus cash increased to $0.8 million (ZAR 11.9 million) from $0.6 million (ZAR 9.1 million), primarily due to higher average ZAR denominated cash balances and higher interest rates during the third quarter of fiscal 2022.

The higher ZAR denominated cash balances arose as we converted dollar funds into ZAR in anticipation of the Connect Group acquisition closing.

Interest expense decreased to $0.7 million (ZAR 10.8 million) from $0.7 million (ZAR 11.1 million), primarily as a result of a lower utilization of our ATM facilities to fund our ATMs, which decrease was partially offset by higher rates during the third quarter of fiscal 2022.

Fiscal 2022 tax expense was $0.5 million (ZAR 7.3 million) compared to $2.2 million (ZAR 32.5 million) in fiscal 2021.

Our effective tax rate for fiscal 2022 was impacted by the tax expense recorded by our profitable South African operations, non-deductible expenses, the on-going losses incurred by certain of our South African businesses and the associated valuation allowances created related to the deferred tax assets recognized regarding net operating losses incurred by these entities.

Our effective tax rate for fiscal 2021 was impacted by the tax effect on the change in the fair value of our equity securities, which is at a lower tax rate than the South African statutory rate, the tax charge related to our profitable South African operations, 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.

Bank Frick was sold in the third quarter of fiscal 2021 and was accounted for using the equity method up until disposal.

In ZAR, interest on surplus cash increased to $0.4 million (ZAR 7.0 million) from $0.4 million (ZAR 5.7 million), primarily due to the inclusion of Connect.

Interest expense increased to $4.0 million (ZAR 69.1 million) from $0.8 million (ZAR 11.9 million), primarily as a result of additional interest expense incurred related to borrowings obtained to partially fund the acquisition of Connect, interest expenses incurred in Connect to fund our cash management, digitization and VAS offerings, and a higher utilization of our facilities to fund our ATMs.

Fiscal 2023 tax expense was $0.03 million (ZAR 0.5 million) compared to the tax expense of $0.2 million (ZAR 2.7 million) in fiscal 2022.

Our effective tax rate for fiscal 2023 was impacted by the tax expense recorded by our profitable South African operations, a deferred tax benefit related to acquisition-related intangible asset amortization, non-deductible expenses, the on-going losses incurred by certain of our South African businesses and the associated valuation allowances created related to the deferred tax assets recognized regarding net operating losses incurred by these entities.

Our effective tax rate for fiscal 2022 was impacted by the tax charge related to our profitable South African operations, non-deductible expenses, the on-going losses incurred by certain of our South African businesses and the associated valuation allowances created related to the deferred tax assets recognized regarding net operating losses incurred by these entities.

Finbond is listed on the Johannesburg Stock Exchange and reports its six-month results during our first quarter and its annual results during our fourth quarter.

The table below presents the relative (loss) earnings from our equity accounted investments:

Three months ended March 31,

Share of net income

Three months ended September 30,

Share of net loss

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In United States Dollars

Three months ended March 31,

Three months ended September 30,

Operating Segment

7 unchanged sentences

Lease adjustments

Stock-based compensation

Depreciation and amortization

1 unchanged sentence

In South African Rand

Three months ended March 31,

Three months ended September 30,

Operating Segment

7 unchanged sentences

Lease adjustments

Stock-based compensation

Depreciation and amortization

Total consolidated operating loss

Segment revenue increased primarily due to higher lending and insurance revenues and moderately higher account holder fees.

We embarked on a retrenchment process during the third quarter of fiscal 2022 and recorded an expense of $5.9 million which is included in the Segment EBITDA loss, refer to Note 1 to our unaudited condensed consolidated financial statements for additional information regarding this process.

Segment EBITDA loss has decreased primarily due to the implementation of various cost reduction initiatives.

Our EBITDA loss margin (calculated as EBITDA loss divided by revenue) for the third quarter of fiscal 2022 and 2021 was (41.8%) and (46.9%), respectively.

The table below presents EBITDA for our Consumer operating segment and illustrates EBITDA for the third quarter of fiscal 2022 including and excluding the reorganization costs:

In South African Rand

Three months ended March 31,

Operating Segment

Reorganization costs

Consumer excluding reorganization costs

EBITDA margin:

Consumer excluding reorganization costs

Segment revenue increased due to an increase in hardware sales and processing fees, which was partially offset by fewer prepaid airtime sales.

The increase in segment EBITDA is primarily due to the increase in hardware sales.

Our EBITDA margin for the third quarter of fiscal 2022 and 2021 was 6.9% and 2.2%, respectively.

Other includes the activities of IPG in fiscal 2021 and our other business outside South Africa, principally Botswana.

Segment revenue decreased due to lower revenue following the closure of IPG in fiscal 2021.

We recorded an EBITDA contribution during the third quarter of fiscal 2022 following the closure of our loss-making activities performed through IPG.

Our EBITDA (loss) margin for the Other segment was 21.9% and (787.4%) during the third quarter of fiscal 2022 and 2021, respectively.

Segment revenue increased primarily due to higher lending and insurance revenues and higher account holder fees, though this was partially offset by lower ATM transaction fees.

The cost reduction initiatives we initiated in fiscal 2022 delivered a significant reduction in our Consumer segment’s operating expenses which resulted in a significantly lower EBITDA loss compared with fiscal 2022.

Specifically, expenses associated with operating a mobile distribution network were discontinued in early fiscal 2022, and we have streamlined our fixed distribution network through reductions in certain expenses including employee-related costs, security, guarding and premises costs.

Our EBITDA loss margin (calculated as EBITDA loss divided by revenue) for the first quarter of fiscal 2023 and 2022 was (9.3%) and (54.5%), respectively.

Segment revenue increased sixfold due to the contribution from inclusion of Connect which was partially offset by a decrease in hardware sales due to shipping delays.

The increase in segment EBITDA is primarily due to the inclusion of Connect, which was partially offset by higher employee-related expenses.

Connect records a significant proportion of its airtime sales in revenue and cost of sales, while only earning a relatively small margin.

This significantly depresses the EBITDA margins shown by the business.

Our EBITDA margin for the first quarter of fiscal 2023 and 2022 was 7.2% and 11.3%, respectively.

In ZAR, segment revenue increased modestly primarily due to an increase in hardware sales.

EBITDA decreased as a result of an allowance for doubtful debts created as well as inflationary increases in staff and other operating costs, which were at a higher percentage increase than the increase in revenue.

Our EBITDA (loss) margin for the Other segment was 11.0% and 33.5% during the first quarter of fiscal 2023 and 2022, respectively.

Corporate/Eliminations

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non-employee directors’ fees;

certain employee and executive bonuses;

stock-based compensation;

Group CEO and Group CFO compensation costs, certain employee and executive bonuses;

directors and officer’s insurance premiums;

elimination entries;

and from fiscal 2022 our group CEO’s compensation.

Our corporate expenses for fiscal 2022 increased compared with the prior period due to higher employee costs, an increase in director and officer’s insurance premiums, and higher stock-based compensation charges.

Fiscal 2021 includes an unrealized foreign exchange gain of $0.6 million which also impacts comparability.

Our corporate expenses for fiscal 2022 includes transaction related expenses of $0.1 million (ZAR 1.8 million) related to the Connect Group acquisition.

We expect to incur additional expenses related to the Connect Group transaction in the fourth quarter of fiscal 2022.

Year to date fiscal 2022 compared to year to date fiscal 2021

The following factors had a significant impact on our results of operations during the year to date fiscal 2022 as compared with the same period in the prior year:

Lower revenue:

Our revenues decreased 3% in ZAR, primarily due to lower prepaid airtime sales, which was partially offset by increase in hardware sales, an increase in merchant transaction processing fees, and moderate increases in lending and insurance revenues;

Lower operating losses:

Operating losses decreased, delivering an improvement of 31% in ZAR compared with the prior period primarily due to the closure of the loss-making IPG operations and the implementation of various cost reduction initiatives in our Consumer business.

During the year to date fiscal 2022, we recorded a reorganization charge of $5.9 million related to the retrenchment process we commenced in January 2022;

Significant transaction costs:

We expensed $1.8 million of transaction costs related to the Connect Group acquisition;

Foreign exchange movements:

dollar was 4% weaker against the ZAR during the year to date fiscal 2022, which impacted our reported results.

Consolidated overall results of operations

This discussion is based on the amounts prepared in accordance with U.S.

The following tables show the changes in the items comprising our statements of operations, both in U.S.

dollars and in ZAR:

In United States Dollars

Nine months ended March 31,

Cost of goods sold, IT processing, servicing and support

Selling, general and administration

Depreciation and amortization

Reorganization costs

Transaction costs related to Connect Group acquisition

Operating loss

Change in fair value of equity securities

Gain related to fair value adjustment to currency options

Loss on disposal of equity-accounted investment

Gain on disposal of equity securities

Loss on disposal of equity-accounted investment - Bank Frick

Interest income

Interest expense

Loss before income tax expense

Income tax expense

Net loss before loss from equity-accounted investments

Loss from equity-accounted investments

Net loss attributable to us

In South African Rand

Nine months ended March 31,

Cost of goods sold, IT processing, servicing and support

Selling, general and administration

Depreciation and amortization

Reorganization costs

Transaction costs related to Connect Group acquisition

Operating loss

Change in fair value of equity securities

Gain related to fair value adjustment to currency options

Loss on disposal of equity-accounted investment

Gain on disposal of equity securities

Loss on disposal of equity-accounted investment - Bank Frick

Interest income

Interest expense

Loss before income tax expense

Income tax expense

Net loss before loss from equity-accounted investments

Loss from equity-accounted investments

Net loss attributable to us

The decrease in revenue was primarily due to lower prepaid airtime sales, which was partially offset by increase in hardware sales, an increase in merchant transaction processing fees, and moderate increases in lending and insurance revenues.

The decrease in cost of goods sold, IT processing, servicing and support was primarily due to the implementation of various cost reduction initiatives in our Consumer business, lower cost of prepaid airtime sales, which was partially offset by an increase in the cost of hardware sales, higher costs related to transaction fees and an increase in insurance-related claims experience.

In ZAR, the decrease in selling, general and administration expenses was primarily due to lower IPG-related expenses incurred following its closure and some benefits from our cost reduction initiatives, which were partially offset by higher employee-related expenses related to the growth in our senior management team, and the year-over-year impact of inflationary increases on employee-related expenses.

Depreciation and amortization decreased primarily due to lower overall depreciation related to tangible assets that were fully depreciated during the last twelve months.

Transaction costs related to Connect Group acquisition includes fees paid to external service providers associated with the contract drafting and negotiations;

legal, financial and tax due diligence activities performed;

warranty and indemnity insurance related to the transaction;

and other advisory services procured;

as well as our portion of the fees paid to competition authorities related to the regulatory filings made in various jurisdictions.

Our operating loss margin for the year to date fiscal 2022 and 2021 was (25.1%) and (35.5%), respectively.

We discuss the components of operating loss margin under “—Results of operations by operating segment.”

The change in fair value of equity securities during the year to date fiscal 2021, represents a non-cash fair value adjustment gain related to MobiKwik.

We continue to carry our investment in Cell C at $0 (zero).

Gain related to fair value adjustment to currency options represents the realized gain related to foreign exchange option contracts entered into in November 2021 in order to manage the risk of currency volatility and to fix the USD amount to be utilized for part of the Connect Group purchase consideration settlement.

The foreign exchange option contract matured on February 24, 2022.

Refer to Note 4 to our unaudited condensed consolidated financial statements for additional information related to these currency options.

We recorded a gain of $0.7 million related to the disposal of our entire interest in an equity security during the third quarter of fiscal 2022.

Refer to Note 5 to our unaudited condensed consolidated financial statements for additional information regarding this gain.

We recorded a loss of $0.3 million related to the disposal of a minor portion of our investment in Finbond during the third quarter of fiscal 2022.

Refer to Note 5 to our unaudited condensed consolidated financial statements for additional information regarding this disposal.

We recorded a loss of $0.5 million related to the disposal of Bank Frick during the year to date fiscal 2021.

Interest on surplus cash decreased to $1.5 million (ZAR 21.9 million) from $1.9 million (ZAR 31.2 million), primarily due to lower average daily cash balances.

Interest expense increased to $2.3 million (ZAR 34.1 million) from $2.2 million (ZAR 34.9 million), primarily as a result of a higher utilization of our ATM facilities to fund our ATMs.

Fiscal 2022 tax expense was $0.8 million (ZAR 11.3 million) compared to $4.5 million (ZAR 73.3 million) in fiscal 2022.

Bank Frick was sold in the third quarter of fiscal 2021 and was accounted for using the equity method during the year to date fiscal 2021 up until it was disposed.

Finbond is listed on the Johannesburg Stock Exchange and reports its six-month results during our first quarter and its annual results during our fourth quarter.

The table below presents the (loss) earnings from our equity accounted investments:

Nine months ended March 31,

Share of net loss

Share of net income

Share of net loss

Results of operations by operating segment

The composition of revenue and the contributions of our business activities to operating (loss) income are illustrated below:

In United States Dollars

Nine months ended March 31,

Operating Segment

Consolidated revenue:

Operating segments

Corporate/Eliminations

Total consolidated revenue

Segment Adjusted EBITDA:

Total Segment Adjusted EBITDA

Corporate/eliminations

Lease adjustments

Depreciation and amortization

Total consolidated operating loss

In South African Rand

Nine months ended March 31,

Operating Segment

Consolidated revenue:

Operating segments

Corporate/Eliminations

Total consolidated revenue

Segment Adjusted EBITDA:

Total Segment Adjusted EBITDA

Corporate/eliminations

Lease adjustments

Depreciation and amortization

Total consolidated operating loss

The underlying decrease in revenue was primarily due to lower processing fees, partially offset by higher insurance and lending revenue and account holder fees.

Segment EBITDA loss, excluding the reorganization charge, has decreased primarily due to the implementation of various cost reduction initiatives, which was partially offset by an increase in insurance-related claims experience and an increase in our allowance for doubtful finance loans receivable recorded.

Our EBITDA loss margin for the year to date fiscal 2022 and 2021 was (41.5%) and (40.5%), respectively.

Segment revenue increased due to an increase in hardware sales and processing fees, which was partially offset by fewer prepaid airtime sales.

The decrease in segment EBITDA is primarily due to higher costs related to transaction fees and higher employee-related expenses.

Our EBITDA margin for the year to date fiscal 2022 and 2021 was 8.0% and 9.8%, respectively.

Segment revenue decreased due to lower revenue following the closure of IPG in fiscal 2021.

We recorded an EBITDA contribution during the year to date fiscal 2022 following the closure of our loss-making activities performed through IPG.

Our EBITDA (loss) margin for the Other segment was 28.9% and (360.2%) during the year to date fiscal 2022 and 2021, respectively.

Corporate/Eliminations

Our corporate expenses for fiscal 2022 decreased compared with fiscal 2021 due to higher consulting fees incurred in fiscal 2021 and the inclusion of an allowance on doubtful loans receivable from equity-accounted investments of $0.7 million in fiscal 2021.

Our corporate expenses for fiscal 2022 includes transaction related expenses of $1.8 million (ZAR 26.8 million) related to the Connect Group acquisition.

Presentation of quarterly revenue and Segment Adjusted EBITDA by segment for fiscal 2021 and 2020

During the third quarter of fiscal 2022, our chief operating decision maker changed our operating and internal reporting structures following the establishment of a new management team and our decision to focus primarily on the South African market.

We have restated previously reported segment information.

The tables below present quarterly revenue and EBITDA generated by our three reportable segments for fiscal 2021 and 2020, and reconciliations to consolidated revenue and operating (loss) income, as well as the U.S.

dollar/ ZAR exchange rates applicable per fiscal quarter and year:

In United States Dollars

Consolidated revenue:

Operating segments

Corporate/Eliminations

Total consolidated revenue

Segment Adjusted EBITDA:

Total Segment Adjusted EBITDA

Corporate/eliminations

Lease adjustments

Depreciation and amortization

Total consolidated operating loss

Income and expense items:

In United States Dollars

Consolidated revenue:

Operating segments

Corporate/Eliminations

Total consolidated revenue

Segment Adjusted EBITDA:

Total Segment Adjusted EBITDA

Corporate/eliminations

Lease adjustments

Depreciation and amortization

Total consolidated operating loss

Income and expense items:

and elimination entries.

Our corporate expenses for fiscal 2023 increased compared with the prior period due to higher employee costs and an increase in director and officer’s insurance premiums.

Liquidity and Capital Resources

At March 31, 2022, our cash and cash equivalents were $183.7 million and comprised of U.S.

dollar-denominated balances of $11.3 million, ZAR-denominated balances of ZAR 2.5 billion ($169.9 million), and other currency deposits, primarily Botswana pula, of $2.4 million, all amounts translated at exchange rates applicable as of March 31, 2022.

The decrease in our unrestricted cash balances from June 30, 2021 was primarily due to utilization of cash reserves to fund our operations and payment of reorganization costs, which was partially offset by the receipt of $7.5 million related to the sale of Bank Frick in fiscal 2021 and a $3.7 million gain on the foreign currency options.

As of September 30, 2022, our cash and cash equivalents were $30.1 million and comprised of U.S.

dollar-denominated balances of $9.2 million, ZAR-denominated balances of ZAR 346.8 million ($19.3 million), and other currency deposits, primarily Botswana pula, of $1.7 million, all amounts translated at exchange rates applicable as of September 30, 2022.

The decrease in our unrestricted cash balances from June 30, 2022, was primarily due to utilization of cash reserves to fund our Consumer operations and an investment in working capital in our Merchant operations, which was partially offset by the contribution from Connect.

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.

2 unchanged sentences

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.

We closed the acquisition of Connect in April 2022 as described in Note 20 to our unaudited condensed consolidated financial statements .

The total purchase consideration was ZAR 3.8 billion ($262.0 million), comprising ZAR 3.5 billion ($238.2 million) in cash and ZAR 0.4 billion ($23.9 million) in 3,185,079 shares of our common stock.

The cash component was funded through ZAR 2.1 billion of our cash, the utilization of new Net1 banking facilities of ZAR 1.1 billion, and an increase in Connect’s debt of ZAR 0.3 billion in April 2022.

For instance, in fiscal 2022, we obtained loan facilities from RMB to fund a portion of our acquisition of Connect, with the balance being funded from cash resources.

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 safe assets.

Refer to Note 12 to our consolidated financial statements for the year ended June 30, 2022, for additional information related to our borrowings.

Available short-term borrowings

Summarized below are our short-term facilities available and utilized as of March 31, 2022:

Summarized below are our short-term facilities available and utilized as of September 30, 2022:

RMB Facility E

Total short-term facilities available, comprising:

6 unchanged sentences

Indirect and derivative facilities (2)

Total short-term facilities available

Interest rate, based on South African prime rate

Interest rate, based on South African prime rate less 1.15%

(1) Overdraft may only be used to fund ATMs and upon utilization is considered restricted cash.

(2) Indirect and derivative facilities may only be used for guarantees, letters of credit and forward exchange contracts to support guarantees issued by Nedbank to various third parties on our behalf.

(2) Indirect and derivative facilities may only be used for guarantees, letters of credit and forward exchange contracts to support guarantees issued by RMB and Nedbank to various third parties on our behalf.

Long-term borrowings

We obtained long-term borrowings of ZAR 1.1 billion to partially fund the acquisition of Connect.

In contemplation of the Connect transaction, Connect obtained total facilities of ZAR 1.3 billion which were utilized to repay its existing borrowings and to settle obligations under the Sales Agreement.

Our total long-term borrowings following the acquisition of Connect are ZAR 2.2 billion, comprising the ZAR 1.1 billion and ZAR 1.1 billion of Connect’s total facilities of ZAR 1.3 billion.

Refer to Note 20 to our unaudited condensed consolidated financial statements for additional information related to these borrowings.

We have aggregate long-term borrowing outstanding of ZAR 2.3 billion ($127.8 million translated at exchange rates as of September 30, 2022) as described in Note 8.

These borrowings include outstanding long-term borrowings obtained by Lesaka SA of ZAR 1.0 billion to partially fund the acquisition of Connect.

In contemplation of the Connect transaction, Connect obtained total facilities of approximately ZAR 1.3 billion which were utilized to repay its existing borrowings and to fund a portion of its capital expenditures and to settle obligations under the transaction documents.

We also have a revolving credit facility, of ZAR 150.0 million which is utilized to fund a portion of our merchant finance loans receivable book.

Our credit agreement with RMB requires that we achieve certain milestones by September 30, 2022, failing which we would be required to place ZAR 250 million into bank accounts with RMB.

We were unable to achieve the required milestones by September 30, 2022.

However, RMB did not require us to place cash into the RMB bank accounts nor did RMB declare an event of default as a result of our failure to do so.

We are currently renegotiating the terms of these lending arrangements with RMB.

Restricted cash

We have credit facilities with RMB and Nedbank in order to access cash to fund our ATMs in South Africa.

Our cash, cash equivalents and restricted cash presented in our unaudited condensed consolidated statement of cash flows as of March 31, 2022, includes restricted cash of approximately $45.7 million related to cash withdrawn from our various 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 on our unaudited condensed consolidated balance sheet.

We have also entered into cession and pledge agreements with Nedbank related to certain of our Nedbank credit facilities and we have ceded and pledged certain bank accounts to Nedbank.

We have credit facilities with RMB in order to access cash to fund our ATMs in South Africa.

Our cash, cash equivalents and restricted cash presented in our consolidated statement of cash flows as of September 30, 2022, includes restricted cash of approximately $58.0 million related to cash withdrawn from our debt facility to fund ATMs.

This cash may only be used to fund ATMs and is considered restricted as to use and therefore is classified as restricted cash on our consolidated balance sheet.

We have also entered into cession and pledge agreements with Nedbank related to our Nedbank indirect credit facilities and we have ceded and pledged certain bank accounts to Nedbank.

The funds included in these bank accounts are restricted as they may not be withdrawn without the express permission of Nedbank.

Our cash, cash equivalents and restricted cash presented in our consolidated statement of cash flows as of September 30, 2022, includes restricted cash of approximately $5.3 million that has been ceded and pledged.

Cash flows from operating activities

Third quarter

Net cash used in operating activities during the third quarter of fiscal 2022 was $8.8 million (ZAR 137.0 million) compared to $8.3 million (ZAR 123.5 million) during the third quarter of fiscal 2021 .

Excluding the impact of income taxes, our cash used in operating activities during the third quarter of fiscal 2022 was impacted by the utilization of cash reserves to fund certain of our operations and payment of the reorganization costs, which was partially offset by the $3.7 million gain on the foreign currency options and profits realized by certain of our operations.

During the third quarter of fiscal 2022, we paid our first provisional South African tax payments of $0.1 million (ZAR 2.2 million) related to our 2022 tax year and received tax refunds of $0.0 million (ZAR 0.0 million).

During the third quarter of fiscal 2021, we paid our first provisional South African tax payments of $0.2 million (ZAR 2.6 million) related to our 2021 tax year.

Taxes paid during the third quarter of fiscal 2022 and 2021 were as follows:

Three months ended March 31,

First quarter

Net cash used in operating activities during the first quarter of fiscal 2023 was $7.7 million (ZAR 131.2 million) compared to $7.9 million (ZAR 116.1 million) during the first quarter of fiscal 2022 .

Excluding the impact of income taxes, our cash used in operating activities during the first quarter of fiscal 2023 was impacted by month-end working capital movements (primarily an increase in receivable balances) within our merchant business which general unwind in the following month, growth in our merchant finance loans receivable book, and the utilization of cash reserves to fund our Consumer operations, which was partially offset by the contribution from Connect.

During the first quarter of fiscal 2023, we paid first provisional South African tax payments of $0.5 million (ZAR 8.2 million) related to our 2023 tax year, and additional second provisional South African tax payments of $0.2 million (ZAR 3.4 million) related to our 2022 tax year.

Taxes paid during the first quarter of fiscal 2023 and 2022 were as follows:

Three months ended September 30,

First provisional payments

Second provisional payments

Tax refund received

2 unchanged sentences

Total tax paid

Net cash used in operating activities during the year to date fiscal 2022 was $30.5 million (ZAR 457.2 million) compared to $50.1 million (ZAR 807.7 million) during the year to date fiscal 2021 .

During the year to date fiscal 2022, we paid our first provisional South African tax payments of $0.6 million (ZAR 9.1 million) related to our 2022 tax year and received tax refunds of $0.2 million (ZAR (3.2) million) .

During the year to date fiscal 2021, we paid our first provisional South African tax payments of $0.9 million (ZAR 12.7 million) related to our 2021 tax year.

During the year to date fiscal 2021, we paid South African tax of $0.2 million (ZAR 3.4 million) related to our 2020 tax year.

We also paid taxes totaling $15.3 million in other tax jurisdictions, primarily in the U.S.

Taxes paid during the year to date fiscal 2022 and 2021 were as follows:

Nine months ended March 31,

First provisional payments

Taxation paid related to prior years

Tax refund received

Total South African taxes paid

Foreign taxes paid

Total tax paid

Cash flows from investing activities

Third quarter

Cash used in investing activities for the third quarter of fiscal 2022 included capital expenditures of $0.8 million (ZAR 13.0 million), primarily due to the acquisition of ATMs.

During the third quarter of fiscal 2022, we received proceeds of $1.5 million from sale of property, plant and equipment, and $0.8 million and $0.7 million, respectively, related to the sale of minor positions in Finbond and from the disposal of our entire interest in Revix.

Cash used in investing activities for the third quarter of fiscal 2021 included capital expenditures of $0.6 million (ZAR 9.7 million), primarily due to the acquisition of computer equipment.

During the third quarter of fiscal 2021 we disposed of our investment in Bank Frick and received $18.6 million of the $30.0 million sales proceeds.

Cash used in investing activities for the year to date fiscal 2022 included capital expenditures of $1.7 million (ZAR 25.8 million), primarily due to the roll out of our new express branches, acquisitions of ATMs and the acquisition of computer equipment.

During the year to date fiscal 2022, we received a scheduled payment of $7.5 million related to the sale of Bank Frick in fiscal 2021, proceeds from sale of property, plant and equipment of $3.5 million, and proceeds of $0.8 million and $0.7 million, respectively, related to the sale of minor positions in Finbond and from the disposal of our entire interest in Revix.

Cash used in investing activities for the year to date fiscal 2021 included capital expenditures of $3.9 million (ZAR 63.6 million), primarily due to the acquisition of motor vehicles, which largely comprised a fleet of customized mobile ATMs used to deliver a service to rural communities, computer equipment and leasehold improvements in South Africa.

We received $20.1 million related to the sale of our Korean business following the successful refund application of the amounts withheld and paid to the South Korean tax authorities pursuant to that transaction.

We received $18.6 million related to the disposal of Bank Frick and the amount due on the deferred sale proceeds related to the April 2020 sale of DNI.

We also extended loan funding of $1.0 million to V2 and $0.2 million to Revix.

First quarter

Cash used in investing activities for the first quarter of fiscal 2023 included capital expenditures of $4.5 million (ZAR 77.1 million), primarily due to the acquisition of safe assets, POS devices and computer equipment.

During the first quarter of fiscal 2023, we received proceeds $0.25 million related to the first tranche (of two) from the disposal of our entire interest in Carbon.

Cash used in investing activities for the first quarter of fiscal 2022 included capital expenditures of $0.7 million (ZAR 10.2 million), primarily due to the roll out of our new express branches.

Cash flows from financing activities

Third quarter

During the third quarter of fiscal 2022 , we utilized approximately $95.0 million from our South African overdraft facilities to fund our ATMs and repaid $100.8 million of these facilities.

During the third quarter of fiscal 2021, we utilized approximately $55.3 million from our South African overdraft facilities to fund our ATMs and repaid $103.2 million of these facilities.

During the year to date fiscal 2022 , we received $0.8 million from the exercise of stock options, and utilized approximately $406.4 million from our South African overdraft facilities to fund our ATMs and repaid $372.5 million of these facilities.

During the year to date of fiscal 2021, we utilized approximately $261.8 million from our South African overdraft facilities to fund our ATMs and repaid $268.3 million of these facilities.

First quarter

During the first quarter of fiscal 2023 , we utilized approximately $146.1 million from our South African overdraft facilities to fund our ATMs and our cash management business through Connect, and repaid $136.9 million of these facilities.

We utilized approximately $1.1 million of our long-term borrowings to fund our merchant finance loans receivable business and to fund the acquisition of certain capital expenditures.

We repaid approximately $1.6 million of long-term borrowings in accordance with our repayment schedule.

We paid $0.2 million to repurchase shares from an employee in order for the employee to settle taxes due related to the vesting of shares of restricted stock.

During the first quarter of fiscal 2022, we utilized approximately $138.9 million from our South African overdraft facilities to fund our ATMs and repaid $98.9 million of these facilities.

Off-Balance Sheet Arrangements

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Capital Expenditures

We expect capital spending for the fourth quarter of fiscal 2022 to primarily include limited investments into our ATM infrastructure and branch network in South Africa as well as IT equipment, and through Connect, spending for POS devices, vehicles, computer and office equipment.

Our capital expenditures for the third quarter of fiscal 2022 and 2021 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.

We had outstanding capital commitments as of March 31, 2022, of $0.1 million.

We expect capital spending for the second quarter of fiscal 2023 to primarily include investments into our ATM infrastructure and branch network in South Africa as well as IT equipment, and through Connect, spending for POS devices, safe assets, vehicles, computer and office equipment.

Our capital expenditures for the first quarter of fiscal 2023 and 2022 are discussed under “—Liquidity and Capital Resources—Cash flows from investing activities.” All of our capital expenditures for the past three fiscal years were funded through internally generated funds, or, following the Connect acquisition, our asset-backed borrowing arrangement.

We had outstanding capital commitments as of September 30, 2022, of $2.4 million.

We expect to fund these expenditures through internally generated funds and available facilities.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis