LESAKA TECHNOLOGIES INC 10-Q

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, 2022, and the unaudited condensed consolidated financial statements and the accompanying notes included in this Form 10-Q. 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, 2022. 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 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 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; and  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; 33  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; and  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 o 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. o 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. o Notably churn is at the higher end of Lesaka’s expected churn rate range partly attributable to volatility in the SRD grant base o 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 o 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. o 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. o 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. o 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. o 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 o 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. Investments 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. 34 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 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. We will continue to evaluate the nature and extent of the impact to our business, consolidated results of operations, and financial condition. 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, including the ongoing uncertainty in the current economic environment due to the outbreak of COVID-19. 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, 2022:  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; and  Accounts Receivable and Allowance for Doubtful Accounts Receivable. Recent accounting pronouncements adopted Refer to Note 1 to our unaudited condensed consolidated financial statements for a full description of accounting pronouncements adopted, including the dates of adoption and the effects on our unaudited condensed consolidated financial statements. Recent accounting pronouncements not yet adopted as of September 30, 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. 35 Currency Exchange Rate Information Actual exchange rates The actual exchange rates for and at the end of the periods presented were as follows: Table 1 Three months ended Year ended September 30, June 30, 2022 2021 2022 ZAR : $ average exchange rate 17.0201 14.6246 15.2154 Highest ZAR : $ rate during period 18.0545 15.3110 16.2968 Lowest ZAR : $ rate during period 16.2035 14.1630 14.1630 Rate at end of period 18.0126 15.1150 16.2903 Translation exchange rates for financial reporting purposes We are required to translate our results of operations from ZAR to U.S. dollars on a monthly basis. Thus, the average rates used to translate this data for the three months ended September 30, 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 Year ended Table 2 September 30, June 30, 2022 2021 2022 Income and expense items: $1 = ZAR 17.1307 14.6129 15.1978 Balance sheet items: $1 = ZAR 18.0126 14.3010 16.2903 36 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 revenue and is the currency in which the majority of our transactions are initially incurred and measured. Due to the significant impact of currency fluctuations between the U.S. dollar and the 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. 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 presented in our unaudited condensed consolidated financial statements is included in Note 17 to those 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: (1) Consumer, (2) Merchant and (3) Other. 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. 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 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 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; and  Foreign exchange movements: The U.S. dollar was 17% stronger against the ZAR during the first quarter of fiscal 2023, which impacted our reported results. 37 Consolidated overall results of operations This discussion is based on the amounts prepared in accordance with U.S. GAAP. The following tables show the changes in the items comprising our statements of operations, both in U.S. dollars and in ZAR: Table 3 In United States Dollars Three months ended September 30, 2022 2021 $ ’000 $ ’000 change Revenue 124,786 34,504 262% Cost of goods sold, IT processing, servicing and support 100,528 24,207 315% Selling, general and administration 22,931 20,442 12% Depreciation and amortization 5,998 895 570% Transaction costs related to Connect Group acquisition - 185 nm Operating loss (4,671) (11,225) (58%) Net gain on disposal of equity-accounted investments 248 - nm Interest income 411 389 6% Interest expense 4,036 816 395% Loss before income tax expense (8,048) (11,652) (31%) Income tax expense 31 186 (83%) Net loss before loss from equity-accounted investments (8,079) (11,838) (32%) Loss from equity-accounted investments (2,617) (1,156) 126% Net loss attributable to us (10,696) (12,994) (18%) Table 4 In South African Rand Three months ended September 30, 2022 2021 ZAR ’000 ZAR ’000 change Revenue 2,137,671 504,204 324% Cost of goods sold, IT processing, servicing and support 1,722,115 353,734 387% Selling, general and administration 392,824 298,717 32% Depreciation and amortization 102,749 13,079 686% Transaction costs related to Connect Group acquisition - 2,703 nm Operating loss (80,017) (164,029) (51%) Net gain on disposal of equity-accounted investments 4,248 - nm Interest income 7,041 5,684 24% Interest expense 69,140 11,924 480% Loss before income tax expense (137,868) (170,269) (19%) Income tax expense 532 2,718 (80%) Net loss before loss from equity-accounted investments (138,400) (172,987) (20%) Loss from equity-accounted investments (44,831) (16,893) 165% Net loss attributable to us (183,231) (189,880) (4%) 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. 38 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.” 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 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. 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: Table 5 Three months ended September 30, 2022 2021 $ % $ ’000 $ ’000 change Finbond (2,631) (1,156) 128% Share of net loss (1,521) (1,156) 32% Impairment (1,110) - nm Other 14 - nm Total loss from equity-accounted investments (2,617) (1,156) 126% 39 Results of operations by operating segment The composition of revenue and the contributions of our business activities to operating (loss) income are illustrated below: Table 6 In United States Dollars Three months ended September 30, 2022 % of 2021 % of % change Operating Segment $ ’000 total $ ’000 total Consolidated revenue: Consumer 15,004 12% 17,164 50% (13%) Merchant 109,437 88% 17,072 49% 541% Other 374 - 427 1% (12%) Subtotal: Operating segments 124,815 100% 34,663 100% 260% Corporate/Eliminations (29) - (159) - (82%) Total consolidated revenue 124,786 100% 34,504 100% 262% Segment Adjusted EBITDA: Consumer (1,394) (39%) (9,356) 103% (85%) Merchant 7,852 218% 1,932 (21%) 306% Other 41 1% 143 (2%) (71%) Total Segment Adjusted EBITDA 6,499 180% (7,281) 80% nm Corporate/eliminations (2,898) (80%) (1,816) 20% 60% Subtotal 3,601 100% (9,097) 100% nm Less: Lease adjustments 812 924 Less: Stock-based compensation 1,462 309 Less: Depreciation and amortization 5,998 895 Total consolidated operating loss (4,671) (11,225) Table 7 In South African Rand Three months ended September 30, 2022 % of 2021 % of % change Operating Segment ZAR ’000 total ZAR ’000 total Consolidated revenue: Consumer 257,029 12% 250,816 50% 2% Merchant 1,874,732 88% 249,471 49% 651% Other 6,407 - 6,240 1% 3% Subtotal: Operating segments 2,138,168 100% 506,527 100% 322% Corporate/Eliminations (497) - (2,323) - (79%) Total consolidated revenue 2,137,671 100% 504,204 100% 324% Segment Adjusted EBITDA: Consumer (23,880) (39%) (138,150) 104% (83%) Merchant 134,510 218% 27,545 (21%) 388% Other 702 1% 2,090 (2%) (66%) Total Segment Adjusted EBITDA 111,332 180% (108,515) 81% nm Corporate/eliminations (49,645) (80%) (24,418) 19% 103% Subtotal 61,687 100% (132,933) 100% nm Less: Lease adjustments 13,910 13,502 Less: Stock-based compensation 25,045 4,515 Less: Depreciation and amortization 102,750 13,079 Total consolidated operating loss (80,018) (164,029) Consumer 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. 40 Merchant 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. Other 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 Our corporate expenses generally include acquisition-related intangible asset amortization; expenses incurred related to corporate actions; expenditures related to compliance with the Sarbanes-Oxley Act of 2002; non-employee directors’ fees; Group CEO and Group CFO compensation costs, certain employee and executive bonuses; legal fees; audit fees; directors and officer’s insurance premiums; 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 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. dollar-denominated money market accounts. Historically, we have financed most of our operations, research and development, working capital, and capital expenditures, as well as acquisitions and strategic investments, through internally generated cash and our financing facilities. When considering whether to borrow under our financing facilities, we consider the cost of capital, cost of financing, opportunity cost of utilizing surplus cash and availability of tax efficient structures to moderate financing costs. For instance, in fiscal 2022, we obtained loan facilities from RMB to fund a portion of our acquisition of Connect, 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. 41 Available short-term borrowings Summarized below are our short-term facilities available and utilized as of September 30, 2022: Table 8 RMB Facility E RMB Indirect RMB Connect Nedbank $ ’000 ZAR ’000 $ ’000 ZAR ’000 $ ’000 ZAR ’000 $ ’000 ZAR ’000 Total short-term facilities available, comprising: Overdraft - - - - 13,766 247,954 - - Overdraft restricted as to use (1) 77,723 1,400,000 - - - - - - Total overdraft 77,723 1,400,000 - - 13,766 247,954 - - Indirect and derivative facilities (2) - - 7,495 135,000 - - 8,691 156,566 Total short-term facilities available 77,723 1,400,000 7,495 135,000 13,766 247,954 8,691 156,566 Utilized short-term facilities: Overdraft - - - - 11,381 205,001 - - Overdraft restricted as to use (1) 57,951 1,043,847 - - - - - - Indirect and derivative facilities (2) - - 1,838 33,106 - - 5,114 92,110 Total short-term facilities available 57,951 1,043,847 1,838 33,106 11,381 205,001 5,114 92,110 Interest rate, based on South African prime rate 9.75% 9.65% (1) Overdraft may only be used to fund ATMs and upon utilization is considered restricted cash. (2) Indirect and derivative facilities may only be used for guarantees, letters of credit and forward exchange contracts to support guarantees issued by RMB and Nedbank to various third parties on our behalf. Long-term 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 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. 42 Cash flows from operating activities 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: Table 9 Three months ended September 30, 2022 2021 2022 2021 $ $ ZAR ZAR ‘000 ‘000 ‘000 ‘000 First provisional payments 492 - 8,216 - Second provisional payments 191 - 3,371 - Tax refund received (57) (25) (970) (376) Total South African taxes paid (received) 626 (25) 10,617 (376) Foreign taxes paid 51 36 886 525 Total tax paid 677 11 11,503 149 Cash flows from investing activities 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 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. 43 Off-Balance Sheet Arrangements We have no off-balance sheet arrangements. Capital Expenditures 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. 44