What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-05-09 compared with 2023-02-07 · 237 added, 187 removed, 262 unchanged (62% of the section changed)

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Recent Developments

This quarter represents a significant milestone for Lesaka.

We made significant progress in our turnaround strategy, a process that commenced in earnest at the beginning of fiscal 2022.

This quarter demonstrates successful execution against a carefully considered transformation strategy.

Key highlights in the second quarter of fiscal 2023 include:

outperformance of the Merchant business ahead of our expectations and guidance reported, delivering a segment adjusted EBITDA of ZAR 160 million for the period;

turn around in the Consumer business, returning it to profitability with segment adjusted EBITDA of ZAR10 million in the second quarter of fiscal 2023, compared to a ZAR 67 million loss in the second quarter of fiscal 2022;

the group achieving adjusted EBITDA of ZAR 130 million, exceeding the upper end of our guidance of ZAR 123 million for the second quarter of fiscal 2023, compared with an adjusted EBITDA loss of ZAR 84 million in the second quarter of fiscal 2022.

Merchant business outperformance

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

The Merchant business has shown strong growth across all the products but particularly in its card acquiring and credit businesses, in particular Capital Connect and Kazang Pay advance.

The integration of the Connect Group continues to create new opportunities within our micro small and medium enterprises (“MSME”) offering and is a business that is supported by growth drivers and secular trends underpinning financial inclusion, cash management and digitization for MSME’s.

This quarter delivered continued growth for us despite prevailing macroeconomic and socio-political conditions.

With the Consumer Division (“Consumer”) contributing sequential positive Segment Adjusted EBITDA, and the Merchant Division (“Merchant”) continuing to display good growth and Segment Adjusted EBITDA profitability.

Key highlights in the third quarter of fiscal 2023 include:

outperformance by the Connect Group, within Merchant ahead of our expectations, delivering a Segment Adjusted EBITDA of ZAR 149 million for the period;

a second consecutive quarter of Segment Adjusted EBITA profitability in Consumer, with Segment Adjusted EBITDA of ZAR 30 million in the third quarter of fiscal 2023, compared to a ZAR 105 million loss in the third quarter of fiscal 2022;

reporting Group Adjusted EBITDA of ZAR 137 million for the third quarter of fiscal 2023, compared with a Segment Adjusted EBITDA loss of ZAR 113 million in the third quarter of fiscal 2022.

Merchant Division outperformance

Merchant has shown significant growth in card acquiring (Kazang Pay) and Merchant Credit, in particular Capital Connect and Kazang Pay Advance.

The integration of the Connect Group continues to create new opportunities within our micro small and medium enterprises (“MSME”) offering and is a business where growth is supported by secular trends underpinning financial inclusion, cash management and digitization for MSME’s.

Our Merchant offering continues to grow:

In the Value-Added-Service (“VAS”) and supplier payments business, Kazang and EasyPay have seen strong adoption by MSME’s in the informal sector, with a 47% year-on-year growth in the number of devices deployed.

We had approximately 64,400 POS devices in field as of December 31, 2022, compared to approximately 57,000 as of September 30, 2022, and approximately 44,000 POS devices a year ago;

Kazang, which is our Value-Added-Service (“VAS”) and Supplier Payments Business, has seen strong adoption by MSME’s in the informal sector, with a 52% year-on-year growth in the number of devices deployed.

We had approximately 71,800 devices in field as of March 31, 2023, compared to approximately 64,500 as of December 31, 2022, and approximately 47,300 devices a year ago ;

Our automated cash management and payments business, Cash Connect, effectively puts the “bank” in approximately 4,370 merchants’ stores (compared to approximately 4,000 merchants’ stores a year ago).

Cash Connect is a provider of robust cash vaults in the formal sector, and is expanding rapidly in 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 34,500 as of December 31, 2022, compared to approximately 17,100 a year ago, and approximately 27,800 as of September 30, 2022.

Kazang Pay, which is our card acquiring offering to the informal sector, has been the primary driver of this growth in devices deployed, where we are seeing rapid adoption of card payments in the informal sector.

As a result, our card acquiring business has recorded in excess of 100% growth in devices deployed compared to a year ago;

We provide merchants quick access to credit through Capital Connect.

We continue to see strong demand for this credit offering, disbursed over ZAR 262 million during the quarter, compared to ZAR 154 million in the comparable period ended December 2021.

Consumer business achieves profitability and is well positioned for growth

We have achieved our goal of returning our Consumer segment to profitability at a segment adjusted EBITDA level.

Over the past four quarters, we have consistently referenced the three levers underpinning our strategy of returning the consumer business to profitability – cost optimization, increasing average revenue per user (“ARPU”) through cross-selling and growing active EPE account numbers.

This result achieved was primarily through the first two levers.

The first is cost savings through the optimization of our distribution network, including the rationalization of infrastructure, rebalancing and investing in our staff complement, as well as improving processes around client onboarding and service.

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

Progress on cost optimization

Improved profitability in the Consumer business was predominantly driven by realized cost savings following the implementation of our Project Spring initiative just less than a year ago.

Under this initiative we decommissioned approximately 800 underperforming ATMs and sold 400 mobile ATMs, leaving us with approximately 800 operating ATMs.

Our ATM optimization program has been assisted by the retailer partnership strategy we implemented, which has resulted in a placement of more ATMs out of our branches infrastructure and into retailers.

This has produced greater foot traffic, reduced security costs and extended operating hours of our ATMs.

We've also deployed almost 40 through-the-wall ATMs.

These ATMs are optimally positioned within the retailer stores or shopping malls resulting in longer operating hours and higher consumer utilization.

Despite the reduction in overall number of ATMs within our estate, we have experienced an increase in the number of transactions per ATM.

Additionally, we have also closed over 100 unprofitable retail branches and sold 200 vehicles.

Cash Connect is a provider of robust cash vaults in the formal sector, and is building a presence in the informal sector.

Cash Connect enables our merchant customer base to significantly mitigate their operational risks pertaining to cash management and security;

We provide card acquiring solutions, via Card Connect in the formal sector and Kazang Pay in the informal sector.

Card-enabled POS devices increased to approximately 42,000 as of March 31, 2023, compared to approximately 34,400 as of December 31, 2022, and approximately 20,300 a year ago.

As a result, our card acquiring business has recorded in excess of 100% growth in devices deployed compared to year ago;

We provide merchants access to credit through Capital Connect and Kazang Pay Advance.

We continue to see strong demand for this merchant credit offering, and disbursed ZAR 280 million during the quarter, compared to ZAR 201 million in the comparable period ended March 31, 2022.

Consumer Division achieves a second quarter of Segment Adjust EBITDA profitability and is poised for growth

Over the past four quarters we have consistently referenced the three levers underpinning our strategy of returning Consumer to profitability - cost optimization, growing active EPE account numbers and increasing ARPU through cross-selling.

The progress on our three key initiatives is as follows:

Cost optimization

Successfully executed cost optimization initiatives have contributed to our achievement of two consecutive quarters of positive Segment Adjusted EBITDA, including branch rationalizations, deployment of our ATMs in third party merchant stores and reductions in our cash management expenditures.

These costs savings are in addition to the realized cost savings delivered by the Project Spring initiative last year.

We continue to evaluate, and implement, further optimization measures, particularly around our branch infrastructure and ATM network, as we grow Consumer.

Driving customer acquisition

Our total active EasyPay Everywhere (“EPE”) transactional account base stood at approximately 1.3 million at the end of December 31, 2022, of which just over 1.1 million (or approximately 85%) are permanent grant recipients.

For the first time we are separately reporting the temporary SRD customer base.

This is because we offer a more limited service to our SRD grant recipient customer base.

As at the end of December 2022, we increased our permanent grant account base by 4% on a net basis compared to a year ago.

Our total active EasyPay Everywhere (“EPE”) transactional account base stood at approximately 1.3 million, at the end of March 31, 2023, of which approximately 1.1 million (or approximately 85%) are permanent grant recipients.

The balance comprises Social Relief of Distress (“SRD”) grant recipients.

As at the end of March 2023, we increased our permanent grant account base by 3% on a net basis and our total grant base by 16%, compared to a year ago.

The net growth of our permanent grant recipient base has been slower than anticipated as we continue to transition the business into a sales driven, customer-centric, financial services provider;

Our priority is to grow our permanent grant recipient customer base, where we can build deeper relationships by offering other products such as insurance and lending.

Our priority is to grow our permanent grant recipient customers base, where we can build deeper relationships by offering other products such as insurance and lending.

We do not offer the same breadth of service to the SRD grant base due to the more temporary nature of the grant;

We continue to focus our efforts in the Consumer business on implementing initiatives to improve account activation and utilization.

We continue to focus our efforts on designing and implementing products and services that we believe will enhance the lives of these people and their families.

This in turn should improve account activation and utilization.

Progress on cross selling

EasyPay loans (previously referred to as Moneyline)

We issued approximately 225,000 loans in the quarter compared to approximately 198,000 in the previous quarter (first quarter of fiscal 2023) evidencing improved loan conversion rates following the implementation of more targeted loan campaigns during the quarter.

EasyPay Loans

We issued approximately 210,000 loans in the quarter with the net loan book increasing 11% to ZAR 397 million on March 31, 2023, compared to ZAR 359 million in the comparable period ended March 31, 2022.

The loan conversion rate continues to improve following the implementation of more targeted loan campaigns over the last quarter.

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).

EasyPay insurance (previously referred to as SmartLife)

Our insurance product sales continue to grow and provides an important growth opportunity for our cross-selling strategy, with penetration higher, now around 27%, of the active permanent grant account base as of December 31, 2022.

Over 29,000 new standalone policies were initiated during the second quarter of fiscal 2023, growing the total number of active policies to approximately 294,000.

ARPU for our permanent client base has increased to ZAR 75 for the second quarter of fiscal 2023 from ZAR 71 in the first quarter of fiscal 2023.

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.

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.

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.

EasyPay Insurance

Our insurance product sales continue to grow and is a material contributor to improvement in overall average revenue per user (“ARPU”).

We have been able to improve customer penetration to approximately 28% of our active permanent grant account base as of March 31, 2023 compared to 18% in the comparable period ended March 31, 2022.

Over 36,000 new policies were written during the third quarter of fiscal 2023, compared to approximately 5,500 in the comparable period ended March 31, 2022.

This grew the total number of active policies to approximately 309 000 policies, up 25% compared with March 2022;

We have experienced a reduction in the number of insurance claims incurred following the cancellation of certain of our offerings and as a result of reduction in the number of pandemic-related deaths.

Average revenue per user

ARPU for our permanent client base has increased to ZAR 78 for the third quarter of fiscal 2023, from ZAR 74 in the second quarter of fiscal 2023.

Impact of loadshedding

The trading environment remains challenging with increased loadshedding in the past few months.

This adversely impacts our customers on a daily basis, especially in our Merchant business, where they lose valuable trading hours if they do not have access to alternative power supplies and back-up facilities to process electronic payments and value-added services.

Our teams have delivered excellent growth in the merchant business despite these challenges.

The trading environment remains challenging, including daily power cuts (known as load-shedding in South Africa).

This could adversely impact our customers, especially in Merchant, where they lose valuable trading hours if they do not have access to alternative power supplies and back-up facilities to process electronic payments and value-added services.

Despite these challenges, our businesses have been relatively unaffected by load-shedding;

this is because our customer base is geographically diversified, and the rotational nature of load-shedding results in localized power cuts over shorter periods.

Our teams have delivered growth in the Merchant and Consumer divisions, despite the impact of load shedding, demonstrating the resilience of our business model, and the validity of our offering and purpose to our target market.

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.

GAAP, which requires management to make estimates and assumptions about future events that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities.

As future events and their effects cannot be determined with absolute certainty, the determination of estimates requires management’s judgment based on a variety of assumptions and other determinants such as historical experience, current and expected market conditions and certain scientific evaluation techniques.

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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 December 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 December 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 March 31, 2023

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, 2023, 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

Six months ended

Nine months ended

$ 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 six months ended December 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 and nine months ended March 31, 2023 and 2022, 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

Six months ended

Nine months ended

Income and expense items:

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

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

Refer also “Results of Operations—Use of Non-GAAP Measures” below.

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

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

(1) Consumer and (2) Merchant.

(1) Merchant Division and (2) Consumer Division.

In addition, corporate activities that are impracticable to allocate directly to the operating segments, as well as any inter-segment eliminations, are included in Group costs.

Inter-segment revenue eliminations are included in Corporate/ Eliminations.

Second quarter of fiscal 2023 compared to second quarter of fiscal 2022

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

Third quarter of fiscal 2023 compared to third quarter of fiscal 2022

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

Higher revenue:

Our revenues increased 398% in ZAR, primarily due to the contribution from Connect, higher ad hoc hardware sales revenue, and an increase in account fees and insurance revenues;

Our revenues increased 337% in ZAR, primarily due to the contribution from the Connect Group (“Connect”) in our Merchant Division, and an increase in account fees and insurance revenues in our Consumer division, which was partially offset by lower hardware sales revenue in our POS hardware distribution business given the lumpy nature of bulk sales;

Lower operating losses:

Operating losses decreased, delivering an improvement of 74% in ZAR compared with the prior period primarily due to the contribution from Connect, strong hardware sales 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;

Operating losses decreased, delivering an improvement of 77% in ZAR compared with the prior period primarily due to the contribution from Connect, and the implementation of various cost reduction initiatives in Consumer, which was partially offset by an increase in acquisition related intangible asset amortization;

Higher net interest charge:

The net interest charge increased to ZAR 70.0 million from ZAR 7.0 million due to the additional borrowings incurred in order to fund the acquisition of Connect as well as the debt acquired within the Connect business itself;

The net interest charge increased to ZAR 80.1 million from net interest received of ZAR 1.1 million due to the additional borrowings incurred in order to fund the acquisition of Connect as well as the debt acquired within the Connect business itself;

Foreign exchange movements:

dollar was 14% stronger against the ZAR during the second quarter of fiscal 2023 compared to the prior period, which impacted our reported results.

dollar was 15% stronger against the ZAR during the third quarter of fiscal 2023 compared to the prior period, which impacted our reported results.

Consolidated overall results of operations

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In United States Dollars

Three months ended December 31,

Three months ended March 31,

Cost of goods sold, IT processing, servicing and support

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Depreciation and amortization

Reorganization costs (1)

Transaction costs related to Connect Group acquisition

Operating loss

Unrealized loss related to fair value adjustment to currency options

Gain related to fair value adjustment to currency options

Net loss on disposal of equity-accounted investments

Gain on disposal of equity securities

Interest income

Interest expense

Loss before income tax expense

Income tax expense

Loss before income tax (benefit) expense

Income tax (benefit) expense

Net loss before earnings from equity-accounted investments

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Net loss attributable to us

(1) Reorganization costs have been increased by $42,000 and selling, general and administration has been decreased by $42,000 during the three and nine months ended March 31, 2022, to adjust for a misallocation between the two captions.

In South African Rand

Three months ended December 31,

Three months ended March 31,

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

Unrealized loss related to fair value adjustment to currency options

Gain related to fair value adjustment to currency options

Net loss on disposal of equity-accounted investments

Gain on disposal of equity securities

Interest income

Interest expense

Loss before income tax expense

Income tax expense

Loss before income tax (benefit) expense

Income tax (benefit) expense

Net loss before earnings from equity-accounted investments

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Net loss attributable to us

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, higher hardware sales revenue, and an increase in account fees and insurance revenues.

The increase in cost of goods sold, IT processing, servicing and support was primarily due to the inclusion of Connect, 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 second quarter of fiscal 2023 compared with the second 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 the second quarter of fiscal 2022.

Our operating loss margin for the second quarter of fiscal 2023 and 2022 was (1.6%) and (30.3%), 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 an increase in account fees and insurance revenues which was partially offset by lower ad hoc hardware sales revenue.

Depreciation and amortization expense increased in the third quarter of fiscal 2023 compared with the third 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.

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 during the third quarter of fiscal 2022.

Our operating loss margin for the third quarter of fiscal 2023 and 2022 was (1.4%) and (26.8%), 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 second quarter of fiscal 2023 and 2022, respectively.

We did not record any changes in the fair value of equity interests in MobiKwik and Cell C during the third quarter of fiscal 2023 or 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.

Interest on surplus cash increased to $0.4 million (ZAR 6.8 million) from $0.3 million (ZAR 4.8 million), primarily due to the inclusion of Connect.

The 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 loss of $0.3 million during each of the third quarter of fiscal 2023 and 2022, respectively, related to the disposal of a minor portion of our investment in Finbond.

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.

Interest on surplus cash decreased to $0.5 million (ZAR 8.4 million) from $0.8 million (ZAR 11.9 million), primarily due to lower overall surplus cash balances following the acquisition of Connect.

Interest expense increased to $5.0 million (ZAR 89.4 million) from $0.7 million (ZAR 10.8 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, which was also coupled with an increase in the interest rate on those ATM facilities.

Fiscal 2023 tax expense was $0.36 million (ZAR 6.4 million) compared to the tax expense of $0.1 million (ZAR 1.5 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 effect of 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 (including the unrealized loss on the foreign currency options).

Fiscal 2023 tax benefit was $0.9 million (ZAR 15.4 million) compared to the tax expense of $0.5 million (ZAR 7.3 million) in fiscal 2022.

Our effective tax rate for fiscal 2023 was impacted by a reduction in the enacted South African corporate income tax rate from 28% to 27% from January 2023 (but backdated to July 1, 2022), the tax expense recorded by our profitable South African operations, a deferred tax benefit related to acquisition-related intangible asset amortization, non-deductible expenses, the on-going losses incurred by certain of our South African businesses and the associated valuation allowances created related to the deferred tax assets recognized regarding net operating losses incurred by these entities.

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.

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 December 31,

Three months ended March 31,

Total loss from equity-accounted investments

Results of operations by operating segment

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

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

In United States Dollars

Three months ended December 31,

Three months ended March 31,

Operating Segment

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Segment Adjusted EBITDA:

Consumer excluding reorganization costs

Reorganization costs

Total Segment Adjusted EBITDA

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In South African Rand

Three months ended December 31,

Three months ended March 31,

Operating Segment

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Segment Adjusted EBITDA:

Consumer excluding reorganization costs

Reorganization costs

Total Segment Adjusted EBITDA

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Total consolidated operating loss

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

This revenue growth was achieved notwithstanding the significant downsizing of our branch network and sales team.

The cost reduction initiatives we initiated in fiscal 2022 delivered a significant reduction in our Consumer segment’s operating expenses which resulted in a positive EBITDA result compared with an EBITDA loss in 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 second quarter of fiscal 2023 and 2022 was 3.7% and (26.2%), respectively.

Segment revenue increased due to the contribution from Connect as well as strong ad hoc hardware sales.

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

Segment revenue increased due to the contribution from Connect, which was partially offset was partially offset by lower hardware sales revenue given the lumpy nature of bulk sales.

The increase in EBITDA is primarily due to the inclusion of Connect, which was partially offset by lower hardware sales.

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 second quarter of fiscal 2023 and 2022 was 7.6% and 6.9%, respectively.

Our group costs generally include employee related costs in relation to employees specifically hired for group roles and related directly to managing the US-listed entity;

Our EBITDA (loss) margin (calculated as EBITDA (loss) divided by revenue) for the third quarter of fiscal 2023 and 2022 was 7.0% and 7.6%, respectively.

Segment revenue increased primarily due to higher insurance revenues, higher revenue from account holder fees given the increase in number of accounts and modest lending revenue growth.

We embarked on a retrenchment process during Q3 2022 and recorded an expense of $5.9 million which is included in the EBITDA loss for that period.

The cost reduction initiatives we initiated in fiscal 2022 delivered a significant reduction in the Consumer Division’s operating expenses which resulted in a positive Segment Adjusted EBITDA contribution compared with a Segment Adjusted EBITDA loss in Q2, fiscal 2022.

Specifically, Q2, FY 2022 included expenses associated with discontinuing a mobile distribution network, and since then we have streamlined our branch network through reductions in certain expenses including employee-related costs, security, guarding and premises costs.

Our EBITDA margin for the third quarter of fiscal 2023 and 2022 was 10.4% and (40.9%), respectively.

Our group costs primarily include employee related costs in relation to employees specifically hired for group roles and costs related directly to managing the US-listed entity;

expenditures related to compliance with the Sarbanes-Oxley Act of 2002;

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group and US-listed related audit fees;

and directors and officer’s insurance premiums.

Our group costs for fiscal 2023 increased compared with the prior period due to higher employee costs and an increase in director and officer’s insurance premiums, which was partially offset by lower consulting fees.

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

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

and directors’ and officers’ insurance premiums.

Our group costs for fiscal 2023 increased compared with the prior period due to higher employee costs and an increase in directors’ and officers’ insurance premiums.

Year to date fiscal 2023 compared to year to date fiscal 2022

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

Higher revenue:

Our revenues increased 358% in ZAR, primarily due to the contribution from Connect, higher ad hoc hardware sales revenue, and an increase in account fees and insurance revenues;

Our revenues increased 355% in ZAR, primarily due to the contribution from Connect in Merchant and an increase in account fees and insurance revenues in Consumer;

Lower operating losses:

Operating losses decreased, delivering an improvement of 62% in ZAR compared with the prior period primarily due to the contribution from Connect, strong hardware sales, 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;

Operating losses decreased, delivering an improvement of 66% in ZAR compared with the prior period primarily due to the contribution from Connect, strong hardware sales, and the implementation of various cost reduction initiatives in Consumer, which was partially offset by an increase in acquisition related intangible asset amortization;

Higher net interest charge:

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Foreign exchange movements:

dollar was 15% stronger against the ZAR during the first half of fiscal 2023 compared to the prior period, which impacted our reported results.

dollar was 16% stronger against the ZAR during the year to date fiscal 2023 compared to the prior period, which impacted our reported results.

Consolidated overall results of operations

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In United States Dollars

Six months ended December 31,

Nine months ended March 31,

Cost of goods sold, IT processing, servicing and support

1 unchanged sentence

Depreciation and amortization

Reorganization costs (1)

Transaction costs related to Connect Group acquisition

Operating loss

Unrealized loss related to fair value adjustment to currency options

Net gain on disposal of equity-accounted investments

Gain related to fair value adjustment to currency options

Net loss on disposal of equity-accounted investments

Gain on disposal of equity securities

Interest income

Interest expense

Loss before income tax expense

Income tax expense

Loss before income tax (benefit) expense

Income tax (benefit) expense

Net loss before loss from equity-accounted investments

1 unchanged sentence

Net loss attributable to us

(1) Reorganization costs have been increased by $42,000 and selling, general and administration has been decreased by 42,000 during the three and nine months ended March 31, 2022, to adjust for a misallocation between the two captions.

In South African Rand

Six months ended December 31,

Nine months ended March 31,

Cost of goods sold, IT processing, servicing and support

1 unchanged sentence

Depreciation and amortization

Reorganization costs

Transaction costs related to Connect Group acquisition

Operating loss

Unrealized loss related to fair value adjustment to currency options

Net gain on disposal of equity-accounted investments

Gain related to fair value adjustment to currency options

Net loss on disposal of equity-accounted investments

Gain on disposal of equity securities

Interest income

Interest expense

Loss before income tax expense

Income tax expense

Loss before income tax (benefit) expense

Income tax (benefit) expense

Net loss before loss from equity-accounted investments

1 unchanged sentence

Net loss attributable to us

Depreciation and amortization expense increased in the first half of fiscal 2023 compared with the first half 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.

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 an increase in account fees and insurance revenues.

Depreciation and amortization expense increased in the year to date fiscal 2023 compared with the year to date 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.

We embarked on a retrenchment process on January 10, 2022, and incurred reorganization expenses of $5.9 million during the year to date fiscal 2022

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 half of fiscal 2023 and 2022 was (1.6%) and (30.3%), respectively.

Our operating loss margin for the year to date fiscal 2023 and 2022 was (1.4%) and (26.8%), 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 half of fiscal 2023 and 2022, respectively.

We did not record any changes in the fair value of equity interests in MobiKwik and Cell C during the year to date 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 half of fiscal 2023.

The 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.

We recorded a net loss of $0.2 million comprising a loss of $0.4 million related to the disposal of a minor portion of our investment in Finbond and a $0.25 million gain related to the disposal of our entire interest in Carbon during the year to date fiscal 2023.

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

Interest on surplus cash increased to $0.8 million (ZAR 13.8 million) from $0.7 million (ZAR 10.5 million), primarily due to the inclusion of Connect.

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.

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.

In ZAR, interest on surplus cash increased to $1.3 million (ZAR 22.1 million) from $1.5 million (ZAR 21.9 million), primarily due to the inclusion of Connect, which was partially offset by lower overall surplus cash balances following the acquisition of Connect.

Interest expense increased to $13.4 million (ZAR 233.3 million) from $2.3 million (ZAR 34.1 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, which was also coupled with an increase in the interest rate on these ATM facilities.

Fiscal 2023 tax expense was $0.4 million (ZAR 6.8 million) compared to the tax expense of $0.3 million (ZAR 4.3 million) in fiscal 2022.

Fiscal 2023 tax benefit was $0.5 million (ZAR 8.1 million) compared to the tax expense of $0.8 million (ZAR 11.3 million) in fiscal 2022.

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:

Six months ended December 31,

Nine months ended March 31,

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:

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

In United States Dollars

Six months ended December 31,

Nine months ended March 31,

Operating Segment

1 unchanged sentence

Operating segments

Corporate/Eliminations

Total consolidated revenue

Segment Adjusted EBITDA:

Consumer excluding reorganization costs

Reorganization costs

Total Segment Adjusted EBITDA

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In South African Rand

Six months ended December 31,

Nine months ended March 31,

Operating Segment

1 unchanged sentence

Operating segments

Corporate/Eliminations

Total consolidated revenue

Segment Adjusted EBITDA:

Consumer excluding reorganization costs

Reorganization costs

Total Segment Adjusted EBITDA

5 unchanged sentences

Total consolidated operating loss

Segment revenue and EBITDA increased due to the contribution from Connect.

Our EBITDA margin for the year to date fiscal 2023 and 2022 was 7.3% and 8.9%, respectively.

Segment revenue increased primarily due to higher 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.

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 EBITDA loss.

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

Our EBITDA loss margin (calculated as EBITDA loss divided by revenue) for the first half of fiscal 2023 and 2022 was (2.7%) and (40.6%), respectively.

Segment revenue increased due to the contribution from Connect as well as strong ad hoc hardware sales.

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

Our EBITDA margin for the first half of fiscal 2023 and 2022 was 7.4% and 9.7%, respectively.

Our EBITDA loss margin (calculated as EBITDA loss divided by revenue) for the year to date fiscal 2023 and 2022 was 1.8% and (40.7%), respectively.

Our group costs for fiscal 2023 increased compared with the prior period due to higher employee costs and an increase in directors’ and officers’ insurance premiums, which were partially offset by lower consulting fees.

Use of Non-GAAP Measures

securities laws require that when we publish any non-GAAP measures, we disclose the reason for using these non-GAAP measures and provide reconciliations to the most directly comparable GAAP measures.

The presentation of EBITDA and Group Adjusted EBITDA are non-GAAP measures.

Group Adjusted EBITDA

Group Adjusted EBITDA is earnings before interest, tax, depreciation and amortization (“EBITDA”), adjusted for non-operational transactions (including loss on disposal of equity-accounted investments, gain related to fair value adjustments to currency options), (earnings) loss from equity-accounted investments, stock-based compensation charges, lease adjustments and once-off items.

Lease adjustments reflect lease charges and once-off items represents non-recurring expense items, including costs related to acquisitions and transactions consummated or ultimately not pursued.

Management believes that the operating income before depreciation and amortization and Group Adjusted EBITDA enhance its own evaluation, as well as an investor’s understanding, of our financial performance.

The table below presents the reconciliation between GAAP net loss attributable to Lesaka to Group Adjusted EBITDA:

Three months ended March 31,

Nine months ended March 31,

Loss attributable to Lesaka - GAAP

(Earnings) loss from equity accounted investments

Net loss before (earnings) loss from equity-accounted investments

Income tax (benefit) expense

Loss before income tax expense

Interest expense

Interest income

Gain on disposal of equity securities

Net loss on disposal of equity-accounted investment

Gain related to fair value adjustment to currency options

Operating loss

Depreciation and amortization

Stock-based compensation charges

Lease adjustments

Once-off items

Group Adjusted EBITDA - Non-GAAP

Segment Adjusted EBITDA - measure of segment performance

Consumer excluding reorganization costs

Reorganization costs

Liquidity and Capital Resources

As of December 31, 2022, our cash and cash equivalents were $42.4 million and comprised of U.S.

dollar-denominated balances of $7.5 million, ZAR-denominated balances of ZAR 561.6 million ($33.0 million), and other currency deposits, primarily Botswana pula, of $1.9 million, all amounts translated at exchange rates applicable as of December 31, 2022.

The decrease in our unrestricted cash balances from June 30, 2022, was primarily due to the utilization of cash reserves to fund our Consumer operations, make certain scheduled repayments of our borrowings, purchase ATMs and safe assets, and to make an investment in working capital in our Consumer and Merchant operations, which was partially offset by the utilization of our available borrowings and a positive contribution from Connect.

As of March 31, 2023, our cash and cash equivalents were $49.4 million and comprised of U.S.

dollar-denominated balances of $7.4 million, ZAR-denominated balances of ZAR 713.4 million ($40.1 million), and other currency deposits, primarily Botswana pula, of $1.9 million, all amounts translated at exchange rates applicable as of March 31, 2023.

The increase in our unrestricted cash balances from June 30, 2022, was primarily due to the utilization of our available borrowings and a positive contribution from Connect, which was partially offset by the utilization of cash reserves to fund certain scheduled repayments of our borrowings, purchase ATMs and safe assets, and to make an investment in working capital in our Consumer and Merchant operations.

We generally invest any surplus cash held by our South African operations in overnight call accounts that we maintain at South African banking institutions, and any surplus cash held by our non-South African companies in U.S.

6 unchanged sentences

Available short-term borrowings

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

Summarized below are our short-term facilities available and utilized as of March 31, 2023:

RMB Facility E

12 unchanged sentences

Long-term borrowings

We have aggregate long-term borrowing outstanding of ZAR 2.4 billion ($142.9 million translated at exchange rates as of December 31, 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, 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 300.0 million which is utilized to fund a portion of our merchant finance loans receivable book.

We have aggregate long-term borrowing outstanding of ZAR 2.7 billion ($150.5 million translated at exchange rates as of March 31, 2023) as described in Note 8.

These borrowings include outstanding long-term borrowings obtained by Lesaka SA of ZAR 1.1 billion, including accrued interest, 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, to fund a portion of its capital expenditures and to settle obligations under the transaction documents, and which has subsequently been upsized for its operational requirements and has an outstanding balance as of March 31, 2023, of ZAR 1.4 billion, We also have a revolving credit facility, of ZAR 300.0 million which is utilized to fund a portion of our merchant finance loans receivable book.

Restricted cash

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

Our cash, cash equivalents and restricted cash presented in our consolidated statement of cash flows as of December 31, 2022, includes restricted cash of approximately $54.2 million related to cash withdrawn from our debt facility to fund ATMs.

Our cash, cash equivalents and restricted cash presented in our consolidated statement of cash flows as of March 31, 2023, includes restricted cash of approximately $37.7 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.

1 unchanged sentence

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

Our cash, cash equivalents and restricted cash presented in our consolidated statement of cash flows as of December 31, 2022, includes restricted cash of approximately $0.2 million that has been ceded and pledged.

Our cash, cash equivalents and restricted cash presented in our consolidated statement of cash flows as of March 31, 2023, includes restricted cash of approximately $0.2 million that has been ceded and pledged.

Cash flows from operating activities

Second quarter

Net cash provided by operating activities during the second quarter of fiscal 2023 was $3.4 million (ZAR 59.9 million) compared to net cash used in operating activities of $13.8 million (ZAR 212.0 million) during the second quarter of fiscal 2022 .

Excluding the impact of income taxes, our cash used in operating activities during the second quarter of fiscal 2023 was impacted by month-end working capital movements (primarily an increase in accounts payable balances) within our merchant business which generally unwind in the following month, and growth in our consumer and merchant finance loans receivable books , which was partially offset by the positive contribution from Connect.

During the second quarter of fiscal 2023, we paid first provisional South African tax payments of $2.5 million (ZAR 42.6 million) related to our 2023 tax year.

During the second quarter of fiscal 2022, we paid first provisional South African tax payments of $0.4 million (ZAR 6.9 million) related to our 2023 tax year.

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

Three months ended December 31,

Third quarter

Net cash used in operating activities during the third quarter of fiscal 2023 was $5.1 million (ZAR 91.6 million) compared to net cash used in operating activities of $8.8 million (ZAR 137.0 million) during the third quarter of fiscal 2022 .

Excluding the impact of income taxes, our cash used in operating activities during the third quarter of fiscal 2023 was impacted by growth in our consumer and merchant finance loans receivable books and working capital movements within our merchant business (primarily an increase in inventory and prepayments made to secure prepaid airtime inventory as well as a release (decrease) in accounts payable balances following an unwind of previous quarter balances), which was partially offset by the positive contribution from Connect.

During the third quarter of fiscal 2023, we paid second provisional South African tax payments of $0.3 million (ZAR 5.1 million) related to certain Connect entities’ 2023 tax year that had not yet been aligned with ours.

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

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

Three months ended March 31,

First provisional payments

Taxation paid related to prior years

Second provisional payments

Tax refund received

Total South African taxes paid (received)

Total South African taxes paid

Foreign taxes paid

Total tax paid

Net cash used in operating activities during the first half of fiscal 2023 was $4.2 million (ZAR 73.1 million) compared to $21.7 million (ZAR 325.4 million) during the first half of fiscal 2022 .

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

During the first half of fiscal 2023, we paid first provisional South African tax payments of $3.0 million (ZAR 50.8 million) related to our 2023 tax year, and additional second provisional South African tax payments of $0.2 million (ZAR 3.4 million) related to our 2022 tax year.

During the first half of fiscal 2022, we paid first provisional South African tax payments of $0.4 million (ZAR 6.9 million) related to our 2022 tax year.

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

Six months ended December 31,

Net cash used in operating activities during the year to date fiscal 2023 was $9.3 million (ZAR 162.7 million) compared to $30.5 million (ZAR 457.2 million) during the year to date fiscal 2022 .

Excluding the impact of income taxes, our cash used in operating activities during the third quarter of fiscal 2023 was impacted by growth in our consumer and merchant finance loans receivable books and working capital movements within our merchant business (primarily an increase in inventory and prepayments made to secure prepaid airtime inventory), which was partially offset by the positive contribution from Connect.

During the year to date fiscal 2023, we paid first provisional South African tax payments of $3.0 million (ZAR 50.8 million) related to our 2023 tax year, and additional second provisional South African tax payments of $0.5 million (ZAR 8.5 million) related to our 2022 tax year and as discussed above.

During the year to date fiscal 2022, we paid 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).

Taxes paid during the year to date fiscal 2023 and 2022 were as follows:

Nine months ended March 31,

First provisional payments

6 unchanged sentences

Cash flows from investing activities

Second quarter

Cash used in investing activities for the second quarter of fiscal 2023 included capital expenditures of $4.0 million (ZAR 69.9 million), primarily due to the acquisition of safe assets and POS devices.

Cash used in investing activities for the second quarter of fiscal 2022 included capital expenditures of $0.2 million (ZAR 2.9 million), primarily due to the acquisition of computer equipment.

During the second quarter of fiscal 2022, we received a scheduled payment of $7.5 million related to the sale of Bank Frick in fiscal 2021.

Cash used in investing activities for the first half of fiscal 2023 included capital expenditures of $8.5 million (ZAR 146.5 million), primarily due to the acquisition of safe assets, POS devices and computer equipment.

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

Cash used in investing activities for the first half of fiscal 2022 included capital expenditures of $0.9 million (ZAR 13.3 million), primarily due to the roll out of our new express branches and the acquisition of computer equipment.

During the first half of fiscal 2022 we received a scheduled payment of $7.5 million related to the sale of Bank Frick in fiscal 2021.

Third quarter

Cash used in investing activities for the third quarter of fiscal 2023 included capital expenditures of $4.7 million (ZAR 84.6 million), primarily due to the acquisition of safe assets and POS devices.

During the third quarter of fiscal 2023, we received proceeds of $0.3 million related to the sale of minor positions in Finbond.

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 year to date fiscal 2023 included capital expenditures of $13.2 million (ZAR 229.9 million), primarily due to the acquisition of safe assets, POS devices and computer equipment.

During the year to date fiscal 2023, we received proceeds of $0.25 million related to the first tranche (of two) from the disposal of our entire equity interest in Carbon and $0.4 million related to the sale of minor positions in Finbond.

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 flows from financing activities

Second quarter

During the second quarter of fiscal 2023 , we utilized approximately $167.2 million from our South African overdraft facilities to fund our ATMs and our cash management business through Connect, and repaid $175.4 million of those facilities.

We utilized approximately $9.1 million of our long-term borrowings to fund our merchant finance loans receivable business and to fund the acquisition of certain capital expenditures.

Third quarter

During the third quarter of fiscal 2023 , we utilized approximately $128.2 million from our South African overdraft facilities to fund our ATMs and our cash management business through Connect, and repaid $136.0 million of those facilities.

We utilized approximately $12.9 million of our long-term borrowings to fund our merchant finance loans receivable business, to fund the acquisition of certain capital expenditures and for working capital requirements.

We repaid approximately $2.0 million of long-term borrowings in accordance with our repayment schedule.

We received $0.1 million from the exercise of stock options.

We also paid $0.1 million to repurchase shares from employees in order for the employees to settle taxes due related to the vesting of shares of restricted stock.

During the second quarter of fiscal 2022, we received $0.7 million from the exercise of stock options, and utilized approximately $172.4 million from our South African overdraft facilities to fund our ATMs and repaid $172.8 million of those facilities.

During the first half of fiscal 2023 , we utilized approximately $313.3 million from our South African overdraft facilities to fund our ATMs and our cash management business through Connect, and repaid $312.3 million of those facilities.

We utilized approximately $10.1 million of our long-term borrowings to fund our merchant finance loans receivable business and to fund the acquisition of certain capital expenditures.

We also paid $0.2 million to repurchase shares from employees in order for the employees to settle taxes due related to the vesting of shares of restricted stock and to settle the strike price due and taxes due related to the exercise of stock options.

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 those facilities.

During the year to date fiscal 2023 , we utilized approximately $441.5 million from our South African overdraft facilities to fund our ATMs and our cash management business through Connect, and repaid $448.3 million of those facilities.

We utilized approximately $23.0 million of our long-term borrowings to fund our merchant finance loans receivable business, to fund the acquisition of certain capital expenditures and for working capital requirements.

We repaid approximately $5.3 million of long-term borrowings in accordance with our repayment schedule.

We received $0.4 million from the exercise of stock options.

We also paid $0.3 million to repurchase shares from employees in order for the employees to settle taxes due related to the vesting of shares of restricted stock.

During the first half of fiscal 2022, we received $0.7 million from the exercise of stock options, and utilized approximately $311.4 million from our South African overdraft facilities to fund our ATMs and repaid $271.7 million of these facilities.

We also paid $0.5 million to repurchase shares from employees in order for the employees to settle taxes due related to the vesting of shares of restricted stock and to settle the strike price due and taxes due related to the exercise of stock options.

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.

Off-Balance Sheet Arrangements

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Capital Expenditures

We expect capital spending for the third 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 second 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 December 31, 2022, of $3.1 million.

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

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

We had outstanding capital commitments as of March 31, 2023, of $3.1 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