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 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; and ● 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:  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 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; and  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. 42 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 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 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; and ○ 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 o 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 o 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; and o 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 o 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, 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. 43 Critical Accounting Policies Our unaudited condensed consolidated financial statements have been prepared in accordance with U.S. GAAP, which requires management to make estimates and assumptions about future events that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities. As future events and their effects cannot be determined with absolute certainty, the determination of estimates requires management’s judgment based on a variety of assumptions and other determinants such as historical experience, current and expected market conditions and certain scientific evaluation techniques. Critical accounting policies are those that reflect significant judgments or uncertainties and may potentially result in materially different results under different assumptions and conditions. We have identified the following critical accounting policies that are described in more detail in our Annual Report on Form 10-K for the year ended June 30, 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 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. 44 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 Nine months ended Year ended March 31, March 31, June 30, 2023 2022 2023 2022 2023 ZAR : $ average exchange rate 17.7506 15.2360 17.4641 15.0965 15.2154 Highest ZAR : $ rate during period 18.6008 15.9536 18.6008 16.2968 16.2968 Lowest ZAR : $ rate during period 16.7978 14.4916 16.2035 14.1630 14.1630 Rate at end of period 17.7936 14.5526 17.7936 14.5526 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 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 Nine months ended Year ended Table 2 March 31, March 31, June 30, 2023 2022 2023 2022 2023 Income and expense items: $1 = ZAR 17.9318 15.6119 17.4037 14.9875 15.1978 Balance sheet items: $1 = ZAR 17.7936 14.5526 17.7936 14.5526 16.2903 45 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 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 once-off items (as defined below), stock-based compensation charges, depreciation and amortization, impairment of goodwill or other intangible assets, certain lease charges (“Lease 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. Once-off items represents non-recurring expense items, including costs related to acquisitions and transactions consummated or ultimately not pursued. 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 our loss before income tax expense. Group Adjusted EBITDA represents Segment Adjusted EBITDA after deducting group costs. Unless otherwise stated, reference to EBITDA in the discussion below refers to Segment Adjusted EBITDA. 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) 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. 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 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 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 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; and  Foreign exchange movements: The U.S. dollar was 15% stronger against the ZAR during the third quarter of fiscal 2023 compared to the prior period, which impacted our reported results. 46 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 March 31, 2023 2022 $ ’000 $ ’000 change Revenue 133,968 35,202 281% Cost of goods sold, IT processing, servicing and support 105,299 23,008 358% Selling, general and administration (1) 24,547 15,142 62% Depreciation and amortization 5,975 463 1,190% Reorganization costs (1) - 5,894 nm Transaction costs related to Connect Group acquisition - 116 nm Operating loss (1,853) (9,421) (80%) Gain related to fair value adjustment to currency options - 6,120 nm Net loss on disposal of equity-accounted investments 329 346 (5%) Gain on disposal of equity securities - 720 nm Interest income 469 761 (38%) Interest expense 4,984 691 621% Loss before income tax (benefit) expense (6,697) (2,857) 134% Income tax (benefit) expense (860) 470 nm Net loss before earnings from equity-accounted investments (5,837) (3,327) 75% Earnings from equity-accounted investments 17 - nm Net loss attributable to us (5,820) (3,327) 75% (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. Table 4 In South African Rand Three months ended March 31, 2023 2022 ZAR ’000 ZAR ’000 change Revenue 2,402,288 549,571 337% Cost of goods sold, IT processing, servicing and support 1,888,201 359,199 426% Selling, general and administration 440,172 237,051 86% Depreciation and amortization 107,143 7,228 1,382% Reorganization costs - 91,361 nm Transaction costs related to Connect Group acquisition - 1,811 nm Operating loss (33,228) (147,079) (77%) Gain related to fair value adjustment to currency options - 95,545 nm Net loss on disposal of equity-accounted investments 5,900 5,402 9% Gain on disposal of equity securities - 11,241 nm Interest income 8,410 11,881 (29%) Interest expense 89,372 10,788 728% Loss before income tax (benefit) expense (120,090) (44,602) 169% Income tax (benefit) expense (15,422) 7,338 nm Net loss before earnings from equity-accounted investments (104,668) (51,940) 102% Earnings from equity-accounted investments 305 - nm Net loss attributable to us (104,363) (51,940) 101% 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. 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 Consumer and lower insurance-related claims. 47 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 Consumer. 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 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. 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 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: Table 5 Three months ended March 31, 2023 2022 $ % $ ’000 $ ’000 change Other 17 - nm Total loss from equity-accounted investments 17 - nm 48 Results of operations by operating segment The composition of revenue and the contributions of our business activities to operating loss are illustrated below: Table 6 In United States Dollars Three months ended March 31, 2023 % of 2022 % of % change Operating Segment $ ’000 total $ ’000 total Consolidated revenue: Merchant 118,092 88% 18,785 53% 529% Consumer 15,876 12% 16,429 47% (3%) Subtotal: Operating segments 133,968 100% 35,214 100% 280% Corporate/Eliminations - - (12) - nm Total consolidated revenue 133,968 100% 35,202 100% 281% Segment Adjusted EBITDA: Merchant 8,290 108% 1,427 (20%) 481% Consumer 1,649 22% (6,717) 93% nm Consumer excluding reorganization costs 1,649 22% (823) 11% nm Reorganization costs - - (5,894) 82% nm Total Segment Adjusted EBITDA 9,939 130% (5,290) 73% nm Group costs (2,293) (30%) (1,929) 27% 19% Group Adjusted EBITDA 7,646 100% (7,219) 100% nm Once-off items (1,184) (235) 404% Stock-based compensation (1,644) (614) 168% Lease adjustments (696) (890) (22%) Depreciation and amortization (5,975) (463) 1,190% Total consolidated operating loss (1,853) (9,421) (80%) Table 7 In South African Rand Three months ended March 31, 2023 % of 2022 % of % change Operating Segment ZAR ’000 total ZAR ’000 total Consolidated revenue: Merchant 2,117,602 88% 293,261 53% 622% Consumer 284,686 12% 256,488 47% 11% Subtotal: Operating segments 2,402,288 100% 549,749 100% 337% Corporate/Eliminations - - (178) - nm Total consolidated revenue 2,402,288 100% 549,571 100% 337% Segment Adjusted EBITDA: Merchant 148,655 108% 22,290 (20%) 567% Consumer 29,570 22% (104,876) 93% nm Consumer excluding reorganization costs 29,570 22% (13,515) 12% nm Reorganization costs - - (91,361) 81% nm Total Segment Adjusted EBITDA 178,225 130% (82,586) 73% nm Group costs (41,118) (30%) (30,115) 27% 37% Group Adjusted EBITDA 137,107 100% (112,701) 100% nm Once-off items (21,231) (3,669) 479% Stock-based compensation (29,480) (9,586) 208% Lease adjustments (12,481) (13,895) (10%) Depreciation and amortization (107,143) (7,228) 1,382% Total consolidated operating loss (33,228) (147,079) (77%) Merchant 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 (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. 49 Consumer 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. Group costs Our group costs primarily include employee related costs in relation to employees specifically hired for group roles and costs related directly to managing the US-listed entity; expenditures related to compliance with the Sarbanes-Oxley Act of 2002; non-employee directors’ fees; legal fees; group and US-listed related audit fees; and directors’ and officers’ insurance premiums. Our group costs for fiscal 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 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 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: The net interest charge increased to ZAR 211.3 million from ZAR 12.1 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; and  Foreign exchange movements: The U.S. dollar was 16% stronger against the ZAR during the year to date fiscal 2023 compared to the prior period, which impacted our reported results. 50 Consolidated overall results of operations This discussion is based on the amounts prepared in accordance with U.S. GAAP. The following tables show the changes in the items comprising our statements of operations, both in U.S. dollars and in ZAR: Table 8 In United States Dollars Nine months ended March 31, 2023 2022 $ ’000 $ ’000 change Revenue 394,822 100,820 292% Cost of goods sold, IT processing, servicing and support 314,651 67,795 364% Selling, general and administration (1) 70,995 53,330 33% Depreciation and amortization 17,892 2,084 759% Reorganization costs (1) - 5,894 nm Transaction costs related to Connect Group acquisition - 1,790 nm Operating loss (8,716) (30,073) (71%) Gain related to fair value adjustment to currency options - 3,691 nm Net loss on disposal of equity-accounted investments 193 346 (44%) Gain on disposal of equity securities - 720 nm Interest income 1,269 1,463 (13%) Interest expense 13,408 2,272 490% Loss before income tax (benefit) expense (21,048) (26,817) (22%) Income tax (benefit) expense (465) 754 nm Net loss before loss from equity-accounted investments (20,583) (27,571) (25%) Loss from equity-accounted investments (2,582) (1,156) 123% Net loss attributable to us (23,165) (28,727) (19%) (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. Table 9 In South African Rand Nine months ended March 31, 2023 2022 ZAR ’000 ZAR ’000 change Revenue 6,871,364 1,511,040 355% Cost of goods sold, IT processing, servicing and support 5,476,091 1,016,078 439% Selling, general and administration 1,235,576 799,912 54% Depreciation and amortization 311,387 31,233 897% Reorganization costs - 87,706 nm Transaction costs related to Connect Group acquisition - 26,828 nm Operating loss (151,690) (450,717) (66%) Gain related to fair value adjustment to currency options - 55,319 nm Net loss on disposal of equity-accounted investments 3,359 5,186 (35%) Gain on disposal of equity securities - 10,791 nm Interest income 22,085 21,927 1% Interest expense 233,349 34,052 585% Loss before income tax (benefit) expense (366,313) (401,918) (9%) Income tax (benefit) expense (8,093) 11,301 nm Net loss before loss from equity-accounted investments (358,220) (413,219) (13%) Loss from equity-accounted investments (44,936) (17,326) 159% Net loss attributable to us (403,156) (430,545) (6%) 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. 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 Consumer 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 Consumer. 51 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 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 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. 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. 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 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. 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: Table 10 Nine months ended March 31, 2023 2022 $ % $ ’000 $ ’000 change Finbond (2,631) (1,156) 128% Share of net loss (1,521) (1,156) 32% Impairment (1,110) - nm Other 49 - nm (2,582) (1,156) 123% 52 Results of operations by operating segment The composition of revenue and the contributions of our business activities to operating loss are illustrated below: Table 11 In United States Dollars Nine months ended March 31, 2023 % of 2022 % of % change Operating Segment $ ’000 total $ ’000 total Consolidated revenue: Merchant 348,508 88% 50,600 50% 589% Consumer 46,314 12% 50,232 50% (8%) Subtotal: Operating segments 394,822 100% 100,832 100% 292% Corporate/Eliminations - - (12) - nm Total consolidated revenue 394,822 100% 100,820 100% 292% Segment Adjusted EBITDA: Merchant 25,303 131% 4,506 (21%) 462% Consumer 833 4% (20,439) 95% nm Consumer excluding reorganization costs 833 4% (14,545) 68% nm Reorganization costs - - (5,894) 27% nm Total Segment Adjusted EBITDA 26,136 136% (15,933) 74% nm Group costs (6,849) (36%) (5,578) 26% 23% Group Adjusted EBITDA 19,287 100% (21,511) 100% nm Once-off items (1,901) (2,120) (10%) Stock-based compensation (5,955) (1,711) 248% Lease adjustments (2,255) (2,647) (15%) Depreciation and amortization (17,892) (2,084) 759% Total consolidated operating loss (8,716) (30,073) (71%) Table 12 In South African Rand Nine months ended March 31, 2023 % of 2022 % of % change Operating Segment ZAR ’000 total ZAR ’000 total Consolidated revenue: Merchant 6,065,329 88% 758,368 50% 700% Consumer 806,035 12% 752,852 50% 7% Subtotal: Operating segments 6,871,364 100% 1,511,220 100% 355% Corporate/Eliminations - - (180) - nm Total consolidated revenue 6,871,364 100% 1,511,040 100% 355% Segment Adjusted EBITDA: Merchant 440,366 131% 67,534 (21%) 552% Consumer 14,497 4% (306,329) 95% nm Consumer excluding reorganization costs 14,497 4% (218,623) 68% nm Reorganization costs - - (87,706) 27% nm Total Segment Adjusted EBITDA 454,863 136% (238,795) 74% nm Group costs (119,198) (36%) (83,600) 26% 43% Group Adjusted EBITDA 335,665 100% (322,395) 100% nm Once-off items (33,084) (31,773) 4% Stock-based compensation (103,639) (25,644) 304% Lease adjustments (39,245) (39,672) (1%) Depreciation and amortization (311,387) (31,233) 897% Total consolidated operating loss (151,690) (450,717) (66%) Merchant 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. 53 Consumer Segment revenue increased primarily due to higher insurance revenues and higher account holder fees, though this was partially offset by lower ATM transaction fees. We embarked on a retrenchment process during the third quarter of fiscal 2022 and recorded an expense of $5.9 million which is included in 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. 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 year to date fiscal 2023 and 2022 was 1.8% and (40.7%), respectively. Group costs 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 U.S. securities laws require that when we publish any non-GAAP measures, we disclose the reason for using these non-GAAP measures and provide reconciliations to the most directly comparable GAAP measures. The presentation of 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. 54 The table below presents the reconciliation between GAAP net loss attributable to Lesaka to Group Adjusted EBITDA: Table 13 Three months ended March 31, Nine months ended March 31, 2023 2022 2023 2022 Loss attributable to Lesaka - GAAP $ (5,820) $ (3,327) $ (23,165) $ (28,727) (Earnings) loss from equity accounted investments (17) - 2,582 1,156 Net loss before (earnings) loss from equity-accounted investments (5,837) (3,327) (20,583) (27,571) Income tax (benefit) expense (860) 470 (465) 754 Loss before income tax expense (6,697) (2,857) (21,048) (26,817) Interest expense 4,984 691 13,408 2,272 Interest income (469) (761) (1,269) (1,463) Gain on disposal of equity securities - (720) - (720) Net loss on disposal of equity-accounted investment 329 346 193 346 Gain related to fair value adjustment to currency options - (6,120) - (3,691) Operating loss (1,853) (9,421) (8,716) (30,073) Depreciation and amortization 5,975 463 17,892 2,084 Stock-based compensation charges 1,644 614 5,955 1,711 Lease adjustments 696 890 2,255 2,647 Once-off items 1,184 235 1,901 2,120 Group Adjusted EBITDA - Non-GAAP 7,646 (7,219) 19,287 (21,511) Group costs 2,293 1,929 6,849 5,578 Segment Adjusted EBITDA - measure of segment performance 9,939 (5,290) 26,136 (15,933) Merchant 8,290 1,427 25,303 4,506 Consumer 1,649 (6,717) 833 (20,439) Consumer excluding reorganization costs 1,649 (823) 833 (14,545) Reorganization costs $ - $ (5,894) $ - $ (5,894) Liquidity and Capital Resources 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. 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. 55 Available short-term borrowings Summarized below are our short-term facilities available and utilized as of March 31, 2023: Table 14 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 - - - - 11,521 205,000 - - Overdraft restricted as to use (1) 78,680 1,400,000 - - - - - - Total overdraft 78,680 1,400,000 - - 11,521 205,000 - - Indirect and derivative facilities (2) - - 7,587 135,000 - - 8,798 156,556 Total short-term facilities available 78,680 1,400,000 7,587 135,000 11,521 205,000 8,798 156,556 Utilized short-term facilities: Overdraft - - - - 16,930 301,246 - - Overdraft restricted as to use (1) 37,731 671,367 - - - - - - Indirect and derivative facilities (2) - - 1,860 33,100 - - 119 2,110 Total short-term facilities available 37,731 671,367 1,860 33,100 16,930 301,246 119 2,110 Interest rate, based on South African prime rate 11.25% 11.15% (1) Overdraft may only be used to fund ATMs and upon utilization is considered restricted cash. (2) Indirect and derivative facilities may only be used for guarantees, letters of credit and forward exchange contracts to support guarantees issued by RMB and Nedbank to various third parties on our behalf. Long-term borrowings 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 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. 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 March 31, 2023, includes restricted cash of approximately $0.2 million that has been ceded and pledged. Cash flows from operating activities Third quarter Net cash used in operating activities during the third quarter of fiscal 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. 56 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: Table 15 Three months ended March 31, 2023 2022 2023 2022 $ $ ZAR ZAR ‘000 ‘000 ‘000 ‘000 First provisional payments - 148 - 2,209 Second provisional payments 280 - 5,090 - Tax refund received - (1) - (12) Total South African taxes paid 280 147 5,090 2,197 Foreign taxes paid 156 34 2,759 509 Total tax paid 436 181 7,849 2,706 Year to date 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: Table 16 Nine months ended March 31, 2023 2022 2023 2022 $ $ ZAR ZAR ‘000 ‘000 ‘000 ‘000 First provisional payments 2,955 585 50,798 9,142 Second provisional payments 471 - 8,461 - Taxation paid related to prior years 10 - 180 - Tax refund received (198) (218) (3,540) (3,239) Total South African taxes paid 3,238 367 55,899 5,903 Foreign taxes paid 257 104 4,534 1,574 Total tax paid 3,495 471 60,433 7,477 Cash flows from investing activities 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. 57 Year to date 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 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 $0.2 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. Year to date 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 $0.5 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 We have no off-balance sheet arrangements. Capital Expenditures 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. 58