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, 2023, and the unaudited condensed consolidated financial statements and the accompanying notes included in this Form 10-Q. U.S. securities laws require that when we publish any non-GAAP measures, we disclose the reason for using these non-GAAP measures and provide reconciliations to the most directly comparable GAAP measures. We discuss why we consider it useful to present these non -GAAP measures and the material risks and limitations of these measures, as well as a reconciliation of these non- GAAP measures to the most directly comparable GAAP financial measure below at “—Results of Operations—Use of Non-GAAP Measures” below. Forward-looking statements Some of the statements in this Form 10-Q constitute forward-looking statements. These statements relate to future events or our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed, implied or inferred by these forward-looking statements. Such factors include, among other things, those listed under Item 1A.—“Risk Factors” in our Annual Report on Form 10-K for the year ended June 30, 2023. 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 We experienced continued improvement in our financial performance in the second quarter of fiscal 2024 with revenue and profitability improving in both Consumer and Merchant divisions. Revenue of $143.9 million (ZAR 2.7 billion) was within our revenue guidance of ZAR 2.7 billion to ZAR 2.8 billion for second quarter of fiscal 2024, despite prevailing negative macroeconomic and socio-political conditions in South Africa. Operating income of $2.3 million (ZAR 42.5 million) improved 211% in ZAR, compared with an operating loss of $2.2 million (ZAR 38.4 million) during the second quarter of fiscal 2023. We exceeded the upper end of guidance of ZAR 170.0 million to ZAR 180.0 million for second quarter of fiscal 2024, delivering Group Adjusted EBITDA, a non-GAAP measure, of $9.6 million (ZAR180.5 million) this quarter, a 38% increase in ZAR, compared to $7.4 million (ZAR 130.4 million) in the second quarter of fiscal 2023. The continued resilience of our business model in a challenging environment for our merchant and consumer customers demonstrates the value they place on our services. Our mission at Lesaka is to enable merchants to compete and grow, and to improve the lives of South Africa’s grant beneficiaries by providing access to innovative financial technology and value creating solutions. We achieve this through our vision to build and operate the leading full-service fintech platform in Southern Africa, offering cash management, payment processing, Value Added Services (“VAS”), capital and financial services to merchants and underserved consumers. Merchant Division The year-on-year growth achieved by our Merchant Division is supported by the robust secular trends underpinning financial inclusion, cash management and digitalization for micro, small and medium enterprises (“MSMEs”), especially in the informal markets of South Africa, where we have a leading market position. 42 Performance in our Merchant division has been driven by: ● Kazang, our VAS and supplier payments business, continues to see adoption by MSMEs in the informal sector, with a 23% year-on-year and 3% quarter-on-quarter growth in the number of devices deployed. o We had approximately 79,000 devices deployed as of December 31, 2023, compared to approximately 64,500 devices one year ago, and approximately 77,000 devices at the end of the first quarter. Core to our device placement strategy is the decision to focus on quality business and optimizing our existing fleet, which is reflected in a healthy throughput and margin per device. o VAS throughput increased 21% year-on-year and 17% quarter-on-quarter. The second quarter of our fiscal year is traditionally our strongest quarter due to higher activity over the year-end festive season benefitting certain product lines. o As communicated since the fourth quarter of fiscal 2023, our product mix for VAS sales has changed with low- margin money transfers reducing significantly due to a change in the regulatory environment impacting the industry as a whole. Money transfers currently comprise approximately 5% of VAS throughput, compared to approximately 25% a year ago. This change has had limited impact on profitability as money transfers are a very low margin product. o VAS throughput, excluding the low-margin money transfers, increased 51% year-on-year and 16% quarter-on- quarter. ● We provide card acquiring solutions in the informal sector via Kazang Pay and in the formal sector we through Card Connect. Card-enabled POS devices increased to approximately 48,200 as of December 31, 2023, a year-on-year growth of 40% and quarter-on-quarter growth of 4%. Throughput on deployed devices increased 31% year-on-year and 15% quarter-on-quarter to R4.1 billion. ● Our current Merchant Credit offering is Capital Connect in the formal SME market. Kazang Pay Advance in the informal sector remains suspended as we reported in the previous quarter. Capital Connect disbursed ZAR 170 million during this quarter, compared to approximately ZAR 205 million in the comparable period last year, representing a 17% decrease. In the formal market we continue to see demand for our merchant credit offering however the deteriorating performance and financial strength of many of our merchants means they do not meet our credit criteria, resulting in fewer and smaller extensions. Whilst strict application of our credit criteria has led to negative growth, it has protected and maintained the quality of our book through this cycle. Our loan book as of December 31, 2023 was R253 million compared to R290 million as of December 31, 2022. ● Our automated cash management offering, Cash Connect, effectively “puts the bank” in approximately 4,480 merchants’ stores, compared to approximately 4,320 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. Our new ATM recycler is generating strong interest, and this business has been transferred to our Merchant Division, where it has been fully integrated into our Cash Connect proposition as an alternative to vaults for our merchant customers. Acquisition of Touchsides In February 2024 we announced the acquisition of Touchsides (Pty) Ltd (“Touchsides”), a leading data analytics and insights company, from Heineken International B.V. The Touchsides and Kazang businesses are highly complementary, and the acquisition significantly expands Kazang’s footprint in the informal market by adding an established solution that has a strong presence in the informal licensed tavern market. Touchsides has an installed base of over 10,000 active POS terminals across South Africa’s informal licensed taverns, and processes more than 1.5 million transactions per day. The business provides platform-as-a-service (PaaS) and software-as-a-service (SaaS) solutions to licensed tavern outlets, enabling the measurement of sales activity in real-time, management of stock levels and informing commercial decisions, such as pricing and promotional offers. The data and insights gathered from these terminals carries significant value and potential to be monetized through relationships with a range of clients including fast-moving consumer goods companies, retailers, wholesalers, route-to-market suppliers, and financiers. We anticipate the acquisition to close in March 2024 and it is subject to satisfaction of customary closing conditions. Consumer Division Over the past six quarters we have consistently referenced the three levers underpinning our strategy of returning the Consumer Division to profitability – (i) growing active EasyPay Everywhere (“EPE”) account numbers, (ii) increasing average revenue per user (“ARPU”) through cross-selling and (iii) cost optimization. With the progress made on these levers and the improved performance of the Consumer division we are now focusing on enhancing our product and service offering. 43 The progress on our three key initiatives is as follows: ● Driving customer acquisition o Gross EPE account activations, for the permanent base, during our current quarter showed significant improvement due to various strategic initiatives. We achieved approximately 122,000 gross account activations in the second quarter, compared to approximately 43,000 in the second quarter of fiscal 2023. After accounting for churn, net active account growth for the quarter was approximately 92,000 accounts, compared to approximately 10,000 in second quarter of fiscal 2023. o Our total active EPE transactional account base stood at approximately 1.4 million at the end of December 2023, of which more than 1.2 million (or more than 85%) are permanent grant recipients. The balance comprises Social Relief of Distress (“SRD”) grant recipients, which was introduced during the COVID pandemic and extended in calendar 2023. o 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 temporary nature of the grant. o The South African Post Office, which is the largest service provider to South African grant beneficiaries, experienced increasing grant distribution and financial challenges during the last two quarters, resulting in many grant beneficiaries migrating to alternative financial service providers. The measures taken by EasyPay Everywhere over the past 18 months to enhance our products, sales, onboarding and customer service capabilities put us in a good position to benefit from this migration. ● Progress on cross selling EasyPay Loans o We originated approximately 278,000 loans during the quarter with our consumer loan book, before allowances, increasing 26% to ZAR 503 million as at December 31, 2023, compared to ZAR 398 million as of December 31, 2022. o We have not amended our credit scoring or other lending criteria and the growth is reflective of the demand for our tailored loan product for this market and growth in EPE bank account customer base o The loan conversion rate continues to improve following the implementation of a number of targeted consumer lending campaigns during the current quarter. o The portfolio loss ratio, calculated as the loans written off during the period as a percentage of the total loan book, remained at approximately 6% on an annualized basis, in line with the first quarter of fiscal 2024. EasyPay Insurance o Our funeral insurance product continued its strong growth and is a material contributor to the improvement in our overall ARPU. We have been able to improve customer penetration to more than 30% of our active permanent grant account base as of December 31, 2023, compared to approximately 25% as of December 31, 2022. Approximately 42,000 new policies were written in the quarter, compared to approximately 29,000 in the comparable period in fiscal 2023. The total number of active policies has grown by 31% to approximately 384,000 policies as of December 31, 2023, compared to December 31, 2022. ARPU o ARPU for our permanent client base has increased to over ZAR 85 for the second quarter of fiscal 2024, from approximately ZAR 74 in the second quarter of fiscal 2023. Economic Environment and Impact of loadshedding Overall, we have seen no significant change in the operating environment during the quarter. The trading environment remains challenging in South Africa with interest rates and unemployment remaining at elevated levels. These factors are compounded by daily power cuts (known as load-shedding in South Africa), although we have seen a marginal reduction in load shedding during the last two quarters. Power disruptions adversely impact our customers, especially in our Merchant Division, 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. The negative impact is, however, to some extent mitigated as our customer base is geographically diversified, and the rotational nature of load-shedding results in localized power cuts over shorter time periods, allowing merchants to make up for lost trading hours. 44 Notwithstanding the challenging operating environment, our Merchant and Consumer Divisions continue to demonstrate the resilience of our business model, which is firmly underpinned by the relevance and value of our offering to our target market. Management changes The Board has appointed Ali Mazanderani as Executive Chairman and Kuben Pillay as Lead Independent Director. Chris Meyer will conclude his tenure as Group CEO on February 29, 2024. During his nearly three years as Group CEO, Chris has led the successful turnaround and building of the Lesaka fintech platform. Chris will remain a director of Lesaka. Ali Mazanderani will assume the Executive Chairman role on February 1, 2024. Ali has been a member of the Lesaka board since 2020 and he played a lead role in setting the vision to build the leading fintech platform in Southern Africa that set Lesaka on its journey. He presented this strategy to the market at Lesaka’s Q4 2020 earnings call and has played a key role in Lesaka’s evolution, serving as a board director and a member of the Capital Allocation Committee. Ali brings deep experience to the Lesaka executive team and is a well-known and respected global fintech leader and entrepreneur. Ali is co-founder and Chairman of Teya, a leading European fintech and has served as a director of global fintech companies, including StoneCo in Brazil and Network International in the UAE. Improvement in our Broad Based Black Economic Empowerment (“B-BBEE”) rating to level 4 B-BBEE is a key strategic priority for us. Achievement of B-BBEE objectives is measured by a scorecard which establishes a weighting for various elements. Scorecards are independently reviewed by accredited BEE verification agencies which issue a certificate that presents an entity’s BEE Contributor Status Level, with level 1 being the highest and “no rating” (a level below level 8) as the lowest. During fiscal 2023, we made significant progress in terms of improving our empowerment credentials and in September 2023 we reported that our independently verified B-BBEE rating improved to a level 5 rating from a level 8 rating, simultaneously setting out our aim to achieve a level 4 rating by the end of fiscal year 2024. We achieved this target during the second quarter of fiscal 2024 and have received an independently verified B-BBEE rating of level 4. 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, 2023: ● Business Combinations and the Recoverability of Goodwill; ● Intangible Assets Acquired Through Acquisitions; ● Revenue recognition – principal versus agent considerations; ● Valuation of investment in Cell C; ● Recoverability of equity securities and equity-accounted investments; ● Deferred Taxation; ● Stock-based Compensation; ● Accounts Receivable and Allowance for Doubtful Accounts Receivable; and ● Lending. 45 Recent accounting pronouncements adopted Refer to Note 1 to our unaudited condensed consolidated financial statements for a full description of accounting pronouncements adopted, including the dates of adoption and the effects on our unaudited condensed consolidated financial statements. Recent accounting pronouncements not yet adopted as of December 31, 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 December 31, 2023, including the expected dates of adoption and effects on our financial condition, results of operations and cash flows. Currency Exchange Rate Information Actual exchange rates The actual exchange rates for and at the end of the periods presented were as follows: Table 1 Three months ended Six months ended Year ended December 31, December 31, June 30, 2023 2022 2023 2022 2023 ZAR : $ average exchange rate 18.7313 17.6279 18.6885 17.3240 17.7641 Highest ZAR : $ rate during period 19.4568 18.3617 19.4568 18.3617 19.7558 Lowest ZAR : $ rate during period 18.2076 16.9840 17.6278 16.2035 16.2034 Rate at end of period 18.2982 17.0212 18.2982 17.0212 18.8376 46 Translation exchange rates for financial reporting purposes We are required to translate our results of operations from ZAR to U.S. dollars on a monthly basis. Thus, the average rates used to translate this data for the three and six months ended December 31, 2023 and 2022, vary slightly from the averages shown in the table above. Except as described below, the translation rates we use in presenting our results of operations are the rates shown in the following table: Three months ended Six months ended Year ended Table 2 December 31, December 31, June 30, 2023 2022 2023 2022 2023 Income and expense items: $1 = ZAR 18.7108 17.5160 18.7124 17.2482 17.9400 Balance sheet items: $1 = ZAR 18.2982 17.0212 18.2982 17.0212 18.8376 We have translated the results of operations and operating segment information for the three and six months ended December 31, 2023, provided in the tables below using the actual average exchange rates per month (i.e. for each of October 2023, November 2023, and December 2023 for the second quarter of fiscal 2024) between the USD and ZAR in order to reduce the reconciliation of information presented to our chief operating decision maker. The impact of using this method compared with the average rate for the quarter and year to date is not significant, however, it does result in minor differences. We believe that presentation using the average exchange rates per month compared with the average exchange rate per quarter and year to date improves the accuracy of the information presented in our external financial reporting and leads to fewer differences between our external reporting measures which are supplementally presented in ZAR, and our internal management information, which is also presented in ZAR. Results of Operations The discussion of our consolidated overall results of operations is based on amounts as reflected in our unaudited condensed consolidated financial statements which are prepared in accordance with U.S. GAAP. We analyze our results of operations both in U.S. dollars, as presented in the unaudited condensed consolidated financial statements, and supplementally in ZAR, because ZAR is the functional currency of the entities which contribute the majority of our results and is the currency in which the majority of our transactions are initially incurred and measured. Presentation of our reported results in ZAR is a non-GAAP measure. Due to the significant impact of currency fluctuations between the U.S. dollar and ZAR on our reported results and because we use the U.S. dollar as our reporting currency, we believe that the supplemental presentation of our results of operations in ZAR is useful to investors to understand the changes in the underlying trends of our business. Our operating segment revenue presented in “—Results of operations by operating segment” represents total revenue per operating segment before intercompany eliminations. A reconciliation between total operating segment revenue and revenue, as well as the reconciliation between our segment performance measure and net loss before tax (benefits) expense, is presented in our unaudited condensed consolidated financial statements in Note 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”) for each operating segment. We do not allocate once -off items (as defined below), stock-based compensation charges, depreciation and amortization, impairment of goodwill or other intangible assets, 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. Refer also “Results of Operations—Use of Non-GAAP Measures” below. Connect is included for the entire year to date of fiscal 2024 and 2023. 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 Eliminations. 47 Second quarter of fiscal 2024 compared to second quarter of fiscal 2023 The following factors had a significant impact on our results of operations during the second quarter of fiscal 2024 as compared with the same period in the prior year: ● Higher revenue: Our revenues increased 13% in ZAR, primarily due to an increase in low margin prepaid airtime sales and other value-added services, as well as higher transaction, insurance and lending revenues, which was partially offset by lower hardware sales revenue in our POS hardware distribution business given the lumpy nature of bulk sales; ● Operating income generated: Operating profitability was achieved following years of operating losses as a result of the various cost reduction initiatives in Consumer implemented in prior periods as well as the contribution from Connect; ● Higher net interest charge: The net interest charge increased to $4.4 million (ZAR 81.2 million) from $4.0 million (ZAR 70.0 million) primarily due to higher interest rates; and ● Foreign exchange movements: The U.S. dollar was 7% stronger against the ZAR during the second quarter of fiscal 2024 compared to the prior period, which adversely impacted our U.S. dollar reported results. Consolidated overall results of operations This discussion is based on the amounts prepared in accordance with U.S. GAAP. The following tables show the changes in the items comprising our statements of operations, both in U.S. dollars and in ZAR: Table 3 In United States Dollars Three months ended December 31, 2023 2022 % $ ’000 $ ’000 change Revenue 143,893 136,068 6% Cost of goods sold, IT processing, servicing and support 114,266 108,824 5% Selling, general and administration 21,541 23,517 (8%) Depreciation and amortization 5,813 5,919 (2%) Operating income (loss) 2,273 (2,192) nm Loss on disposal of equity-accounted investments - 112 nm Interest income 485 389 25% Interest expense 4,822 4,388 10% Loss before income tax expense (2,064) (6,303) (67%) Income tax expense 686 364 88% Net loss before earnings from equity-accounted investments (2,750) (6,667) (59%) Earnings from equity-accounted investments 43 18 139% Net loss attributable to us (2,707) (6,649) (59%) Table 4 In South African Rand Three months ended December 31, 2023 2022 % ZAR ’000 ZAR ’000 change Revenue 2,694,506 2,383,367 13% Cost of goods sold, IT processing, servicing and support 2,139,730 1,906,161 12% Selling, general and administration 403,443 411,923 (2%) Depreciation and amortization 108,863 103,677 5% Operating income (loss) 42,470 (38,394) nm Loss on disposal of equity-accounted investments - 1,962 nm Interest income 9,080 6,814 33% Interest expense 90,329 76,860 18% Loss before income tax expense (38,779) (110,402) (65%) Income tax expense 12,845 6,376 101% Net loss before earnings from equity-accounted investments (51,624) (116,778) (56%) Earnings from equity-accounted investments 805 315 156% Net loss attributable to us (50,819) (116,463) (56%) 48 Revenue increased by $7.8 million (ZAR 0.3 billion), or 5.8% (in ZAR, 13.1%), primarily due to the increase in low margin prepaid airtime sales and other value-added services, as well as higher transaction, insurance and lending revenues, which was partially offset by lower hardware sales revenue in our POS hardware distribution business given the lumpy nature of bulk sales. Cost of goods sold, IT processing, servicing and support increased by $5.4 million (ZAR 0.2 billion), or 5.0% (in ZAR, 12.3%), primarily due to the increase in low margin prepaid airtime sales, which were partially offset by the benefits of various cost reduction initiatives in Consumer and lower insurance-related claims. Selling, general and administration expenses decreased by $2.0 million (ZAR 8.5 million), or 8.4% (in ZAR 2.1%). The decrease was primarily due to the benefits of various cost reduction initiatives in Consumer and lower stock-based compensation charges, which were partially offset by higher employee-related expenses and the year-over-year impact of inflationary increases on certain expenses. Depreciation and amortization expense decreased by $0.1 million, or 1.8% , and in ZAR increased by ZAR 5.2 million or 5.0%. In the ZAR, the increase was due to an increase in depreciation expense related to additional POS devices deployed. Our operating income (loss) margin for the second quarter of fiscal 2024 and 2023 was 1.6% and(1.6)%, 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 2024 or 2023, 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 $0.5 million (ZAR 9.1 million) from $0.4 million (ZAR 6.8 million), primarily due to higher interest rates. Interest expense increased to $4.8 million (ZAR 90.3 million) from $4.4 million (ZAR 76.9 million), primarily as a result of higher overall interest rates and higher overall borrowings during the second quarter of fiscal 2024 compared with comparable period in the prior quarter, which was partially offset by lower interest expense incurred on certain of our borrowing for which we were able to negotiate lower rates of interest during the latter half of fiscal 2023. Fiscal 2024 tax expense was $(0.7) million (ZAR (12.8) million) compared to $0.4 million (ZAR 6.4 million) in fiscal 2023. Our effective tax rate for fiscal 2024 was impacted by the tax expense recorded by our profitable South African operations, a deferred tax benefit related to acquisition-related intangible asset amortization, non-deductible expenses, the on-going losses incurred by certain of our South African businesses and the associated valuation allowances created related to the deferred tax assets recognized regarding net operating losses incurred by these entities. 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. 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. We sold our entire remaining interest in Finbond during the second quarter of fiscal 2024. The table below presents the relative (loss) earnings from our equity-accounted investments: Table 5 Three months ended December 31, 2023 2022 $ % $ ’000 $ ’000 change Other 43 18 139% Total loss from equity-accounted investments 43 18 139% 49 Results of operations by operating segment The composition of revenue and the contributions of our business activities to operating loss are illustrated below: Table 6 In United States Dollars Three months ended December 31, 2023 % of 2022 % of % change Operating Segment $ ’000 total $ ’000 total Consolidated revenue: Merchant 127,870 89% 120,634 89% 6% Consumer 16,707 12% 15,434 11% 8% Subtotal: Operating segments 144,577 101% 136,068 100% 6% Eliminations (684) (1%) - - nm Total consolidated revenue 143,893 100% 136,068 100% 6% Segment Adjusted EBITDA: Merchant (1) 8,693 90% 9,120 123% (5%) Consumer (1) 2,948 31% 578 8% 410% Group costs (2,011) (21%) (2,256) (30%) (11%) Group Adjusted EBITDA (non-GAAP) (2) 9,630 100% 7,442 100% 29% (1) Segment Adjusted EBITDA for Merchant includes retrenchments costs of $0.01 million and Consumer includes retrenchment costs of $0.1 million for the second quarter of fiscal 2024. (2) Group Adjusted EBITDA is a non-GAAP measure, refer to reconciliation below at “—Results of Operations—Use of Non- GAAP Measures”. Table 7 In South African Rand Three months ended December 31, 2023 % of 2022 % of % change Operating Segment ZAR ’000 total ZAR ’000 total Consolidated revenue: Merchant 2,394,515 89% 2,113,025 89% 13% Consumer 312,767 12% 270,342 11% 16% Subtotal: Operating segments 2,707,282 101% 2,383,367 100% 14% Eliminations (12,776) (1%) - - nm Total consolidated revenue 2,694,506 100% 2,383,367 100% 13% Segment Adjusted EBITDA: Merchant (1) 162,935 90% 159,746 123% 2% Consumer (1) 55,225 31% 10,124 8% 445% Group costs (37,663) (21%) (39,516) (30%) (5%) Group Adjusted EBITDA (non-GAAP) (2) 180,497 100% 130,354 100% 38% (1) Segment Adjusted EBITDA for Merchant includes retrenchments costs of ZAR 0.1 million and Consumer includes retrenchment costs of ZAR 1.3 million for the second quarter of fiscal 2024. (2) Group Adjusted EBITDA is a non-GAAP measure, refer to reconciliation below at “—Results of Operations—Use of Non- GAAP Measures”. Merchant Segment revenue increased due to the increase in low margin prepaid airtime sales and other value-added services, which was partially offset by lower hardware sales revenue given the lumpy nature of bulk sales as well as lower revenue from certain valued- added services transactions (such as international money transfers). In ZAR, the increase in Segment Adjusted EBITDA is primarily due to the higher sales activity, 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 Segment Adjusted EBITDA margins shown by the business. Our Segment Adjusted EBITDA margin (calculated as Segment Adjusted EBITDA divided by revenue) for the second quarter of fiscal 2024 and 2023 was 6.8% and 7.6%, respectively. 50 Consumer Segment revenue increased primarily due to more transaction fees generated from the higher EPE account holders base, higher insurance revenues, and an increase in lending revenue as a result of an increase in loan originations. This increase in revenue, together with the cost reduction initiatives initiated in fiscal 2022 and through fiscal 2023, have translated into a turnaround in the Consumer Division and the realization of sustained positive Segment Adjusted EBITDA. Our Segment Adjusted EBITDA margin for the second quarter of fiscal 2024 and 2023 was 17.6% and 3.7%, 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 2024 decreased compared with the prior period due to lower external audit, legal and consulting fees and lower provision for executive bonuses, which was partially offset by higher employee costs. First half of fiscal 2024 compared to first half of fiscal 2023 The following factors had a significant impact on our results of operations during the first half of fiscal 2024 as compared with the same period in the prior year: ● Higher revenue: Our revenues increased 16% in ZAR, primarily due to an increase in low margin prepaid airtime sales and other value added services, as well as higher transaction, insurance and lending revenues, which was partially offset by lower hardware sales revenue in our POS hardware distribution business given the lumpy nature of bulk sales; ● Operating income generated: Operating profitability was achieved following years of operating losses as a result of the various cost reduction initiatives in Consumer implemented in prior periods as well as the contribution from Connect; ● Higher net interest charge: The net interest charge increased to $8.8 million (ZAR 164.3 million) from $7.6 million (ZAR 131.5 million) primarily due to higher interest rates; and ● Foreign exchange movements: The U.S. dollar was 8% stronger against the ZAR during the first half of fiscal 2024 compared to the prior period, which adversely impacted our U.S. dollar reported results. Consolidated overall results of operations This discussion is based on the amounts prepared in accordance with U.S. GAAP. The following tables show the changes in the items comprising our statements of operations, both in U.S. dollars and in ZAR: Table 8 In United States Dollars Six months ended December 31, 2023 2022 % $ ’000 $ ’000 change Revenue 279,982 260,854 7% Cost of goods sold, IT processing, servicing and support 221,756 209,352 6% Selling, general and administration 44,056 46,448 (5%) Depreciation and amortization 11,669 11,917 (2%) Operating income (loss) 2,501 (6,863) nm Reversal of allowance for EMI doubtful debt receivable 250 - nm Net gain on disposal of equity-accounted investments - 136 nm Interest income 934 800 17% Interest expense 9,731 8,424 16% Loss before income tax expense (6,046) (14,351) (58%) Income tax expense 950 395 141% Net loss before loss from equity-accounted investments (6,996) (14,746) (53%) Loss from equity-accounted investments 1,362 2,599 (48%) Net loss attributable to us (8,358) (17,345) (52%) 51 Table 9 In South African Rand Six months ended December 31, 2023 2022 % ZAR ’000 ZAR ’000 change Revenue 5,232,165 4,499,262 16% Cost of goods sold, IT processing, servicing and support 4,144,195 3,610,946 15% Selling, general and administration 823,304 801,144 3% Depreciation and amortization 218,029 205,547 6% Operating income (loss) 46,637 (118,375) nm Reversal of allowance for EMI doubtful debt receivable 4,741 - nm Net gain on disposal of equity-accounted investments - 2,346 nm Interest income 17,448 13,799 26% Interest expense 181,758 145,298 25% Loss before income tax expense (112,932) (247,528) (54%) Income tax expense 17,670 6,813 159% Net loss before loss from equity-accounted investments (130,602) (254,341) (49%) Loss from equity-accounted investments 25,852 44,828 (42%) Net loss attributable to us (156,454) (299,169) (48%) Revenue increased by $19.1 million (ZAR 0.7 billion), or 7.3% (in ZAR, 16.3%), primarily due to the increase in low margin prepaid airtime sales and other value-added services, as well as higher transaction, insurance and lending revenues, which was partially offset by lower hardware sales revenue in our POS hardware distribution business given the lumpy nature of bulk sales. Cost of goods sold, IT processing, servicing and support increased by $12.4 million (ZAR 0.5 billion), or 5.9% (in ZAR, 14.8%), primarily due to the increase in low margin prepaid airtime sales, which were partially offset by the benefits of various cost reduction initiatives in Consumer and lower insurance-related claims. Selling, general and administration expenses decreased by $2.4 million, or 5.1%, and in ZAR increased by ZAR 22.2 million, or 2.8%. In ZAR, the increase was primarily due to higher employee-related expenses related to the expansion of our senior management team and the year-over-year impact of inflationary increases on employee-related expenses, which were partially offset by the benefits of various cost reduction initiatives in Consumer and lower stock-based compensation charges. Depreciation and amortization expense decreased by $0.2 million, or 2.1%, and in ZAR increased by ZAR 12.5 million or 6.1%. In the ZAR, the increase was due to an increase in depreciation expense related to additional POS devices deployed. Our operating income (loss) margin for the first half of fiscal 2024 and 2023 was 0.9% and (2.6)%, 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 2024 or 2023, respectively. During the first half of fiscal 2024, we received an outstanding amount of $0.3 million related to the sale Carbon in fiscal 2023, which resulted in the reversal of an allowance for doubtful loans receivable of $0.3 million recorded in fiscal 2023. 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. Refer to Note 5 to our unaudited condensed consolidated financial statements for additional information regarding this disposal. Interest on surplus cash increased to $0.9 million (ZAR 17.4 million) from $0.8 million (ZAR 13.8 million), primarily due to higher interest rates. Interest expense increased to $9.7 million (ZAR 181.8 million) from $8.4 million (ZAR 145.3 million), primarily as a result of higher overall interest rates and higher overall borrowings during the first half of fiscal 2024 compared with comparable period in the prior year to date, which was partially offset by lower interest expense incurred on certain of our borrowing for which we were able to negotiate lower rates of interest during the latter half of fiscal 2023. Fiscal 2024 tax expense was $(1.0) million (ZAR (17.7) million) compared to $0.4 million (ZAR 6.8 million) in fiscal 2023. Our effective tax rate for fiscal 2024 was impacted by the tax expense recorded by our profitable South African operations, a deferred tax benefit related to acquisition-related intangible asset amortization, non-deductible expenses, the on-going losses incurred by certain of our South African businesses and the associated valuation allowances created related to the deferred tax assets recognized regarding net operating losses incurred by these entities. 52 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. Finbond is listed on the Johannesburg Stock Exchange and reports its six-month results during our first half and its annual results during our fourth quarter. The table below presents the relative (loss) earnings from our equity-accounted investments: Table 10 Six months ended December 31, 2023 2022 $ % $ ’000 $ ’000 change Finbond (1,445) (2,631) (45%) Share of net loss (278) (1,521) (82%) Impairment (1,167) (1,110) 5% Other 83 32 159% (1,362) (2,599) (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 11 In United States Dollars Six months ended December 31, 2023 % of 2022 % of % change Operating Segment $ ’000 total $ ’000 total Consolidated revenue: Merchant 249,231 89% 230,416 88% 8% Consumer 32,287 12% 30,438 12% 6% Subtotal: Operating segments 281,518 101% 260,854 100% 8% Eliminations (1,536) (1%) - - nm Total consolidated revenue 279,982 100% 260,854 100% 7% Segment Adjusted EBITDA: Merchant (1) 16,754 91% 17,013 146% (2%) Consumer (1) 5,428 30% (816) (7%) nm Group costs (3,833) (21%) (4,556) (39%) (16%) Group Adjusted EBITDA (non-GAAP) (2) 18,349 100% 11,641 100% 58% (1) Segment Adjusted EBITDA for Merchant includes retrenchments costs of $0.01 million and Consumer includes retrenchment costs of $0.1 million for first half of fiscal 2024. (2) Group Adjusted EBITDA is a non-GAAP measure, refer to reconciliation below at “—Results of Operations—Use of Non- GAAP Measures”. 53 Table 12 In South African Rand Six months ended December 31, 2023 % of 2022 % of % change Operating Segment ZAR ’000 total ZAR ’000 total Consolidated revenue: Merchant 4,657,516 89% 3,974,261 88% 17% Consumer 603,396 12% 525,001 12% 15% Subtotal: Operating segments 5,260,912 101% 4,499,262 100% 17% Eliminations (28,747) (1%) - - nm Total consolidated revenue 5,232,165 100% 4,499,262 100% 16% Segment Adjusted EBITDA: Merchant (1) 313,116 91% 293,444 146% 7% Consumer (1) 101,527 30% (14,075) (7%) nm Group costs (71,643) (21%) (78,583) (39%) (9%) Group Adjusted EBITDA (non-GAAP) (2) 343,000 100% 200,786 100% 71% (1) Segment Adjusted EBITDA for Merchant includes retrenchments costs of ZAR 0.1 million and Consumer includes retrenchment costs of ZAR 1.3 million for first half of fiscal 2024. (2) Group Adjusted EBITDA is a non-GAAP measure, refer to reconciliation below at “—Results of Operations—Use of Non- GAAP Measures”. Merchant Segment revenue increased due to the increase in low margin prepaid airtime sales and other value-added services, which was partially offset by lower hardware sales revenue given the lumpy nature of bulk sales. The increase in Segment Adjusted EBITDA is primarily due to the higher sales activity, which was partially offset by lower hardware sales. Our Segment Adjusted EBITDA margin for the first half of fiscal 2024 and 2023 was 6.7% and 7.4%, respectively. Consumer Segment revenue increased primarily due to more transaction fees generated from the higher EPE account holders base, higher insurance revenues, and an increase in lending revenue as a result of an increase in loan originations. This increase in revenue, together with the cost reduction initiatives initiated in fiscal 2022 and through fiscal 2023, have translated into a turnaround in the Consumer Division and the realization of sustained positive Segment Adjusted EBITDA in year to date fiscal 2024 compared with year to date fiscal 2023. Our Segment Adjusted EBITDA margin for the first half of fiscal 2024 and 2023 was 16.8% and (2.7)%, respectively. Group costs Our group costs for fiscal 2024 decreased compared with the prior period due to lower external audit, legal and consulting fees and lower provision for executive bonuses, which was partially offset by higher employee costs. Use of Non-GAAP Measures U.S. securities laws require that when we publish any non-GAAP measures, we disclose the reason for using these non-GAAP measures and provide reconciliations to the most directly comparable GAAP measures. The presentation of Group Adjusted EBITDA is a non-GAAP measure. We provide this non-GAAP measure to enhance our evaluation and understanding of our financial performance. Non-GAAP Measures Group Adjusted EBITDA is earnings before interest, tax, depreciation and amortization (“EBITDA”), adjusted for non- operational transactions (including loss on disposal of equity-accounted investments, 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. 54 The table below presents the reconciliation between GAAP net loss attributable to Lesaka to Group Adjusted EBITDA: Table 13 Three months ended December 31, Six months ended December 31, 2023 2022 2023 2022 $ ’000 $ ’000 $ ’000 $ ’000 Loss attributable to Lesaka - GAAP (2,707) (6,649) (8,358) (17,345) (Earnings) loss from equity accounted investments (43) (18) 1,362 2,599 Net loss before (earnings) loss from equity-accounted investments (2,750) (6,667) (6,996) (14,746) Income tax (benefit) expense 686 364 950 395 Loss before income tax expense (2,064) (6,303) (6,046) (14,351) Interest expense 4,822 4,388 9,731 8,424 Interest income (485) (389) (934) (800) Reversal of allowance for doubtful EMI loan receivable - - (250) - Net gain on disposal of equity-accounted investment - 112 - (136) Operating income (loss) 2,273 (2,192) 2,501 (6,863) PPA amortization (amortization of acquired intangible assets) 3,592 3,842 7,200 7,770 Depreciation and amortization 2,221 2,077 4,469 4,147 Stock-based compensation charges 1,804 2,849 3,563 4,311 Lease adjustments 678 747 1,374 1,559 Once-off items (1) (816) 119 (738) 717 Unrealized gain FV for currency adjustments (122) - (20) - Group Adjusted EBITDA - Non-GAAP 9,630 7,442 18,349 11,641 (1) The table below presents the components of once-off items for the periods presented: Table 14 Three months ended December 31, Six months ended December 31, 2023 2022 2023 2022 $ ’000 $ ’000 $ ’000 $ ’000 Transaction costs 136 119 214 322 (Income recognized) Expenses incurred related to closure of legacy businesses (952) - (952) 395 Total once-off items (816) 119 (738) 717 Once-off items are non-recurring in nature, however, certain items may be reported in multiple quarters. For instance, transaction costs include costs incurred related to acquisitions and transactions consummated or ultimately not pursued. The transactions can span multiple quarters, for instance in fiscal 2022 we incurred significant transaction costs related to the acquisition of Connect over a number of quarters, and the transactions are generally non-recurring. (Income recognized) Expenses incurred related to closure of legacy businesses represents (i) gains recognized related to the release of the foreign currency translation reserve on deconsolidation of a subsidiaries and (ii) costs incurred related to subsidiaries which we are in the process of deregistering/ liquidation and therefore we consider these costs non-operational and ad hoc in nature. Liquidity and Capital Resources As of December 31, 2023, our cash and cash equivalents were $44.3 million and comprised of U.S. dollar-denominated balances of $4.5 million, ZAR-denominated balances of ZAR 688.5 million ($37.6 million), and other currency deposits, primarily Botswana pula, of $2.2 million, all amounts translated at exchange rates applicable as of December 31, 2023. The increase in our unrestricted cash balances from June 30, 2023, was primarily due to a positive contribution from our Merchant and Consumer operations and utilization of our borrowings facilities to fund certain components of our operations, which was partially offset by the utilization of cash reserves to fund certain scheduled and other repayments of our borrowings, purchase ATMs and vaults, and to make an investment in working capital. 55 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. Following the acquisition of Connect, we now utilize a combination of short and long-term facilities to fund our operating activities and a long-term asset-backed facility to fund the acquisition of POS devices and vaults. Refer to Note 12 to our consolidated financial statements for the year ended June 30, 2023, for additional information related to our borrowings. Available short-term borrowings Summarized below are our short-term facilities available and utilized as of December 31, 2023: Table 15 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 - - - - 11,203 205,000 - - Overdraft restricted as to use (1) 76,510 1,400,000 - - - - - - Total overdraft 76,510 1,400,000 - - 11,203 205,000 - - Indirect and derivative facilities (2) - - 7,378 135,000 - - 8,556 156,556 Total short-term facilities available 76,510 1,400,000 7,378 135,000 11,203 205,000 8,556 156,556 Utilized short-term facilities: Overdraft - - - - 9,291 170,000 - - Overdraft restricted as to use (1) 23,407 428,301 - - - - - - Indirect and derivative facilities (2) - - 1,809 33,100 - - 115 2,110 Total short-term facilities available 23,407 428,301 1,809 33,100 9,291 170,000 115 2,110 Interest rate, based on South African prime rate 11.75% 11.65% (1) Overdraft may only be used to fund ATMs and upon utilization is considered restricted cash. (2) Indirect and derivative facilities may only be used for guarantees, letters of credit and forward exchange contracts to support guarantees issued by RMB and Nedbank to various third parties on our behalf. Long-term borrowings We have aggregate long-term borrowing outstanding of ZAR 2.6 billion ($142.8 million translated at exchange rates as of December 31, 2023) as described in Note 8. These borrowings include outstanding long-term borrowings obtained by Lesaka SA of ZAR 1.0 billion, including accrued interest, which was used to partially fund the acquisition of Connect. The Lesaka SA borrowing arrangements were amended in March 2023 to include a ZAR 200 million revolving credit facility. We used this revolving credit facility during the six months ended December 31, 2023, and ZAR 115.0 million was drawn as of December 31, 2023, with the remaining balance available for utilization in the future. In contemplation of the Connect transaction, Connect obtained total facilities of ZAR 1.3 billion, which were utilized to repay its existing borrowings, to fund a portion of its capital expenditures and to settle obligations under the transaction documents, and which has subsequently been upsized for its operational requirements and has an outstanding balance as of December 31, 2023, of ZAR 1.2 billion, We also have a revolving credit facility, of ZAR 300.0 million which is utilized to fund a portion of our merchant finance loans receivable book. 56 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, 2023, includes restricted cash of $23.5 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 December 31, 2023, includes restricted cash of $0.1 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 2024 was $0.6 million (ZAR 10.9 million) compared to $3.4 million (ZAR 59.9 million) during the second quarter of fiscal 2023. Excluding the impact of income taxes, our cash provided by operating activities during the second quarter of fiscal 2024 was positively impacted by the contribution from Merchant and Consumer, which was partially offset by growth in our consumer and merchant finance loans receivable books and temporary working capital movements within our merchant business as a result of quarter-end transaction processing activities closing on a Sunday and settled in the following week. During the second quarter of fiscal 2024, we paid first provisional South African tax payments of $0.1 million (ZAR 1.3 million) related to our 2023 tax year and South African tax payments related to prior years of $0.1 million (ZAR 1.3 million). 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, and additional second provisional South African tax payments of $0.01 million (ZAR 0.2 million) related to our 2022 tax year. Taxes paid during the second quarter of fiscal 2024 and 2023 were as follows: Table 16 Three months ended December 31, 2023 2022 2023 2022 $ $ ZAR ZAR ‘000 ‘000 ‘000 ‘000 First provisional payments 2,662 2,463 49,516 42,582 Taxation paid related to prior years 69 10 1,328 180 Tax refund received - (141) - (2,570) Total South African taxes paid 2,731 2,332 50,844 40,192 Foreign taxes paid 75 50 1,409 889 Total tax paid 2,806 2,382 52,253 41,081 First half Net cash provided by operating activities during the first half of fiscal 2024 was $4.0 million (ZAR 74.0 million) compared to net cash used in operating activities of $4.2 million (ZAR 73.1 million) during the first half of fiscal 2023. Excluding the impact of income taxes, our cash provided by operating activities during the first half of fiscal 2024 was positively impacted by the contribution from Merchant and Consumer, which was partially offset by growth in our consumer and merchant finance loans receivable books and temporary working capital movements within our merchant business as a result of quarter-end transaction processing activities closing on a Sunday and settled in the following week. During the first half of fiscal 2024, we paid first provisional South African tax payments of $0.6 million (ZAR 12.2 million) related to our 2023 tax year and South African tax payments related to prior years of $0.6 million (ZAR 12.2 million). 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. 57 Taxes paid during the first half of fiscal 2024 and 2023 were as follows: Table 17 Six months ended December 31, 2023 2022 2023 2022 $ $ ZAR ZAR ‘000 ‘000 ‘000 ‘000 First provisional payments 2,662 2,955 49,516 50,798 Second provisional payments - 191 - 3,371 Taxation paid related to prior years 641 10 12,187 180 Tax refund received (31) (198) (640) (3,540) Total South African taxes paid 3,272 2,958 61,063 50,809 Foreign taxes paid 138 101 2,605 1,775 Total tax paid 3,410 3,059 63,668 52,584 Cash flows from investing activities Second quarter Cash used in investing activities for the second quarter of fiscal 2024 included capital expenditures of $5.0 million (ZAR 93.7 million), primarily due to the acquisition of vaults and POS devices . During the second quarter of fiscal 2024, we received proceeds of $3.5 million related to the sale of remaining interest in Finbond and $0.25 million related to the second (and final) tranche from the disposal of our entire equity interest in Carbon. Cash used in investing activities for the second quarter of fiscal 2023 included capital expenditures of $4.0 million (ZAR 69.9 million), due to the acquisition of vaults and POS devices. First half Cash used in investing activities for the first half of fiscal 2024 included capital expenditures of $5.0 million (ZAR 93.7 million), primarily due to the acquisition of vaults and POS devices. During the first half of fiscal 2024, we received proceeds of $3.5 million related to the sale of remaining interest in Finbond and $0.25 million related to the second (and final) tranche from the disposal of our entire equity interest in Carbon. Cash 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 vaults, POS devices and computer equipment. During the first half of fiscal 2023, we received proceeds of $0.25 million related to the first tranche from the disposal of our entire equity interest in Carbon. Cash flows from financing activities Second quarter During the second quarter of fiscal 2024, we utilized $69.0 million from our South African overdraft facilities to fund our ATMs and our cash management business through Connect, and repaid $66.0 million of those facilities. We utilized $8.6 million of our long- term borrowings to fund the acquisition of certain capital expenditures and for working capital requirements. We repaid $3.2 million of long-term borrowings in accordance with our repayment schedule as well as to settle a portion of our revolving credit facility utilized. We also paid $0.2 million to repurchase shares from employees in order for the employees to settle taxes due related to the vesting of shares of restricted stock. During the second quarter of fiscal 2023, we utilized $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 $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. We repaid $1.7 million of long-term borrowings in accordance with our repayment schedule. We received $0.3 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. 58 First half During the first half of fiscal 2024, we utilized $128.6 million from our South African overdraft facilities to fund our ATMs and our cash management business through Connect, and repaid $128.8 million of those facilities. We utilized $11.0 million of our long- term borrowings to fund the acquisition of certain capital expenditures and for working capital requirements. We repaid $5.8 million of long-term borrowings in accordance with our repayment schedule as well as to settle a portion of our revolving credit facility utilized. We also paid $0.2 million to repurchase shares from employees in order for the employees to settle taxes due related to the vesting of shares of restricted stock. During the first half of fiscal 2023, we utilized $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 $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 repaid $3.3 million of long-term borrowings in accordance with our repayment schedule. We received $0.3 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. Off-Balance Sheet Arrangements We have no off -balance sheet arrangements. Capital Expenditures We expect capital spending for the third quarter of fiscal 2024 to primarily include spending for acquisition of POS devices, vaults, computer software, computer and office equipment, as well as for our ATM infrastructure and branch network in South Africa. Our capital expenditures for the second quarter of fiscal 2024 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 December 31, 2023, of $0.1 million. We expect to fund these expenditures through internally generated funds and available facilities. 59