Item 2. Management’s Discussion and Analysis
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
(“SEC”) 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
As of the date hereof, we have been successfully executing on our strategic objectives in building a leading fintech platform and
consolidating Southern
African fintech. We
experienced continued improvement
in our financial
performance in the
third quarter of
fiscal 2024 with year-on-year revenue and profitability
improvements in both Merchant and Consumer divisions.
Operating income of $0.8 million (ZAR 15.0 million) improved
145% in ZAR, compared with an operating loss of $1.9 million
(ZAR 33.2 million) during the third quarter of fiscal 2023.
Group
Adjusted
EBITDA, a
non-GAAP
measure,
of $9.7
million
(ZAR 183.3
million) this
quarter,
a 47%
increase
in
ZAR,
compared to $7.0 million (ZAR 124.6 million) in the third
quarter of fiscal 2023. The continued resilience of our business model
in a
challenging environment for our merchant and consumer customers demonstrates
the value our customers 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 micro-
merchant sector of South Africa, where we have a leading market position.
Performance in our Merchant division has been driven by:
●
Kazang,
our VAS
and supplier payments
business, continues to see
adoption by micro-merchants,
with a 12% year-on-year
growth in the number of devices deployed.
o
We
had approximately 80,250
devices deployed as of
March 31, 2024, compared
to approximately 71,800 devices
one year ago, and approximately
79,000 devices at the
end of the second quarter
of fiscal 2024. 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.
44
o
As
previously
communicated,
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
36% year-on-year
and was flat
quarter-on-
quarter,
as
expected,
which
is
due
to
seasonality,
with
second
quarter
of
our
fiscal
year
being
traditionally
our
strongest quarter due to higher activity over the year-end festive
season benefitting certain product lines.
o
Whilst we saw
growth in
our traditional VAS
products of
electricity,
airtime and gaming,
much of the
growth has
been driven by the uptake of our supplier payments platform by micro-merchants.
As we bring more suppliers onto
our
platform,
we
should
see
these
volumes
continue
growing.
Supplier
payment
throughput
volumes
increased
approximately 100%
in the
third quarter
compared to
a year ago
and now
accounts for
approximately 35%
of our
VAS
throughput volumes, compared to approximately 20% a year ago.
●
We provide
card acquiring solutions to
micro-merchants via Kazang Pay
and to small and medium
merchants through Card
Connect. Card-enabled POS devices increased to
approximately 50,200 as of March 31,
2024, a year-on-year growth of 21%.
Throughput on deployed devices increased 21% year-on-year
to R3.9 billion.
●
Our
current
Merchant
Credit
offering
through
Capital
Connect
in
the
SME
market.
Kazang
Pay
Advance
in
the
micro-
merchant sector remains
suspended as we
reported in the
previous quarter. Capital Connect
disbursed ZAR 219
million during
this quarter, compared to ZAR 194 million
in the comparable period last year, representing a 13% increase.
●
Our digital cash management
offerings, Cash Connect and Kazang
Vaults, effectively “puts the bank” in approximately 4,460
merchants’ stores, compared to approximately 4,370 merchants’ stores a year ago. We provide robust cash vaults in the
SME
sector and
is building
a presence
in the
micro-merchant sector,
which enables
our merchant
customer base
to significantly
mitigate their operational risks pertaining to cash management and
security.
Acquisition of Touchsides
In February 2024 we announced the
acquisition of Touchsides
(Pty) Ltd (“Touchsides”).
With closing conditions
now satisfied,
the deal closed
on April 30,
2024. Touchsides
is a leading
data analytics and
insights company,
and highly complementary
with our
Kazang business.
The acquisition significantly
expands Kazang’s
footprint in the informal
market by adding an
established solution
that has a strong presence in
the licensed tavern market. Touchsides
has an installed base of over 10,000
active POS terminals across
South Africa’s 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. Touchsides
has
been allocated to our Merchant operating segment.
Acquisition of Adumo
In May 2024
we announced the
acquisition of Adumo
RF (Pty) Ltd, subject
to shareholder and
regulatory approvals. Adumo’s
serves approximately 23,000
active merchants. Its primary
operations include card acquiring,
integrated payments and reconciliation
services processing more than ZAR 24 billion in throughput per year. The company’s corporate card services cover over 245,000 card
holders supporting payroll, incentives, rewards, and expense management. Adumo ISV,
also known as GAAP,
is the largest POS and
Software-as-a-Service solutions provider to the hospitality sector in
Southern Africa.
The acquisition
continues Lesaka’s
consolidation in
the Southern
African fintech
sector.
The Lesaka
ecosystem will
serve 1.7
million active consumers, 119,000
merchants, and processes over ZAR
250 billion in throughput (cash, card
and VAS)
per year. The
Group will have over 3,300 employees operating on the
ground in 5 countries: South Africa, Namibia, Botswana, Zambia,
and Kenya.
The acquisition enhances Lesaka's strengths in both the consumer
and merchant markets.
The purchase
consideration will
be settled
through the
combination of
an issuance
of 17,279,803
shares of
our common
stock
and a ZAR 232 million ($12.5
million, translated at the prevailing rate of
$1: ZAR 18.5 as of
May 6, 2024) payment in cash.
The share
issuance
was
based
off
of
the
Base
Purchase
Consideration,
as
defined
in
the
transaction
agreement,
of
ZAR
1.59
billion
($85.9
million),
less
the
ZAR
232
million
cash
payment,
implying
a
value
per
share
of
$4.25
((ZAR
1.59
billion
–
ZAR
0.232
billion)/
17,279,803
/ ZAR
18.5).
Adumo
shareholders
include Apis
Growth
Fund I,
a
private
equity fund
managed
by Apis
Partners
LLP
(“Apis”), African
Rainbow Capital
(“ARC”), the
largest shareholder
of Crossfin
Holdings (RF)
Pty Ltd
(“Crossfin”), as
well as
the
International Finance Corporation and Adumo management.
The transaction is expected
to close in the
third calendar quarter of
2024 and is subject
to shareholder and regulatory
approvals
and satisfaction of customary closing conditions.
45
Consumer Division
We
continue
to deliver
against our
strategic focus
areas underpinning
our growth
strategy in
our Consumer
Division and
our
mission
to
improve
the
lives
of
South
Africa’s
grant
beneficiaries.
Progress
made
on
these
levers:
(i)
growing
active
EasyPay
Everywhere
(“EPE”)
account
numbers,
(ii)
increasing
average
revenue
per
user
(“ARPU”)
through
cross-selling
and
(iii)
cost
optimization,
and
(iv)
enhancing
our
product
and
service
offering,
resulted
in
revenue
and
profitability
growth
in
the
Consumer
Division in third quarter of fiscal 2024.
The progress on our key initiatives is as follows:
●
Driving customer acquisition
o
Gross EPE account activations,
for the permanent base, during
our current quarter showed significant
year-on-year
improvement due to various strategic
initiatives. We achieved approximately 63,000 gross account activations in
the
third quarter, compared
to approximately 38,000 in the
third quarter of fiscal 2023.
After accounting for churn, net
active account growth for the quarter
was approximately 28,000 accounts, compared to approximately 1,000
in third
quarter of fiscal 2023.
o
Our total
active EPE
transactional account
base stood
at approximately
1.46 million
at the end
of March
2024, of
which approximately
1.28 million
(or approximately
87%) 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 year 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.
●
Progress on cross
selling
EasyPay Loans
o
We
originated
approximately 266,000
loans during
the quarter
with our
consumer loan
book, before
allowances,
increasing 28% to ZAR 509 million as at March 31, 2024, compared to ZAR 397
million as of March 31, 2023.
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,
growth
in
EPE
bank
account
customer
base
and
improved
cross-selling
capabilities.
o
The
loan
conversion
rate
continues
to
improve
following
the
implementation
of
a
number
of
targeted
consumer
lending campaigns and encouraging results from our digital channels 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 and
second 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 March
31, 2024, compared to
approximately 28% as of March
31, 2023. Approximately 46,000
new policies were written in the quarter, compared to approximately
36,000 in the comparable period in
fiscal 2023.
The total
number of
active policies
has grown
by 34%
to approximately
414,000 policies
as of
March 31,
2024,
compared to March 31, 2023.
ARPU
o
ARPU for
our permanent
client base
has increased
to approximately
ZAR 90
for the
third quarter
of fiscal
2024,
from approximately ZAR 78 in the third quarter of fiscal 2023.
Leadership Changes
On February 29, 2024 Mr. Chris Meyer completed his tenure
as Group CEO of Lesaka, a
position he held since July 1,
2021. Mr.
Ali Mazanderani
took
over
the majority
of
Mr.
Meyer’s
responsibilities
as Executive
Chairman
of Lesaka
on
March 1,
2024.
Ali
Mazanderani has been
integral to the
development of Lesaka’s
strategy and has
been a Non-Executive
Director since
2020. As part
of the
change in
leadership, Mr.
Kuben Pillay,
step down
as our
Chairman on
January 31,
2024, and
commenced his
role as
Lead
Independent Director of Lesaka on February 1, 2024.
46
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.
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, 2024
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, 2024, 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
Nine months ended
Year
ended
March 31,
March 31,
June 30,
2024
2023
2024
2023
2023
ZAR : $ average exchange rate
18.7313
17.7506
18.7536
17.4641
17.7641
Highest ZAR : $ rate during period
19.4568
18.6008
19.4568
18.6008
19.7558
Lowest ZAR : $ rate during period
18.2076
16.7978
17.6278
16.2035
16.2034
Rate at end of period
18.8760
17.7936
18.8760
17.7936
18.8376
47
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 March 31, 2024 and 2023, 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
Nine months ended
Year
ended
Table 2
March 31,
March 31,
June 30,
2024
2023
2024
2023
2023
Income and expense items: $1 = ZAR
18.8780
17.9318
18.7571
17.4037
17.9400
Balance sheet items: $1 = ZAR
18.8760
17.7936
18.8760
17.7936
18.8376
We
have translated the
results of operations and
operating segment information
for the three and
nine months ended March
31,
2024, provided in
the tables below using
the actual average exchange
rates per month (i.e.
for each of
January 2024, February
2024,
and March 2024
for the third
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.
48
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
was our
Group Chief Executive
Officer until February 29,
2024 and is
our Executive Chairman
from March 1,
2024, and each
of them 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 expenses (“Lease expenses”), 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 expenses reflect lease
expenses (refer to Note
16 to
our
unaudited
condensed
consolidated
financial
statements)
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
Lease expenses
and 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.
Third quarter of fiscal 2024 compared to third quarter
of fiscal 2023
The following
factors had
a significant
impact on
our results
of operations
during the
third quarter
of fiscal
2024 as
compared
with the same period in the prior year:
●
Higher revenue:
Our revenues
increased 9%
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
continues to improve
as a result of
the increase in
the trading activity
as noted above off of a stable selling, general and administration base;
●
Lower net
interest charge:
The net
interest charge
decreased to
$4.0 million
(ZAR 74.6
million) from
$4.5 million
(ZAR
81.0 million) primarily due to higher interest rates; and
●
Foreign exchange
movements:
The U.S.
dollar
was 5%
stronger against
the ZAR
during
the third
quarter of
fiscal 2024
compared to the prior period, which adversely impacted our U.S. dollar
reported results.
49
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,
2024
2023
%
$ ’000
$ ’000
change
Revenue
138,194
133,968
3%
Cost of goods sold, IT processing, servicing and support
107,854
105,299
2%
Selling, general and administration
23,124
24,547
(6%)
Depreciation and amortization
5,791
5,975
(3%)
Transaction costs related to Adumo acquisition
631
-
nm
Operating income (loss)
794
(1,853)
nm
Loss on disposal of equity-accounted investments
-
329
nm
Interest income
628
469
34%
Interest expense
4,581
4,984
(8%)
Loss before income tax expense (benefit)
(3,159)
(6,697)
(53%)
Income tax expense (benefit)
931
(860)
nm
Net loss before earnings from equity-accounted investments
(4,090)
(5,837)
(30%)
Earnings from equity-accounted investments
43
17
153%
Net loss attributable to us
(4,047)
(5,820)
(30%)
Table 4
In South African Rand
Three months ended March 31,
2024
2023
%
ZAR ’000
ZAR ’000
change
Revenue
2,609,913
2,402,288
9%
Cost of goods sold, IT processing, servicing and support
2,036,881
1,888,201
8%
Selling, general and administration
436,746
440,172
(1%)
Depreciation and amortization
109,379
107,143
2%
Transaction costs related to Adumo acquisition
11,915
-
nm
Operating income (loss)
14,992
(33,228)
nm
Loss on disposal of equity-accounted investments
-
5,900
nm
Interest income
11,861
8,410
41%
Interest expense
86,504
89,372
(3%)
Loss before income tax expense (benefit)
(59,651)
(120,090)
(50%)
Income tax expense (benefit)
17,575
(15,422)
nm
Net loss before earnings from equity-accounted investments
(77,226)
(104,668)
(26%)
Earnings from equity-accounted investments
811
305
166%
Net loss attributable to us
(76,415)
(104,363)
(27%)
Revenue increased
by $4.2
million (ZAR
0.2 billion),
or 3.2% (in
ZAR, 8.6%),
primarily due
to the
increase in
the number
of
low-margin
prepaid
airtime
vouchers
sold
and
an
increase
in
volume
of
other
value-added
services
provided,
as
well
as
higher
transaction volumes processed, insurance premiums collected
and lending revenues following an increase in loan originations,
which
was partially offset
by a lower
number of
hardware sales in
our POS hardware
distribution business
given the
lumpy nature of
bulk
sales. Refer to discussion above at “—Recent Developments”
for a description of key trends impacting our revenue this quarter.
Cost of goods
sold, IT processing, servicing
and support increased
by $2.6 million
(ZAR 0.1 billion), or
2.4% (in ZAR, 7.9%),
primarily due to
the increase in low
margin prepaid airtime
sales and higher
insurance-related claims, which
were partially offset
by
the lower cost of goods sold related to fewer hardware sales.
Selling, general and administration expenses decreased
by $1.4 million (ZAR 3.4 million),
or 5.8% (in ZAR 0.8%). The modest
decrease in
ZAR was
primarily due
to lower
general and
administration expenses,
which were
partially offset
by higher
employee-
related expenses, higher
stock-based compensation charges
and the
year-over-year impact of
inflationary increases on
certain expenses.
50
Depreciation and amortization expense
decreased by $0.2 million, or 3.1%
,
and in ZAR increased by
ZAR 2.2 million or 2.1%.
In the ZAR, the increase was due to an increase in depreciation expense related
to additional POS devices deployed.
Transaction costs related to Adumo
acquisition includes fees
paid to external
service providers associated
with legal, commercial,
financial and tax due diligence activities performed and other legal
and advisory services procured.
Our operating income (loss) margin for
the third quarter of fiscal 2024 and 2023 was 0.6% and(1.4)
%, 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 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.
We
recorded
a
loss
of
$0.3
million
during
the
third
quarter
of
fiscal
2023
related
to
the
disposal
of
a
minor
portion
of
our
investment in Finbond.
Interest
on surplus
cash increased
to $0.6
million
(ZAR 11.9
million)
from $0.5
million (ZAR
8.4
million),
primarily
due
to
higher interest rates.
Interest expense
decreased to
$4.6 million
(ZAR 86.5
million) from
$5.0 million
(ZAR 89.4
million), primarily
as a
result of
lower interest
expense incurred
on certain
of our
borrowing for
which we
were able
to negotiate
lower rates
of interest
towards the
end of
calendar 2023,
which was partially
offset by
higher overall
base interest rates
and higher
overall borrowings
during the third
quarter of fiscal 2024 compared with comparable period in the prior quarter.
Fiscal 2024 tax
expense was $0.9
million (ZAR 17.6 million)
compared to a tax
benefit of $(0.9) million
(ZAR (15.4) 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 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.
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
third quarter
of fiscal
2024. The
table
below presents the relative (loss) earnings from our equity-accounted investments:
Table 5
Three months ended March 31,
2024
2023
$ %
$ ’000
$ ’000
change
Other
43
17
153%
Total
loss from equity-accounted investments
43
17
153%
51
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,
2024
% of
2023
% of
% change
Operating Segment
$ ’000
total
$ ’000
total
Consolidated revenue:
Merchant
121,013
88%
118,092
88%
2%
Consumer
17,904
13%
15,876
12%
13%
Subtotal: Operating segments
138,917
101%
133,968
100%
4%
Eliminations
(723)
(1%)
-
-
nm
Total
consolidated revenue
138,194
100%
133,968
100%
3%
Group Adjusted EBITDA:
Merchant
(1)
8,394
87%
8,290
119%
1%
Consumer
(1)
4,358
45%
1,649
24%
164%
Lease expenses
(2)
(850)
(9%)
(696)
(10%)
22%
Group costs
(2,199)
(23%)
(2,293)
(33%)
(4%)
Group Adjusted EBITDA (non-GAAP)
(3)
9,703
100%
6,950
100%
40%
(1) Segment Adjusted EBITDA Consumer includes retrenchment
costs of $0.01 million for the third quarter of fiscal 2024.
(2) Lease expenses which
were previously excluded
from the calculation of
Group Adjusted EBITDA
have now been included
in the calculation. This change is
in response to comments received from
the staff of the SEC in
March 2024 regarding our non-GAAP
financial reporting. Comparative information has been adjusted to conform
with the updated presentation.
(3) 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 March 31,
2024
% of
2023
% of
% change
Operating Segment
ZAR ’000
total
ZAR ’000
total
Consolidated revenue:
Merchant
2,285,394
88%
2,117,602
88%
8%
Consumer
338,170
13%
284,686
12%
19%
Subtotal: Operating segments
2,623,564
101%
2,402,288
100%
9%
Eliminations
(13,651)
(1%)
-
-
nm
Total
consolidated revenue
2,609,913
100%
2,402,288
100%
9%
Group Adjusted EBITDA:
Merchant
(1)
158,524
86%
148,655
119%
7%
Consumer
(1)
82,330
45%
29,570
24%
178%
Lease expenses
(2)
(16,059)
(9%)
(12,481)
(10%)
29%
Group costs
(41,529)
(23%)
(41,118)
(33%)
1%
Group Adjusted EBITDA (non-GAAP)
(3)
183,266
100%
124,626
100%
47%
(1) Segment Adjusted EBITDA
for Consumer includes retrenchment
costs of ZAR
0.1 million for the
third quarter of
fiscal 2024.
(2) Lease expenses which
were previously excluded
from the calculation of
Group Adjusted EBITDA
have now been included
in the calculation. This change is
in response to comments received from
the staff of the SEC in
March 2024 regarding our non-GAAP
financial reporting. Comparative information has been adjusted to conform
with the updated presentation.
(3) 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 prepaid airtime vouchers
sold and other value-added services provided, which
was partially offset
by a lower
number of
hardware sales in
our POS hardware
distribution business
given the
lumpy nature of
bulk
sales as
well as
lower revenue
generated
from a
decrease
in certain
valued-added
services transaction
volumes processed
(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 (see further below)
and cost of sales,
while only earning
a relatively small margin.
This significantly depresses
the Segment Adjusted
EBITDA margins
shown by the business.
52
Our Segment Adjusted
EBITDA margin (calculated
as Segment Adjusted EBITDA
divided by revenue) for
the third quarter of
fiscal 2024 and 2023 was 6.9% and 7.0%, respectively.
Prepaid airtime sales
In South Africa and other countries, mobile network operators (“MNOs”) offer prepaid or contract (or postpaid) services to their
customers to telephony
services using a
mobile telephony network
or networks. MNOs
also offer similar
products (prepaid or
postpaid)
for mobile data
which uses other
wireless network protocols
such as wireless
fidelity (“wifi”).
We
use the term
“prepaid airtime”
to
include both of these prepaid products.
Generally speaking, the difference between the two
models is that prepaid is
paid for upfront by the
customer and contract is
paid
in arrears. MNOs sell prepaid products directly to their customers and also indirectly
to their customers through distribution
channels
(which include wholesalers, retailers and other parties, including ourselves).
We sell
a variety of products through our
distribution channels, including prepaid airtime,
prepaid electricity,
gaming vouchers.
We refer to these
products collectively as VAS.
In order to “load” airtime onto
a mobile device an MNOs customer
requires a prepaid airtime voucher. A unique code is
assigned
to each prepaid
airtime voucher and
is required to
activate the prepaid
airtime on a
mobile device. Like
certain tangible goods,
once
sold, our
customers cannot
return prepaid
airtime vouchers
to us (except
of course
if there is
a defect
in the
service provided
by us,
which rarely occurs).
We
can either
purchase an
agreed quantity
of prepaid
airtime vouchers
upfront directly
from
wholesalers or
other parties
(so
called “Pinned airtime” - these electronic vouchers are stored
on a server owned and maintained by us and we treat
these vouchers as
inventory)
or
we
can
“interface”
directly
into
a
wholesaler
and
deliver
the
airtime
voucher
directly
to
our
customers
(typically
merchants) as the airtime is sold by the merchant to MNOs customers (so called Pinless airtime).
Consumer
Segment
revenue
increased
primarily
due
to
higher
transaction
fees
generated
from
the
higher
EPE
account
holders
base,
insurance premiums collected and lending revenues following an increase in loan originations.
This increase in revenue has translated
into improved profitability,
which was partially
offset by higher
insurance-related claims and
higher employee-related
expenses and
the year-over-year impact of inflationary increases on certain expenses.
Our Segment Adjusted EBITDA margin for the
third quarter of fiscal 2024 and 2023 was 24.3%
and 10.4%, 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 modestly
compared with
the prior
period due
to lower
external audit,
legal fees and
lower provision
for executive bonuses,
which was partially
offset by
higher employee
(base salary) costs,
consulting fees and
travel
expenses.
Year
to date fiscal 2024 compared to year to date fiscal 2023
The following factors
had a significant
impact on our
results of operations
during the year
to date fiscal
2024 as compared
with
the same period in the prior year:
●
Higher revenue:
Our revenues increased 14% 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
$12.8 million (ZAR 239.0 million) from
$12.1 million (ZAR
211.3 million) primarily due to higher interest
rates; and
●
Foreign
exchange
movements:
The
U.S.
dollar
was
8%
stronger
against
the
ZAR
during
the
year
to
date
fiscal
2024
compared to the prior period, which adversely impacted our U.S. dollar
reported results.
53
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,
2024
2023
%
$ ’000
$ ’000
change
Revenue
418,176
394,822
6%
Cost of goods sold, IT processing, servicing and support
329,610
314,651
5%
Selling, general and administration
67,146
70,995
(5%)
Depreciation and amortization
17,460
17,892
(2%)
Transaction costs related to Adumo acquisition
665
-
nm
Operating income (loss)
3,295
(8,716)
nm
Reversal of allowance for EMI doubtful debt receivable
250
-
nm
Net loss on disposal of equity-accounted investments
-
193
nm
Interest income
1,562
1,269
23%
Interest expense
14,312
13,408
7%
Loss before income tax expense (benefit)
(9,205)
(21,048)
(56%)
Income tax expense (benefit)
1,881
(465)
nm
Net loss before loss from equity-accounted investments
(11,086)
(20,583)
(46%)
Loss from equity-accounted investments
1,319
2,582
(49%)
Net loss attributable to us
(12,405)
(23,165)
(46%)
Table 9
In South African Rand
Nine months ended March 31,
2024
2023
%
ZAR ’000
ZAR ’000
change
Revenue
7,842,078
6,871,364
14%
Cost of goods sold, IT processing, servicing and support
6,181,076
5,476,091
13%
Selling, general and administration
1,259,415
1,235,576
2%
Depreciation and amortization
327,408
311,387
5%
Transaction costs related to Adumo acquisition
12,550
-
nm
Operating income (loss)
61,629
(151,690)
nm
Reversal of allowance for EMI doubtful debt receivable
4,741
-
nm
Net loss on disposal of equity-accounted investments
-
3,359
nm
Interest income
29,309
22,085
33%
Interest expense
268,262
233,349
15%
Loss before income tax expense (benefit)
(172,583)
(366,313)
(53%)
Income tax expense (benefit)
35,245
(8,093)
nm
Net loss before loss from equity-accounted investments
(207,828)
(358,220)
(42%)
Loss from equity-accounted investments
25,041
44,936
(44%)
Net loss attributable to us
(232,869)
(403,156)
(42%)
Revenue increased by $23.4 million (ZAR 1.0 billion), or 5.9% (in ZAR, 14.1%), primarily
due to the increase in the number of
low-margin
prepaid
airtime
vouchers
sold
and
an
increase
in
volume
of
other
value-added
services
provided,
as
well
as
higher
transaction volumes processed, insurance premiums collected
and lending revenues following an increase in loan
originations, which
was partially offset
by a lower
number of
hardware sales in
our POS hardware
distribution business
given the
lumpy nature of
bulk
sales.
Cost of goods sold, IT processing, servicing and
support increased by $15.0 million (ZAR
0.7 billion), or 4.8% (in ZAR,
12.9%),
primarily due to
the increase in low
margin prepaid airtime
sales, which were
partially offset by
the lower cost of
goods sold related
to fewer hardware sales.
Selling, general and administration expenses decreased by $3.8 million, or 5.4%, and in ZAR increased by ZAR 23.8 million, or
1.9%.
In ZAR,
the modest
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.
54
Depreciation and amortization expense decreased by $0.4 million, or 2.4%, and in ZAR increased by ZAR 16.0 million or 5.1%.
In the ZAR, the increase was due to an increase in depreciation expense related to
additional POS devices deployed.
Transaction costs related to Adumo
acquisition includes fees
paid to external
service providers associated
with legal, commercial,
financial and tax due diligence activities performed and other legal
and advisory services procured.
Our operating income (loss) margin for the year to date fiscal 2024 and 2023 was 0.8% and (2.2)%, 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 2024
or 2023, respectively.
During the year to date 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
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 net
loss of
$0.2 million
comprising a loss
of $0.4
million related to
the disposal
of a
minor portion
of our
investment
in Finbond and a $0.25 million gain related to the disposal of our entire interest in Carbon during the year to
date fiscal 2023. Refer to
Note 5 to our unaudited condensed consolidated financial statements for
additional information regarding this disposal.
Interest on
surplus cash
increased to
$1.6 million
(ZAR 29.3
million) from
$1.3 million
(ZAR 22.1
million), primarily
due to
higher interest rates.
Interest expense increased
to $14.3 million
(ZAR 268.3 million)
from $13.4 million
(ZAR 233.3 million),
primarily as a
result
of higher overall interest rates and higher overall borrowings
during the year to date 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
and again towards the end of calendar 2023.
Fiscal 2024 tax expense was $1.9 million (ZAR 35.2 million) compared to a tax benefit of $(0.5) million (ZAR (8.1) 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 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.
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
Nine months ended March 31,
2024
2023
$ %
$ ’000
$ ’000
change
Finbond
(1,445)
(2,631)
(45%)
Share of net loss
(278)
(1,521)
(82%)
Impairment
(1,167)
(1,110)
5%
Other
126
49
157%
(1,319)
(2,582)
(49%)
55
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,
2024
% of
2023
% of
% change
Operating Segment
$ ’000
total
$ ’000
total
Consolidated revenue:
Merchant
370,244
89%
348,508
88%
6%
Consumer
50,191
12%
46,314
12%
8%
Subtotal: Operating segments
420,435
101%
394,822
100%
6%
Eliminations
(2,259)
(1%)
-
-
nm
Total
consolidated revenue
418,176
100%
394,822
100%
6%
Group Adjusted EBITDA:
Merchant
(1)
25,148
94%
25,303
149%
(1%)
Consumer
(1)
9,786
37%
833
5%
1,075%
Lease expenses
(2)
(2,224)
(8%)
(2,255)
(13%)
(1%)
Group costs
(6,032)
(23%)
(6,849)
(40%)
(12%)
Group Adjusted EBITDA (non-GAAP)
(3)
26,678
100%
17,032
100%
57%
(1) Segment Adjusted EBITDA for Merchant includes retrenchments costs of $0.2 million and Consumer includes retrenchment
costs of $0.2 million for year to date fiscal 2024.
(2) Lease expenses which
were previously excluded
from the calculation of
Group Adjusted EBITDA
have now been included
in the calculation. This change is
in response to comments received from
the staff of the SEC in
March 2024 regarding our non-GAAP
financial reporting. Comparative information has been adjusted to conform
with the updated presentation.
(3) Group Adjusted EBITDA
is a non-GAAP measure, refer
to reconciliation below at
“—Results of Operations—Use of
Non-
GAAP Measures”.
Table 12
In South African Rand
Nine months ended March 31,
2024
% of
2023
% of
% change
Operating Segment
ZAR ’000
total
ZAR ’000
total
Consolidated revenue:
Merchant
6,942,910
89%
6,065,329
88%
14%
Consumer
941,566
12%
806,035
12%
17%
Subtotal: Operating segments
7,884,476
101%
6,871,364
100%
15%
Eliminations
(42,398)
(1%)
-
-
nm
Total
consolidated revenue
7,842,078
100%
6,871,364
100%
14%
Group Adjusted EBITDA:
Merchant
(1)
471,640
94%
440,366
149%
7%
Consumer
(1)
183,857
37%
14,497
5%
1,168%
Lease expenses
(2)
(41,739)
(8%)
(39,245)
(13%)
6%
Group costs
(113,172)
(23%)
(119,198)
(40%)
(5%)
Group Adjusted EBITDA (non-GAAP)
(3)
500,586
100%
296,420
100%
69%
(1)
Segment
Adjusted
EBITDA
for
Merchant
includes
retrenchments
costs
of
ZAR
4.7
million
and
Consumer
includes
retrenchment costs of ZAR 2.9 million for year to date fiscal 2024.
(2) Lease expenses which
were previously excluded
from the calculation of
Group Adjusted EBITDA
have now been included
in the calculation. This change is
in response to comments received from
the staff of the SEC in
March 2024 regarding our non-GAAP
financial reporting. Comparative information has been adjusted to conform
with the updated presentation.
(3) Group Adjusted EBITDA
is a non-GAAP measure, refer
to reconciliation below at
“—Results of Operations—Use of
Non-
GAAP Measures”.
56
Merchant
Segment revenue increased due to the increase in prepaid
airtime vouchers sold and other value-added services provided, which
was partially offset
by a lower
number of
hardware sales in
our POS hardware
distribution business
given the
lumpy nature of
bulk
sales as
well as
lower revenue
generated
from a
decrease
in certain
valued-added
services transaction
volumes processed
(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
Our Segment Adjusted EBITDA margin for the year
to date fiscal 2024 and 2023 was 6.8% and 7.3%, 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.
Consumer Segment Adjusted EBITDA during the year to date fiscal 2024 was also impacted by higher credit losses (as a
result of an
increase in originations)
and higher insurance-related
claims (as
a result
of a
higher number of
insurance policies) compared
with the year to date fiscal 2023.
Our Segment Adjusted EBITDA margin for the year
to date fiscal 2024 and 2023 was 19.5% and 1.8%, 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 and travel expenses.
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
and
trends.
We
believe
that
this
measure
is
helpful
to
users
of
our
financial
information
understand
key
operating
performance and
trends in our
business because
it excludes certain
non-cash expenses
(including depreciation
and amortization
and
stock-based compensation charges) and income
and expenses that we consider once-off in nature.
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 and
once-off
items. Once-off
items
represents non-recurring income and
expense items, including
costs related to
acquisitions and transactions consummated
or ultimately
not pursued.
Lease expenses
which were
previously excluded
from the
calculation of
Group Adjusted
EBITDA have
now been
included in
the calculation. This
change is in response
to comments received from
the staff of the
SEC in March 2024
regarding our non-GAAP
financial reporting. Comparative information has been adjusted to conform
with the updated presentation.
57
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,
2024
2023
2024
2023
$ ’000
$ ’000
$ ’000
$ ’000
Loss attributable to Lesaka - GAAP
(4,047)
(5,820)
(12,405)
(23,165)
(Earnings) loss from equity accounted investments
(43)
(17)
1,319
2,582
Net loss before (earnings) loss from equity-accounted investments
(4,090)
(5,837)
(11,086)
(20,583)
Income tax (benefit) expense
931
(860)
1,881
(465)
Loss before income tax expense
(3,159)
(6,697)
(9,205)
(21,048)
Interest expense
4,581
4,984
14,312
13,408
Interest income
(628)
(469)
(1,562)
(1,269)
Reversal of allowance for doubtful EMI loan receivable
-
-
(250)
-
Net gain on disposal of equity-accounted investment
-
329
-
193
Operating income (loss)
794
(1,853)
3,295
(8,716)
PPA amortization
(amortization of acquired intangible assets)
3,562
3,789
10,762
11,559
Depreciation and amortization
2,229
2,186
6,698
6,333
Stock-based compensation charges
2,090
1,644
5,653
5,955
Once-off items
(1)
907
1,141
169
1,858
Unrealized loss FV for currency adjustments
121
43
101
43
Group Adjusted EBITDA - Non-GAAP
9,703
6,950
26,678
17,032
(1) The table below presents the components of once-off
items for the periods presented:
Table 14
Three months ended
March 31,
Nine months ended
March 31,
2024
2023
2024
2023
$ ’000
$ ’000
$ ’000
$ ’000
Transaction costs
276
470
456
792
Transaction costs related to Adumo acquisition
631
-
665
-
(Income recognized) Expenses incurred related to closure of legacy
businesses
-
-
(952)
395
Indirect taxes provision
-
438
-
438
Separation of employee expense
-
183
-
183
Employee misappropriation of company funds
-
50
-
50
Total once-off
items
907
1,141
169
1,858
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.
Indirect tax provision
includes non-recurring indirect
taxes which have been
provided related to
prior periods following an
on-going
investigation from a tax authority. We incurred separation costs related to the termination of certain senior-level employees, including
an executive officer and
senior managers, during the
period and we
consider these specific terminations
to be of
a non-recurring nature.
Employee misappropriation of company funds represents a once-off
loss incurred.
58
Liquidity and Capital Resources
As of March 31, 2024, our cash and cash equivalents were
$55.2 million and comprised of U.S. dollar-denominated
balances of
$3.4 million, ZAR-denominated balances
of ZAR 942.2
million ($49.9 million), and
other currency deposits, primarily
Botswana pula,
of $2.0 million,
all amounts translated
at exchange rates
applicable as of
March 31, 2024.
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.
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
March 31, 2024:
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
-
-
-
-
10,860
205,000
-
-
Overdraft restricted as to
use
(1)
47,680
900,000
-
-
-
-
-
-
Total overdraft
47,680
900,000
-
-
10,860
205,000
-
-
Indirect and derivative
facilities
(2)
-
-
7,152
135,000
-
-
8,294
156,556
Total
short-term
facilities available
47,680
900,000
7,152
135,000
10,860
205,000
8,294
156,556
Utilized short-term
facilities:
Overdraft
-
-
-
-
9,006
170,000
-
-
Overdraft restricted as to
use
(1)
4,272
80,634
-
-
-
-
-
-
Indirect and derivative
facilities
(2)
-
-
1,754
33,107
-
-
112
2,110
Total
short-term
facilities available
4,272
80,634
1,754
33,107
9,006
170,000
112
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.
59
Long-term borrowings
We have aggregate long-term borrowing outstanding of ZAR 2.6 billion ($135.7 million translated at
exchange rates as of March
31, 2024)
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 nine
months ended March
31, 2024, and
settled all drawn
in full as
of March 31,
2024, with the
full 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 March 31,
2024,
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.
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,
2024, includes
restricted cash
of $4.4
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, 2024, includes restricted cash of $0.1 million
that has been ceded and pledged.
Cash flows from operating activities
Third quarter
Net cash provided by
operating activities during the
third quarter of fiscal
2024 was $19.2 million
(ZAR 362.1 million) compared
to net cash used in operating
activities of $5.1 million (ZAR 91.6
million) during the third quarter of
fiscal 2023. Excluding the impact
of
income
taxes,
our
cash
provided
by
operating
activities
during
the
third
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 further
impacted by a
public holiday
on April 1,
2024, and
which were
settled in the
following week.
We didn’t pay any significant taxes during the
third quarter of fiscal
2024. 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.
Taxes paid during
the third quarter of fiscal 2024 and 2023 were as follows:
Table 16
Three months ended March 31,
2024
2023
2024
2023
$
$
ZAR
ZAR
‘000
‘000
‘000
‘000
First provisional payments
1
-
18
-
Second provisional payments
36
280
691
5,090
Tax refund received
(7)
-
(128)
-
Total South African
taxes paid
30
280
581
5,090
Foreign taxes paid
58
156
1,072
2,759
Total
tax paid
88
436
1,653
7,849
60
Year
to date
Net cash provided by operating activities during the year to
date of fiscal 2024 was $23.1 million (ZAR 434.0 million)
compared
to net cash used
in operating activities of
$9.3 million (ZAR 162.7 million)
during the year to
date of fiscal 2023.
Excluding the impact
of
income
taxes,
our
cash
provided
by
operating
activities
during
the
third
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 further
impacted by a
public holiday
on April 1,
2024, and
which were
settled in the
following week.
During the year to date of
fiscal 2024, we paid first provisional
South African tax payments of
$2.7 million (ZAR 49.5 million)
related to our 2024 tax year and South African tax
payments related to prior years of $0.6
million (ZAR 12.2 million). During the year
to date 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 $0.5
million (ZAR
8.5 million)
related to
our 2022
tax year
and as discussed above.
Taxes paid during
the year to date of fiscal 2024 and 2023 were as follows:
Table 17
Nine months ended March 31,
2024
2023
2024
2023
$
$
ZAR
ZAR
‘000
‘000
‘000
‘000
First provisional payments
2,663
2,955
49,534
50,798
Second provisional payments
36
471
691
8,461
Taxation paid related
to prior years
641
10
12,187
180
Tax refund received
(38)
(198)
(768)
(3,540)
Total South African
taxes paid
3,302
3,238
61,644
55,899
Foreign taxes paid
196
257
3,677
4,534
Total
tax paid
3,498
3,495
65,321
60,433
Cash flows from investing activities
Third quarter
Cash used
in investing
activities for
the third
quarter
of fiscal
2024
included
capital expenditures
of $2.9
million (ZAR
55.6
million), primarily due to the acquisition of vaults and POS devices.
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 vaults 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.
Year
to date
Cash used
in investing
activities for
the year
to date
of fiscal
2024
included capital
expenditures of
$8.0 million
(ZAR 149.1
million), primarily due
to the acquisition
of vaults and
POS devices. During
the year to date
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 year
to date
of fiscal
2023 included
capital expenditures
of $13.2
million (ZAR 229.9
million), primarily
due to
the acquisition
of vaults,
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.
61
Cash flows from financing activities
Third quarter
During the third
quarter of fiscal 2024
,
we utilized $24.9 million
from our South
African overdraft facilities
to fund our
ATMs
and our cash management business through Connect, and repaid
$43.4 million of those facilities. We utilized $3.4 million of our long-
term borrowings to fund
the acquisition of certain
capital expenditures and for
working capital requirements.
We repaid
$7.2 million
of
long-term
borrowings
in
accordance
with
our
repayment
schedule
as
well
as
to
settle
a
portion
of
our
revolving
credit
facility
utilized.
During the third quarter of fiscal 2023,
we utilized $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.
Year
to date
During the year to date
of fiscal 2024, we utilized
$153.5 million from our
South African overdraft facilities to
fund our ATMs
and our
cash management
business through
Connect, and
repaid $172.2
million of
those facilities. We
utilized $14.4
million of
our
long-term borrowings
to fund
the acquisition
of certain
capital expenditures
and for
working capital
requirements. We
repaid $13.1
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 year to date
of fiscal 2023, we utilized
$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.
Off-Balance Sheet Arrangements
We have no off
-balance sheet arrangements.
Capital Expenditures
We
expect capital
spending for
the fourth
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 third 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 March 31, 2023, of $0.2 million. We
expect to fund these expenditures through internally generated funds and available
facilities.
62
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.