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1
Form 10-Q
LESAKA TECHNOLOGIES, INC.
Table of Contents
Page No.
PART I. FINANCIAL INFORMATION
Notes to Unaudited Condensed Consolidated Financial Statements
8
61
Item 5.
Other Information
61
2
Part I. Financial information
Item 1. Financial Statements
LESAKA TECHNOLOGIES, INC.
Unaudited Condensed Consolidated Balance Sheets
December 31,
June 30,
2023
2023
(A)
(In thousands, except share data)
ASSETS
CURRENT ASSETS
Cash and cash equivalents
$
$
Restricted cash related to ATM funding and credit facilities (Note 8)
Accounts receivable, net and other receivables (Note 2)
Finance loans receivable, net (Note 2)
Inventory (Note 3)
Total current assets before settlement assets
Settlement assets
Total current assets
PROPERTY, PLANT AND EQUIPMENT, net of accumulated depreciation of - December: $
$
OPERATING LEASE RIGHT-OF-USE (Note 16)
EQUITY-ACCOUNTED INVESTMENTS (Note 5)
GOODWILL (Note 6)
INTANGIBLE ASSETS, NET (Note 6)
DEFERRED INCOME TAXES
OTHER LONG-TERM ASSETS, including reinsurance assets (Note 5 and 7)
TOTAL ASSETS
LIABILITIES
CURRENT LIABILITIES
Short-term credit facilities for ATM funding (Note 8)
Short-term credit facilities (Note 8)
Accounts payable
Other payables (Note 9)
Operating lease liability - current (Note 16)
Current portion of long-term borrowings (Note 8)
Income taxes payable
Total current liabilities before settlement obligations
Settlement obligations
Total current liabilities
DEFERRED INCOME TAXES
OPERATING LEASE LIABILITY - LONG TERM (Note 16)
LONG-TERM BORROWINGS (Note 8)
OTHER LONG-TERM LIABILITIES, including insurance policy liabilities (Note 7)
TOTAL LIABILITIES
REDEEMABLE COMMON STOCK
EQUITY
COMMON STOCK (Note 10)
Authorized:
Issued and outstanding shares, net of treasury - December:
PREFERRED STOCK
Authorized shares:
Issued and outstanding shares, net of treasury: December:
-
-
ADDITIONAL PAID-IN-CAPITAL
TREASURY SHARES, AT COST: December:
(288,436 )
(288,238 )
ACCUMULATED OTHER COMPREHENSIVE LOSS (Note 11)
(189,378 )
(195,726 )
RETAINED EARNINGS
TOTAL LESAKA EQUITY
NON-CONTROLLING INTEREST
TOTAL EQUITY
TOTAL LIABILITIES, REDEEMABLE COMMON STOCK AND SHAREHOLDERS’ EQUITY
$
$
(A) – Derived from audited financial statements
See Notes to Unaudited Condensed Consolidated Financial Statements
LESAKA TECHNOLOGIES, INC.
Unaudited Condensed Consolidated Statements of Operations
3
Three months ended
Six months ended
December 31,
December 31,
2023
2022
2023
2022
(In thousands, except per share
data)
(In thousands, except per share
data)
REVENUE (Note 15)
$
$
$
$
EXPENSE
Cost of goods sold, IT processing, servicing and support
Selling, general and administration
Depreciation and amortization
OPERATING INCOME (LOSS)
(2,192 )
(6,863 )
REVERSAL OF ALLOWANCE FOR DOUBTFUL EMI DEBT
RECEIVABLE
(LOSS) GAIN ON DISPOSAL OF EQUITY-ACCOUNTED
INVESTMENT (Note 5)
(112 )
INTEREST INCOME
INTEREST EXPENSE
LOSS BEFORE INCOME TAX EXPENSE
(2,064 )
(6,303 )
(6,046 )
(14,351 )
INCOME TAX EXPENSE (Note 18)
NET LOSS BEFORE EARNINGS (LOSS) FROM EQUITY-
ACCOUNTED INVESTMENTS
(2,750 )
(6,667 )
(6,996 )
(14,746 )
EARNINGS (LOSS) FROM EQUITY-ACCOUNTED INVESTMENTS
(Note 5)
(1,362 )
(2,599 )
NET LOSS ATTRIBUTABLE TO LESAKA
$
(2,707 )
$
(6,649 )
$
(8,358 )
$
(17,345 )
Net loss per share, in United States dollars
(Note 13):
Basic loss attributable to Lesaka shareholders
$
(0.04 )
$
(0.11 )
$
(0.13 )
$
(0.28 )
Diluted loss attributable to Lesaka shareholders
$
(0.04 )
$
(0.11 )
$
(0.13 )
$
(0.28 )
See Notes to Unaudited Condensed Consolidated Financial Statements
LESAKA TECHNOLOGIES, INC.
Unaudited Condensed Consolidated Statements of Comprehensive (Loss) Income
4
Three months ended
Six months ended
December 31,
December 31,
2023
2022
2023
2022
(In thousands)
(In thousands)
Net loss
$
(2,707 )
$
(6,649 )
$
(8,358 )
$
(17,345 )
Other comprehensive income (loss), net of taxes
Movement in foreign currency translation reserve
(9,938 )
Release of foreign currency translation reserve related to
disposal of Finbond equity securities (Note 11)
Release of foreign currency translation reserve related to
liquidation of subsidiaries
(952 )
(952 )
Movement in foreign currency translation reserve related
to equity-accounted investments
Total other comprehensive income (loss), net of
taxes
(7,398 )
Comprehensive income (loss)
(2,010 )
(24,743 )
Comprehensive income (loss) attributable to
Lesaka
$
$
$
(2,010 )
$
(24,743 )
See Notes to Unaudited Condensed Consolidated Financial Statements
LESAKA TECHNOLOGIES, INC.
Unaudited Condensed Consolidated Statements of Changes in Equity
5
Lesaka Technologies, Inc. Shareholders
Number of
Shares
Amount
Number of
Treasury
Shares
Treasury
Shares
Number of
shares, net of
treasury
Additional
Paid-In
Capital
Retained
Earnings
Accumulated
other
comprehensive
loss
Total
Lesaka
Equity
Non-
controlling
Interest
Total
Redeemable
common
stock
For the three months ended December 31, 2022 (dollar amounts in thousands)
Balance – October 1, 2022
$
(24,926,752 )
$
(287,136 )
$
$
$
(188,490 )
$
$
$
$
Shares repurchased (Note 12)
(30,102 )
(108 )
(30,102 )
(108 )
(108 )
Restricted stock granted (Note 12)
Exercise of stock options
Stock-based compensation charge
(Note 12)
-
Stock-based compensation charge
related to equity-accounted investment
(Note 5)
-
(4 )
(4 )
(4 )
Net loss
-
(6,649 )
(6,649 )
(6,649 )
Other comprehensive income (Note
11)
Balance – December 31, 2022
$
(24,956,854 )
$
(287,244 )
$
$
$
(176,238 )
$
$
$
$
For the six months ended December 31, 2022 (dollar amounts in thousands)
Balance – July
1, 2022
$
(24,891,292 )
$
(286,951 )
$
$
$
(168,840 )
$
$
$
$
Share repurchased (Note 12)
(65,562 )
(293 )
(65,562 )
(293 )
(293 )
Restricted stock granted
Exercise of stock options
Stock-based compensation charge
(Note 12)
Reversal of stock-based compensation
charge (Note 12)
Stock-based compensation charge
related to equity-accounted investment
Net loss
(17,345 )
(17,345 )
(17,345 )
Other comprehensive loss (Note 11)
(7,398 )
(7,398 )
(7,398 )
Balance – December 31, 2022
$
(24,956,854 )
$
(287,244 )
$
$
$
(176,238 )
$
$
$
$
See Notes to Unaudited Condensed Consolidated Financial Statements
LESAKA TECHNOLOGIES, INC.
Unaudited Condensed Consolidated Statements of Changes in Equity
6
Lesaka Technologies, Inc. Shareholders
Number of
Shares
Amount
Number of
Treasury
Shares
Treasury
Shares
Number of
shares, net of
treasury
Additional
Paid-In
Capital
Retained
Earnings
Accumulated
other
comprehensive
loss
Total
Lesaka
Equity
Non-
controlling
Interest
Total
Redeemable
common
stock
For the three months ended December 31, 2023 (dollar amounts in thousands)
Balance – October 1, 2023
$
(25,244,286 )
$
(288,238 )
$
$
$
(196,081 )
$
$
$
$
Shares repurchased (Note 12)
(50,975 )
(198 )
(50,975 )
(198 )
(198 )
Restricted stock granted (Note 12)
Exercise of stock option (Note 12)
Stock-based compensation charge
(Note 12)
-
-
Reversal of stock-based compensation
charge (Note 12)
(14,002 )
(14,002 )
(8 )
(8 )
(8 )
Stock-based compensation charge
related to equity-accounted investment
(Note 5)
(147 )
(147 )
(147 )
Net loss
(2,707 )
(2,707 )
(2,707 )
Other comprehensive income (Note
11)
Balance – December 31, 2023
$
(25,295,261 )
$
(288,436 )
$
$
$
(189,378 )
$
$
$
$
For the six months ended December 31, 2023 (dollar amounts in thousands)
Balance – July 1, 2023
$
(25,244,286 )
$
(288,238 )
$
$
$
(195,726 )
$
$
$
$
Shares repurchased (Note 12)
(50,975 )
(198 )
(50,975 )
(198 )
(198 )
Restricted stock granted
Exercise of stock option (Note 12)
Stock-based compensation charge
(Note 12)
-
-
Reversal of stock-based compensation
charge (Note 12)
(22,129 )
(22,129 )
(17 )
(17 )
(17 )
Stock-based compensation charge
related to equity-accounted investment
(Note 5)
(133 )
(133 )
(133 )
Net loss
(8,358 )
(8,358 )
(8,358 )
Other comprehensive income (Note
11)
Balance – December 31, 2023
$
(25,295,261 )
$
(288,436 )
$
$
$
(189,378 )
$
$
$
$
See Notes to Unaudited Condensed Consolidated Financial Statements
LESAKA TECHNOLOGIES, INC.
Unaudited Condensed Consolidated Statements of Cash Flows
7
Three months ended
Six months ended
December 31,
December 31,
2023
2022
2023
2022
(In thousands)
(In thousands)
Cash flows from operating activities
Net loss
$
(2,707 )
$
(6,649 )
$
(8,358 )
$
(17,345 )
Depreciation and amortization
Movement in allowance for doubtful accounts receivable
Fair value adjustment related to financial liabilities
(836 )
(870 )
Loss on disposal of equity-accounted investments (Note 5)
(136 )
(Earnings) Loss from equity-accounted investments
(43 )
(18 )
Movement in allowance for doubtful loans to equity-accounted investments
(250 )
Profit on disposal of property, plant and equipment
(163 )
(113 )
(199 )
(321 )
Movement in interest payable
(1,573 )
Facility fee amortized
Stock-based compensation charge (Note 12)
Dividends received from equity-accounted investments
(Increase) Decrease in accounts receivable
(13,157 )
(15,502 )
(981 )
Increase in finance loans receivable
(2,889 )
(5,230 )
(3,377 )
(8,811 )
Decrease (Increase) in inventory
(1,193 )
(1,472 )
Increase in accounts payable and other payables
(Decrease) Increase in taxes payable
(654 )
(513 )
(346 )
Decrease in deferred taxes
(1,032 )
(1,728 )
(1,594 )
(3,122 )
Net cash provided by (used in) operating activities
(4,240 )
Cash flows from investing activities
Capital expenditures
(2,198 )
(3,992 )
(5,007 )
(8,493 )
Proceeds from disposal of property, plant and equipment
Acquisition of intangible assets
(47 )
(120 )
(182 )
(120 )
Proceeds from disposal of equity-accounted investment (Note 5)
Loan to equity-accounted investment (Note 5)
(112 )
Repayment of loans by equity-accounted investments
Net change in settlement assets
(43 )
(10,131 )
(11,280 )
(12,015 )
Net cash provided by (used in) investing activities
(13,760 )
(11,991 )
(19,475 )
Cash flows from financing activities
Proceeds from bank overdraft (Note 8)
Repayment of bank overdraft (Note 8)
(66,048 )
(175,380 )
(128,841 )
(312,302 )
Long-term borrowings utilized (Note 8)
Repayment of long-term borrowings (Note 8)
(3,184 )
(1,688 )
(5,813 )
(3,268 )
Acquisition of treasury stock (Note 12)
(198 )
(108 )
(198 )
(293 )
Proceeds from exercise of stock options
Guarantee fee
(100 )
(100 )
Net change in settlement obligations
Net cash provided by financing activities
Effect of exchange rate changes on cash and cash equivalents
(3,681 )
Net increase (decrease) in cash, cash equivalents and restricted cash
(8,024 )
Cash, cash equivalents and restricted cash – beginning of period
Cash, cash equivalents and restricted cash – end of period (Note 14)
$
$
$
$
See Notes to Unaudited Condensed Consolidated Financial Statements
8
LESAKA TECHNOLOGIES, INC
Notes to the Unaudited Condensed Consolidated Financial Statements
for the three and six months ended December 31, 2023 and 2022
(All amounts in tables stated in thousands or thousands of U.S. dollars, unless otherwise stated)
1. Basis of Presentation and Summary of Significant Accounting Policies
Unaudited Interim Financial Information
The accompanying unaudited condensed consolidated financial statements include all majority-owned subsidiaries over which
the Company exercises control and have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”)
and the rules and regulations of the United States Securities and Exchange Commission for Quarterly Reports on Form 10-Q and
include all of the information and disclosures required for interim financial reporting. The results of operations for the three and six
months ended December 31, 2023 and 2022, are not necessarily indicative of the results for the full year. The Company believes that
the disclosures are adequate to make the information presented not misleading.
These unaudited condensed consolidated financial statements should be read in conjunction with the financial statements,
accounting policies and financial notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended June
30, 2023. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all
adjustments (consisting only of normal recurring adjustments), which are necessary for a fair representation of financial results for the
interim periods presented.
References to “Lesaka” are references solely to Lesaka Technologies, Inc. References to the “Company” refer to Lesaka and its
consolidated subsidiaries, collectively, unless the context otherwise requires.
Recent accounting pronouncements adopted
In June 2016, the Financial Accounting Standards Board (“FASB”) issued guidance regarding
Measurement of Credit Losses on
Financial Instruments
. The guidance replaces the incurred loss impairment methodology in current GAAP with a methodology that
reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit
loss estimates. For trade and other receivables, loans, and other financial instruments, an entity is required to use a forward-looking
expected loss model rather than the incurred loss model for recognizing credit losses, which reflects losses that are probable. Credit
losses relating to available-for-sale debt securities will also be recorded through an allowance for credit losses rather than as a reduction
in the amortized cost basis of the securities. The guidance became effective for the Company beginning July 1, 2023. The adoption of
this guidance did not have a material impact on the Company’s financial statements and related disclosures, refer to Note 2.
In November 2019, the FASB issued guidance regarding
Hedging (Topic 815), and Leases (Topic 842).
accounting standards and amends the effective dates for certain major new accounting standards to give implementation relief to
certain types of entities, including Smaller Reporting Companies. The Company is a Smaller Reporting Company. Specifically, the
guidance changes some effective dates for certain new standards on the following topics in the FASB Codification, namely Derivatives
and Hedging (ASC 815); Leases (ASC 842); Financial Instruments — Credit Losses (ASC 326); and Intangibles — Goodwill and
Other (ASC 350). The guidance defers the adoption date of guidance regarding
Measurement of Credit Losses on Financial
Instruments
2023. The adoption of this guidance did not have a material impact on the Company’s financial statements and related disclosures,
refer to Note 2.
The Company’s updated accounting policy regarding allowance for credit losses is as follows:
Allowance for doubtful accounts receivable
Allowance for doubtful finance loans receivable
The Company uses historical default experience over the lifetime of loans in order to calculate a lifetime loss rate for its lending
books. The allowance for credit losses related to Consumer finance loans receivables is calculated by multiplying the lifetime loss rate
with the month-end outstanding lending book. The allowance for credit losses related to Merchant finance loans receivables is
calculated by adding together actual receivables in default plus multiplying the lifetime loss rate with the month-end outstanding
lending book. Prior to July 1, 2023, the Company regularly reviewed the ageing of outstanding amounts due from borrowers and
adjusted its allowance based on management’s estimate of the recoverability of the finance loans receivable. The Company writes off
microlending finance loans receivable and related service fees and interest if a borrower is in arrears with repayments for more than
three months or is deceased. The Company writes off merchant and working capital finance receivables and related fees when it is
evident that reasonable recovery procedures, including where deemed necessary, formal legal action, have failed.
9
1. Basis of Presentation and Summary of Significant Accounting Policies (continued)
Allowance for doubtful accounts receivable (continued)
Allowance for doubtful accounts receivable
The Company uses a lifetime loss rate by expressing write-off experience as a percentage of corresponding invoice amounts (as
opposed to outstanding balances). The allowance for credit losses related to these receivables has been calculated by multiplying the
lifetime loss rate with recent invoice/origination amounts. Prior to July 1, 2023, a specific provision is established where it is considered
likely that all or a portion of the amount due from customers renting safe assets, point of sale (“POS”) equipment, receiving support
and maintenance or transaction services or purchasing licenses or SIM cards from the Company will not be recovered. Non-
recoverability is assessed based on a quarterly review by management of the ageing of outstanding amounts, the location and the
payment history of the customer in relation to those specific amounts.
Recent accounting pronouncements not yet adopted as of December 31, 2023
In November 2023. the FASB issued guidance regarding
Segment Reporting (Topic 280)
disclosure requirements, primarily through enhanced disclosures about significant segment expenses. In addition, the guidance
enhances interim disclosure requirements, clarifies circumstances in which an entity can disclose multiple segment measures of profit
or loss, provides new segment disclosure requirements for entities with a single reportable segment, and contains other disclosure
requirements. This guidance is effective for the Company beginning July 1, 2024 for its year ended June 30, 2025, and for interim
periods commencing from July 1, 2025 (i.e. for the quarter ended September 30, 2025). The Company is currently assessing the impact
of this guidance on its financial statements and related disclosures.
In December 2023, the FASB issued guidance regarding
Income Taxes (Topic 740)
requirements. The guidance requires entities, on an annual basis, to (1) disclose specific categories in the income tax rate reconciliation
and (2) provide additional information for reconciling items that meet a quantitative threshold (if the effect of those reconciling items
is equal to or greater than five percent of the amount computed by multiplying pre-tax income or loss by the applicable statutory
income tax rate). This guidance is effective for the Company beginning July 1, 2025. The Company is currently assessing the impact
of this guidance on its financial statements and related disclosures.
2.
Accounts receivable, net and other receivables and finance loans receivable, net
Accounts receivable, net and other receivables
The Company’s accounts receivable, net, and other receivables as of December 31, 2023, and June 30, 2023, are presented in
the table below:
December 31,
June 30,
2023
2023
Accounts receivable, trade, net
$
$
Accounts receivable, trade, gross
Allowance for doubtful accounts receivable, end of period
Beginning of period
Reallocation to allowance for doubtful finance loans receivable
(418 )
Reversed to statement of operations
(227 )
(31 )
Charged to statement of operations
Utilized
(458 )
(1,645 )
Foreign currency adjustment
Current portion of amount outstanding related to sale of interest in Carbon, net of
allowance: December 2023: $
; June 2023: $
Current portion of total held to maturity investments
Investment in
% of Cedar Cellular Investment 1 (RF) (Pty) Ltd
% notes
Other receivables
Total accounts receivable, net and other receivables
$
$
Trade receivables include amounts due from customers which generally have a very short-term life from date of invoice or service
provided to settlement. The duration is less than a year in all cases and generally less than 30 days in many instances. The short-term
nature of these exposures often results in balances at month-end that are disproportionately small compared to the total invoiced
amounts. The month-end outstanding balance are more volatile than the monthly invoice amounts because they are affected by
operational timing issues and the fact that a balance is outstanding at month-end is not necessarily an indication of increased risk but
rather a matter of operational timing.
10
2.
Accounts receivable, net and other receivables and finance loans receivable, net (continued)
Accounts receivable, net and other receivables (continued)
Credit risk in respect of trade receivables are generally not significant and the Company has not developed a sophisticated model
for these basic credit exposures. The Company determined to use a lifetime loss rate by expressing write-off experience as a percentage
of corresponding invoice amounts (as opposed to outstanding balances). The allowance for credit losses related to these receivables
has been calculated by multiplying the lifetime loss rate with recent invoice/origination amounts. Management actively monitors
performance of these receivables over short periods of time. Different balances have different rules to identify an account in distress
but, generally speaking, account balances in distress are identified very early and specific allowances are immediately created.
Subsequent recovery from distressed accounts are generally limited.
Current portion of amount outstanding related to sale of interest in Carbon represents the amount due from the purchaser related
to the sale of the Company’s interest in Carbon Tech Limited (“Carbon”), an equity-accounted investment of $
allowance for doubtful loans receivable of $
face value of $
$
the equity-accounted investment in October 2023, and has reversed the allowance for doubtful loans receivable of $
the six months ended December 31, 2023.
Investment in
% of Cedar Cellular Investment 1 (RF) (Pty) Ltd
% notes represents the investment in a note which was
due to mature in August 2022 and forms part of Cell C’s capital structure. The carrying value as of each of December 31, 2023, and
June 30, 2023, respectively was $
Other receivables includes prepayments, deposits, income taxes receivable and other receivables.
Contractual maturities of held to maturity investments
Summarized below is the contractual maturity of the Company’s held to maturity investment as of December 31, 2023:
Cost basis
Estimated
fair
value
(1)
Due in one year or less
$
$
Due in one year through five years
(2)
Due in five years through ten years
Due after ten years
Total
$
$
(1) The estimated fair value of the Cedar Cellular note has been calculated utilizing the Company’s portion of the assets held by
Cedar Cellular, namely, Cedar Cellular’s investment in Cell C.
(2) The cost basis is zero ($
11
2.
Accounts receivable, net and other receivables and finance loans receivable, net (continued)
Finance loans receivable, net
The Company’s finance loans receivable, net, as of December 31, 2023, and June 30, 2023, is presented in the table below:
December 31,
June 30,
2023
2023
Microlending finance loans receivable, net
$
$
Microlending finance loans receivable, gross
Allowance for doubtful finance loans receivable, end of period
Beginning of period
Reversed to statement of operations
(86 )
Charged to statement of operations
Utilized
(787 )
(1,214 )
Foreign currency adjustment
(200 )
Merchant finance loans receivable, net
Merchant finance loans receivable, gross
Allowance for doubtful finance loans receivable, end of period
Beginning of period
Reallocation from allowance for doubtful accounts receivable
Reversed to statement of operations
(202 )
(1,268 )
Charged to statement of operations
Utilized
(521 )
Foreign currency adjustment
(365 )
Total finance loans receivable, net
$
$
Total finance loans receivable, net, comprises microlending finance loans receivable related to the Company’s microlending
operations in South Africa as well as its merchant finance loans receivable related to Connect’s lending activities in South Africa.
Certain merchant finance loans receivable with an aggregate balance of $
security for the Company’s revolving credit facility (refer to Note 8).
Allowance for credit losses
Microlending finance loans receivable
Microlending finance loans receivable related to the Company’s microlending operations in South Africa whereby it provides
unsecured short-term loans to qualifying customers. Loans to customers have a tenor of up to
, with the majority of loans
originated having a tenor of
. The Company analyses this lending book as a single portfolio because the loans within the
portfolio have similar characteristics and management uses similar processes to monitor and assess the credit risk of the lending book.
Refer to Note 4 related to the Company risk management process related to these receivables.
The Company has operated this lending book for more than
loans in order to calculate a lifetime loss rate for the lending book. The allowance for credit losses related to these microlending finance
loans receivables is calculated by multiplying the lifetime loss rate with the month end outstanding lending book. The lifetime loss
rate as of each of July 1, 2023 and December 31, 2023, was
%. The performing component (that is, outstanding loan payments
not in arrears) of the book exceeds more than
% of outstanding lending book as of December 31, 2023.
Merchant finance loans receivable
Merchant finance loans receivable related to the Company’s Merchant lending activities in South Africa whereby it provides
unsecured short-term loans to qualifying customers. Loans to customers have a tenor of up to
, with the majority of
loans originated having a tenor of approximately
. The Company analyses this lending book as a single portfolio because
the loans within the portfolio have similar characteristics and management uses similar processes to monitor and assess the credit risk
of the lending book. Refer to Note 4 related to the Company risk management process related to these receivables.
12
2.
Accounts receivable, net and other receivables and finance loans receivable, net (continued)
Finance loans receivable, net (continued)
Allowance for credit losses (continued)
Merchant finance loans receivable (continued)
The Company has recently (in the past
) commenced lending to merchant customers and uses historical default
experience over the lifetime of loans generated thus far in order to calculate a lifetime loss rate for the lending book. The allowance
for credit losses related to these merchant finance loans receivables is calculated by adding together actual receivables in default plus
multiplying the lifetime loss rate with the month-end outstanding lending book. The lifetime loss rate as of each of July 1, 2023 and
December 31, 2023, was approximately
%. The performing component (that is, outstanding loan payments not in arrears), under-
performing component (that is, outstanding loan payments that are in arrears) and non-performing component (that is, outstanding
loans for which payments appeared to have ceased) of the book represents approximately
%,
% and
%, respectively, of the
outstanding lending book as of December 31, 2023.
3. Inventory
The Company’s inventory comprised the following categories as of December 31, 2023, and June 30, 2023:
December 31,
June 30,
2023
2023
Raw materials
$
$
Work-in-progress
Finished goods
$
$
As of December 31, 2023 and June 30, 2023, finished goods includes $
airtime inventory that was previously classified as finished goods subject to sale restrictions. In support of Cell C’s liquidity position
and pursuant to Cell C’s recapitalization process, the Company limited the resale of this airtime to its own distribution channels. On
September 30, 2022, Cell C concluded its recapitalization process and the Company and Cell C entered into an agreement under which
Cell C agreed to repurchase, from October 2023, up to ZAR
to be repurchased by Cell C is calculated as ZAR
The Company’s ability to sell this airtime has increased significantly since the acquisition of Connect because Connect is a significant
reseller of Cell C airtime. As a result, the Company has sold higher volumes of airtime through this channel than it did prior to the
Cell C recapitalization, however, continued sales at these volumes is dependent on prevailing conditions continuing in the airtime
market. If the Company is able to sell at least ZAR
not be required to repurchase any airtime from the Company during any specific month. The Company has agreed to notify Cell C
prior to selling any of this airtime, however, there is no restriction placed on the Company on the sale of the airtime
.
13
4. Fair value of financial instruments
Initial recognition and measurement
Financial instruments are recognized when the Company becomes a party to the transaction. Initial measurements are at cost,
which includes transaction costs.
Risk management
The Company manages its exposure to currency exchange, translation, interest rate, credit, microlending credit and equity price
and liquidity risks as discussed below.
Currency exchange risk
The Company is subject to currency exchange risk because it purchases components for its safe assets, that the Company
assembles, and inventories that it is required to settle in other currencies, primarily the euro, renminbi, and U.S. dollar. The Company
has used forward contracts in order to limit its exposure in these transactions to fluctuations in exchange rates between the South
African rand (“ZAR”), on the one hand, and the U.S. dollar and the euro, on the other hand.
Translation risk
Translation risk relates to the risk that the Company’s results of operations will vary significantly as the U.S. dollar is its reporting
currency, but it earns a significant amount of its revenues and incurs a significant amount of its expenses in ZAR. The U.S. dollar to
the ZAR exchange rate has fluctuated significantly over the past three years. As exchange rates are outside the Company’s control,
there can be no assurance that future fluctuations will not adversely affect the Company’s results of operations and financial condition.
Interest rate risk
As a result of its normal borrowing activities, the Company’s operating results are exposed to fluctuations in interest rates, which
it manages primarily through regular financing activities. Interest rates in South Africa have been trending upwards in recent quarters
but have now stabilized and are expected to remain at current levels, or perhaps even decline moderately over calendar 2024. Therefore,
ignoring the impact of changes to the margin on its borrowings (refer to Note 8), the Company expects its cost of borrowing to remain
stable, or even to decline moderately, in the foreseeable future, however if the upward trend resumes the Company would expect
higher interest rates in the future which will increase its cost of borrowing. The Company periodically evaluates the cost and
effectiveness of interest rate hedging strategies to manage this risk. The Company generally maintains surplus cash in cash equivalents
and held to maturity investments and has occasionally invested in marketable securities .
Credit risk
Credit risk relates to the risk of loss that the Company would incur as a result of non-performance by counterparties. The
Company maintains credit risk policies in respect of its counterparties to minimize overall credit risk. These policies include an
evaluation of a potential counterparty’s financial condition, credit rating, and other credit criteria and risk mitigation tools as the
Company’s management deems appropriate. With respect to credit risk on financial instruments, the Company maintains a policy of
entering into such transactions only with South African and European financial institutions that have a credit rating of “B” (or its
equivalent) or better, as determined by credit rating agencies such as Standard & Poor’s, Moody’s and Fitch Ratings.
Consumer microlending credit risk
The Company is exposed to credit risk in its Consumer microlending activities, which provides unsecured short-term loans to
qualifying customers. Credit bureau checks as well as an affordability test are conducted as part of the origination process, both of
which are in line with local regulations. The Company considers this policy to be appropriate because the affordability test it performs
takes into account a variety of factors such as other debts and total expenditures on normal household and lifestyle expenses. Additional
allowances may be required should the ability of its customers to make payments when due deteriorate in the future. A significant
amount of judgment is required to assess the ultimate recoverability of these finance loan receivables, including ongoing evaluation
of the creditworthiness of each customer.
Merchant lending
The Company maintains an allowance for doubtful finance loans receivable related to its Merchant services segment with respect
to short-term loans to qualifying merchant customers. The Company’s risk management procedures include adhering to its proprietary
lending criteria which uses an online-system loan application process, obtaining necessary customer transaction-history data and credit
bureau checks. The Company considers these procedures to be appropriate because it takes into account a variety of factors such as
the customer’s credit capacity and customer-specific risk factors when originating a loan.
14
4. Fair value of financial instruments (continued)
Risk management (continued)
Equity price and liquidity risk
Equity price risk relates to the risk of loss that the Company would incur as a result of the volatility in the exchange-traded price
of equity securities that it holds. The market price of these securities may fluctuate for a variety of reasons and, consequently, the
amount that the Company may obtain in a subsequent sale of these securities may significantly differ from the reported market value.
Equity liquidity risk relates to the risk of loss that the Company would incur as a result of the lack of liquidity on the exchange
on which those securities are listed. The Company may not be able to sell some or all of these securities at one time, or over an
extended period of time without influencing the exchange-traded price, or at all.
Financial instruments
The following section describes the valuation methodologies the Company uses to measure its significant financial assets and
liabilities at fair value.
In general, and where applicable, the Company uses quoted prices in active markets for identical assets or liabilities to determine
fair value. This pricing methodology would apply to Level 1 investments. If quoted prices in active markets for identical assets or
liabilities are not available to determine fair value, then the Company uses quoted prices for similar assets and liabilities or inputs
other than the quoted prices that are observable either directly or indirectly. These investments would be included in Level 2
investments. In circumstances in which inputs are generally unobservable, values typically reflect management’s estimates of
assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-
based techniques that include option pricing models, discounted cash flow models, and similar techniques. Investments valued using
such techniques are included in Level 3 investments.
Asset measured at fair value using significant unobservable inputs – investment in Cell C
The Company’s Level 3 asset represents an investment of
provider in South Africa. The Company used a discounted cash flow model developed by the Company to determine the fair value of
its investment in Cell C as of December 31, 2023 and June 30, 2023, respectively, and valued Cell C at $
of December 31, 2023, and June 30, 2023, respectively. The Company incorporates the payments under Cell C’s lease liabilities into
the cash flow forecasts and assumes that Cell C’s deferred tax assets would be utilized over the forecast period. The Company has
increased the marketability discount from
% to
% and the minority discount from
% to
% due to the reduction in the
Company’s shareholding percentage from
% to
% as well as current market conditions. The Company utilized the latest revised
business plan provided by Cell C management for the period ended December 31, 2025, for the December 31, 2023, and June 30,
2023, valuations. Adjustments have been made to the WACC rate to reflect the Company’s assessment of risk to Cell C achieving its
business plan.
The following key valuation inputs were used as of December 31, 2023 and June 30, 2023:
Weighted Average Cost of Capital ("WACC"):
Between
% and
% over the period of the forecast
Long term growth rate:
% (
% as of June 30, 2023)
Marketability discount:
% (
% as of June 30, 2023)
Minority discount:
% (
% as of June 30, 2023)
Net adjusted external debt - December 31, 2023:
(1)
ZAR
Net adjusted external debt - June 30, 2023:
(2)
ZAR
(1) translated from ZAR to U.S. dollars at exchange rates applicable as of December 31, 2023.
(2) translated from ZAR to U.S. dollars at exchange rates applicable as of June 30, 2023.
The following table presents the impact on the carrying value of the Company’s Cell C investment of a 1.0% increase and 1.0%
decrease in the WACC rate and the EBITDA margins respectively used in the Cell C valuation on December 31, 2023, all amounts
translated at exchange rates applicable as of December 31, 2023:
Sensitivity for fair value of Cell C investment
1.0% increase
1.0% decrease
WACC rate
$
$
EBITDA margin
$
$
The fair value of the Cell C shares as of December 31, 2023, represented
% of the Company’s total assets, including these
shares. The Company expects to hold these shares for an extended period of time and that there will be short-term equity price volatility
with respect to these shares particularly given that Cell C remains in a turnaround process.
15
4. Fair value of financial instruments (continued)
Financial instruments (continued)
Derivative transactions - Foreign exchange contracts
As part of the Company’s risk management strategy, the Company enters into derivative transactions to mitigate exposures to
foreign currencies using foreign exchange contracts. These foreign exchange contracts are over-the-counter derivative
transactions. Substantially all of the Company’s derivative exposures are with counterparties that have long-term credit ratings of “B”
(or equivalent) or better. The Company uses quoted prices in active markets for similar assets and liabilities to determine fair value
(Level 2). The Company has no derivatives that require fair value measurement under Level 1 or 3 of the fair value hierarchy.
The Company had
The following table presents the Company’s assets measured at fair value on a recurring basis as of December 31, 2023, according
to the fair value hierarchy:
Quoted Price in
Active Markets
for Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
Assets
Investment in Cell C
$
$
$
$
Related to insurance
business:
Cash, cash equivalents and
restricted cash (included
in other long-term assets)
Fixed maturity
investments (included in
cash and cash equivalents)
Total assets at fair value
$
$
$
$
The following table presents the Company’s assets measured at fair value on a recurring basis as of June 30, 2023, according to
the fair value hierarchy:
Quoted Price in
Active Markets
for Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
Assets
Investment in Cell C
$
$
$
$
Related to insurance business
Cash and cash equivalents
(included in other long-term
assets)
Fixed maturity investments
(included in cash and cash
equivalents)
Total assets at fair value
$
$
$
$
There have been
respectively.
There was
3, during the six months ended December 31, 2023 and 2022.
16
4. Fair value of financial instruments (continued)
Summarized below is the movement in the carrying value of assets and liabilities measured at fair value on a recurring basis, and
categorized within Level 3, during the six months ended December 31, 2023:
Carrying value
Assets
Balance as of June 30, 2023
$
Foreign currency adjustment
(1)
Balance as of December 31, 2023
$
(1) The foreign currency adjustment represents the effects of the fluctuations of the South African rand against the U.S. dollar on
the carrying value.
Summarized below is the movement in the carrying value of assets and liabilities measured at fair value on a recurring basis, and
categorized within Level 3, during the three months ended December 31, 2022:
Carrying value
Assets
Balance as of June 30, 2022
$
Foreign currency adjustment
(1)
Balance as of December 31, 2022
$
(1) The foreign currency adjustment represents the effects of the fluctuations of the South African rand against the U.S. dollar
on the carrying value.
Assets measured at fair value on a nonrecurring basis
The Company measures equity investments without readily determinable fair values at fair value on a nonrecurring basis. The
fair values of these investments are determined based on valuation techniques using the best information available and may include
quoted market prices, market comparables, and discounted cash flow projections. An impairment charge is recorded when the cost of
the asset exceeds its fair value and the excess is determined to be other-than-temporary. Refer to Note 5 for impairment charges
recorded during the reporting periods presented herein. The Company has
basis.
5. Equity-accounted investments and other long-term assets
Refer to Note 9 to the Company’s audited consolidated financial statements included in its Annual Report on Form 10-K for the
year ended June 30, 2023, for additional information regarding its equity-accounted investments and other long-term assets.
Equity-accounted investments
The Company’s ownership percentage in its equity-accounted investments as of December 31, 2023, and June 30, 2023, was as
follows:
December 31,
June 30,
2023
2023
Finbond Group Limited (“Finbond”)
%
%
Sandulela Technology (Pty) Ltd ("Sandulela")
%
%
SmartSwitch Namibia (Pty) Ltd (“SmartSwitch Namibia”)
%
%
Finbond
In December 2023, the Company sold its entire remaining equity interest in Finbond which comprised of
and which represented approximately
% of Finbond’s issued and outstanding ordinary shares immediately prior to the sale.
17
5. Equity-accounted investments and other long-term assets (continued)
Equity-accounted investments (continued)
Finbond (continued)
August 2023 agreement to sell entire stake in Finbond
On August 10, 2023, the Company, through its wholly owned subsidiary Net1 Finance Holdings (Pty) Ltd, entered into an
agreement with Finbond to sell its remaining shareholding to Finbond for a cash consideration of ZAR
ZAR
finalized in December 2023. The Company did
t record a gain or loss on the disposal because the sale proceeds were equivalent to
the net carrying value, including accumulated reserves, of the investment in Finbond as of the disposal date. The cash proceeds received
of ZAR
Sale of Finbond shares during the three and six months ended December 31, 2023
The Company sold
2022, respectively, and recorded a loss of $
equity-accounted investments in the Company’s unaudited condensed consolidated statements of operations.
The following table presents the calculation of the loss on disposal of Finbond shares during the three and six months ended
December 31, 2023:
Three months ended
Six months ended
December 31,
December 31,
2023
2022
2023
2022
Loss on disposal of Finbond shares:
Consideration received in cash
$
$
$
$
Less: carrying value of Finbond shares sold
(2,112 )
(157 )
(2,112 )
(160 )
Less: release of foreign currency translation reserve from
accumulated other comprehensive loss
(1,543 )
(97 )
(1,543 )
(99 )
Add: release of stock-based compensation charge related to
equity-accounted investment
Loss on sale of Finbond shares
$
$
(112 )
$
$
(114 )
Finbond impairments recorded during the six months ended December 31, 2023
As noted earlier, the Company has entered into an agreement to exit its position in Finbond and the Company considered this an
impairment indicator. The Company is required to include any foreign currency translation reserve and other equity account amounts
in its impairment assessment if it considers exiting an equity method investment. The Company performed an impairment assessment
of its holding in Finbond, including the foreign currency translation reserve and other equity account amounts, as of September 30,
2023. The Company recorded an impairment loss of $
difference between the determined fair value of the Company’s interest in Finbond and the Company’s carrying value, including the
foreign currency translation reserve (before the impairment). The Company used the price of ZAR
2023 agreement referred to above to calculate the determined fair value for Finbond.
Finbond impairments recorded during the six months ended December 31, 2022
The Company considered the combination of the ongoing losses incurred and reported by Finbond and its lower share price as
impairment indicators. The Company performed an impairment assessment of its holding in Finbond as of September 30, 2022. The
Company recorded an impairment loss of $
temporary decrease in Finbond’s value, which represented the difference between the determined fair value of the Company’s interest
in Finbond and the Company’s carrying value (before the impairment). The Company observed continued limited trading in Finbond
shares on the JSE during the three months ended September 30, 2022, because a small number of shareholders owned approximately
% of its issued and outstanding shares between them. The Company calculated a fair value per share for Finbond by applying a
liquidity discount of
% to the September 30, 2022, Finbond closing price of ZAR
. The Company increased the liquidity discount
from
% (used in the previous impairment assessment) to
% as a result of the ongoing limited trading activity observed on the
JSE.
18
5. Equity-accounted investments and other long-term assets (continued)
Equity-accounted investments (continued)
Carbon
In September 2022, the Company, through its wholly-owned subsidiary, Net1 Applied Technologies Netherlands B.V. (“Net1
BV”), entered into a binding term sheet with the Etobicoke Limited (“Etobicoke”) to sell its entire interest, or
%, in Carbon to
Etobicoke for $
equity interest and the loan had a carrying value of $
Carbon shares purchased as security for the amounts outstanding under the binding term sheet.
The Company received $
(i) $
in March 2024. Both amounts are included in the caption accounts receivable, net and other receivables in the Company’s unaudited
condensed consolidated balance sheet as of December 31, 2023. The Company has allocated the $
the equity interest and will allocate the funds received first to the sale of the equity interest and then to the loans.
The Company currently believes that the fair value of the Carbon shares provided as security is $
the carrying value as of June 30, 2022, and has created an allowance for doubtful loans receivable related to the $
Etobicoke. The Company did not incur any significant transaction costs. The Company has included the gain of $
to the sale of the Carbon equity interest in the caption net gain on disposal of equity-accounted investments in the Company’s unaudited
condensed consolidated statements of operations.
The following table presents the calculation of the gain on disposal of Carbon in September 2022:
Three months
ended September
30,
2022
Gain on disposal of Carbon shares:
Consideration received in cash in September 2022
$
Less: carrying value of Carbon
Gain on disposal of Carbon shares:
(1)
$
(1) The Company does not expect to pay taxes related to the sale of Carbon because the base cost of its investment exceeds the
sales consideration received. The Company does not believe that it will be able to utilize the loss generated because Net1 BV does not
generate taxable income.
Summarized below is the movement in equity-accounted investments and loans provided to equity-accounted investments during
the six months ended December 31, 2023:
Finbond
Other
(1)
Total
Investment in equity
Balance as of June 30, 2023
$
$
$
Stock-based compensation
Comprehensive income:
(956 )
(873 )
Other comprehensive income
Equity accounted (loss) earnings
(1,445 )
(1,362 )
Share of net (loss) earnings
(278 )
(195 )
Impairment
(1,167 )
(1,167 )
Dividends received
(54 )
(54 )
Disposal of Finbond shares
(2,096 )
(2,096 )
Foreign currency adjustment
(2)
(2 )
(1 )
Balance as of December 31, 2023
$
$
$
(1) Includes Sandulela, and SmartSwitch Namibia;
(2) The foreign currency adjustment represents the effects of the fluctuations of the ZAR and Namibian dollar, against the U.S.
dollar on the carrying value.
19
5. Equity-accounted investments and other long-term assets (continued)
Other long-term assets
Summarized below is the breakdown of other long-term assets as of December 31, 2023, and June 30, 2023:
December 31,
June 30,
2023
2023
Total equity investments
$
$
Investment in
% of Cell C (June 30, 2023:
%) at fair value (Note 4)
Investment in
% of MobiKwik (June 30, 2023:
%)
(1)
Investment in
% of CPS (June 30, 2023:
%) at fair value
(1)(2)
Policy holder assets under investment contracts (Note 7)
Reinsurance assets under insurance contracts (Note 7)
Total other long-term assets
$
$
(1) The Company determined that MobiKwik and CPS do not have readily determinable fair values and therefore elected to
record these investments at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly
transactions for the identical or a similar investment of the same issuer.
(2) On October 16, 2020, the High Court of South Africa, Gauteng Division, Pretoria ordered that CPS be placed into liquidation.
Summarized below are the components of the Company’s equity securities without readily determinable fair value and held to
maturity investments as of December 31, 2023:
Cost basis
Unrealized
holding
Unrealized
holding
Carrying
gains
losses
value
Equity securities:
Investment in MobiKwik
$
$
$
$
Investment in CPS
Held to maturity:
Investment in Cedar Cellular notes (Note 2)
Total
$
$
$
$
Summarized below are the components of the Company’s equity securities without readily determinable fair value and held to
maturity investments as of June 30, 2023:
Cost basis
Unrealized
holding
Unrealized
holding
Carrying
gains
losses
value
Equity securities:
Investment in MobiKwik
$
$
$
$
Investment in CPS
Held to maturity:
Investment in Cedar Cellular notes
Total
$
$
$
$
20
6. Goodwill and intangible assets, net
Goodwill
Summarized below is the movement in the carrying value of goodwill for the six months ended December 31, 2023:
Gross value
Accumulated
impairment
Carrying
value
Balance as of June 30, 2023
$
$
(18,876 )
$
Foreign currency adjustment
(1)
(385 )
Balance as of December 31, 2023
$
$
(19,261 )
$
(1) – The foreign currency adjustment represents the effects of the fluctuations of the South African rand against the U.S.
dollar on the carrying value.
Goodwill has been allocated to the Company’s reportable segments as follows:
Consumer
Merchant
Carrying value
Balance as of June 30, 2023
$
$
$
Foreign currency adjustment
(1)
Balance as of December 31, 2023
$
$
$
(1) The foreign currency adjustment represents the effects of the fluctuations of the South African rand against the U.S. dollar
on the carrying value.
Intangible assets, net
Carrying value and amortization of intangible assets
Summarized below is the carrying value and accumulated amortization of intangible assets as of December 31, 2023, and June
30, 2023:
As of December 31, 2023
As of June 30, 2023
Gross
carrying
value
Accumulated
amortization
Net
carrying
value
Gross
carrying
value
Accumulated
amortization
Net
carrying
value
Finite-lived intangible assets:
Customer relationships
$
$
(12,924 )
$
$
$
(11,565 )
$
Software, integrated
platform and unpatented
technology
(19,849 )
(13,711 )
FTS patent
(2,094 )
(2,034 )
Brands and trademarks
(3,609 )
(2,863 )
Total finite-lived intangible
assets
$
$
(38,476 )
$
$
$
(30,173 )
$
Aggregate amortization expense on the finite-lived intangible assets for the three months ended December 31, 2023 and 2022,
was $
ended December 31, 2023 and 2022, was $
for the next five fiscal years and thereafter, assuming exchange rates that prevailed on December 31, 2023, is presented in the table
below. Actual amortization expense in future periods could differ from this estimate as a result of acquisitions, changes in useful lives,
exchange rate fluctuations and other relevant factors.
Fiscal 2024 (six months ended December 31, 2023)
$
Fiscal 2025
Fiscal 2026
Fiscal 2027
Fiscal 2028
Thereafter
Total future estimated annual amortization expense
$
21
7. Assets and policyholder liabilities under insurance and investment contracts
Reinsurance assets and policyholder liabilities under insurance contracts
Summarized below is the movement in reinsurance assets and policyholder liabilities under insurance contracts during the six
months ended December 31, 2023:
Reinsurance
Assets
(1)
Insurance
contracts
(2)
Balance as of June 30, 2023
$
$
(1,600 )
Increase in policy holder benefits under insurance contracts
(3,649 )
Claims and decrease in policyholders’ benefits under insurance contracts
(265 )
Foreign currency adjustment
(3)
(59 )
Balance as of December 31, 2023
$
$
(2,136 )
(1) Included in other long-term assets (refer to Note 5);
(2) Included in other long-term liabilities;
(3) Represents the effects of the fluctuations of the ZAR against the U.S. dollar.
The Company has agreements with reinsurance companies in order to limit its losses from various insurance contracts, however,
if the reinsurer is unable to meet its obligations, the Company retains the liability. The value of insurance contract liabilities is based
on the best estimate assumptions of future experience plus prescribed margins, as required in the markets in which these products are
offered, namely South Africa. The process of deriving the best estimate assumptions plus prescribed margins includes assumptions
related to claim reporting delays (based on average industry experience).
Assets and policyholder liabilities under investment contracts
Summarized below is the movement in assets and policyholder liabilities under investment contracts during the six months ended
December 31, 2023:
Assets
(1)
Investment
contracts
(2)
Balance as of June 30, 2023
$
$
(241 )
Increase in policy holder benefits under investment contracts
(5 )
Claims and decrease in policyholders’ benefits under investment contracts
(44 )
Foreign currency adjustment
(3)
(2 )
(14 )
Balance as of December 31, 2023
$
$
(216 )
(1) Included in other long-term assets (refer to Note 5);
(2) Included in other long-term liabilities;
(3) Represents the effects of the fluctuations of the ZAR against the U.S. dollar.
The Company does not offer any investment products with guarantees related to capital or returns.
8. Borrowings
Refer to Note 12 to the Company’s audited consolidated financial statements included in its Annual Report on Form 10-K for
the year ended June 30, 2023, for additional information regarding its borrowings.
South Africa
The amounts below have been translated at exchange rates applicable as of the dates specified. The 3-month Johannesburg
Interbank Agreed Rate (“JIBAR”), the rate at which private sector banks borrow funds from the South African Reserve Bank, on
December 31, 2023, was
%. The prime rate, the benchmark rate at which private sector banks lend to the public in South Africa,
on December 31, 2023, was
%.
22
8. Borrowings (borrowings)
South Africa (continued)
RMB Facilities, as amended, comprising a short-term facility (Facility E) and long-term borrowings
Long-term borrowings - Facility G and Facility H
As of December 31, 2023, the Company’s had utilized ZAR
revolving credit facility. The interest rate on this facility as of December 31, 2023, was JIBAR plus
%.
On November 24, 2023, the Company, through its wholly owned subsidiary, Lesaka Technologies Proprietary Limited (“Lesaka
SA”), entered into an Amendment and Restatement Agreement (the “Amendment”), which includes an Amended and Restated Senior
Facility G Agreement (“Facility G Agreement”) and an Amended and Restated Senior Facility H Agreement (“Facility H Agreement”)
(collectively, the “Loan Documents”) with FirstRand Bank Limited (acting through its Rand Merchant Bank division) (“RMB” or the
“Lenders”).
The Loan Documents were amended to include a Look Through Leverage (“LTL”) ratio, as defined in the Loan Documents, and
expressed as times (“x”), to calculate the margin used in the determination of the interest rate. The LTL ratio is calculated as the Total
Attributable Net Debt, as defined in the Loan Documents, to the Total Attributable EBITDA, as defined in the Loan Documents, for
the measurement period ending on a specified date.
Interest on Facility G and Facility H is based on the 3-month Johannesburg Interbank Agreed Rate (“JIBAR”) in effect from time
to time plus a margin, which as a result of the Amendment, from October 1, 2023, will be calculated as: (i)
% if the LTL ratio is
greater than 3.50x; (ii)
% if the LTL ratio is less than 3.50x but greater than 2.75x; (iii)
% if the LTL ratio is less than 2.75x
but greater than 1.75x; or (iv)
% if the LTL ratio is less than 1.75x.
The Company used cash proceeds of ZAR
to repay capitalized interest under Facility G and Facility H.
Available short-term facility - Facility E
As of December 31, 2023, the aggregate amount of the Company’s short-term South African overdraft facility with RMB was
ZAR
facility. This overdraft facility may only be used to fund ATMs and therefore the overdraft utilized and converted to cash to fund the
Company’s ATMs is considered restricted cash. The interest rate on this facility is equal to the prime rate.
On January 22, 2024, the Company, through Lesaka SA, and RMB, entered into a Letter of Amendment to decrease the Senior
Facility E from ZAR
Connect Facilities, comprising long-term borrowings and a short-term facility
As of December 31, 2023, the Connect Facilities include (i) an overdraft facility (general banking facility) of ZAR
(of which ZAR
utilized); and (iv) an asset-backed facility of ZAR
CCC Revolving Credit Facility, comprising long-term borrowings
As of December 31, 2023, the amount of the CCC Revolving Credit Facility was ZAR
million has been utilized). Interest on the Revolving Credit Facility is payable on the last business day of each calendar month and is
based on the South African prime rate in effect from time to time plus a margin of
% per annum.
RMB facility, comprising indirect facilities
As of December 31, 2023, the aggregate amount of the Company’s short-term South African indirect credit facility with RMB
was ZAR
December 31, 2023 and June 30, 2023, the Company had utilized ZAR
respectively, of its indirect and derivative facilities of ZAR
issue guarantees, letters of credit and forward exchange contracts (refer to Note 19).
23
8. Borrowings (borrowings)
South Africa (continued)
Nedbank facility, comprising short-term facilities
As of December 31, 2023, the aggregate amount of the Company’s short-term South African credit facility with Nedbank Limited
was ZAR
million), which include guarantees, letters of credit and forward exchange contracts.
As of December 31, 2023 and June 30, 2023, the Company had utilized ZAR
($
the bank to issue guarantees, letters of credit and forward exchange contracts (refer to Note 19).
Movement in short-term credit facilities
Summarized below are the Company’s short-term facilities as of December 31, 2023, and the movement in the Company’s short-
term facilities from as of June 30, 2023 to as of December 31, 2023:
RMB
RMB
RMB
Nedbank
Facility E
Indirect
Connect
Facilities
Total
Short-term facilities available as of
December 31, 2023
$
$
$
$
$
Overdraft
Overdraft restricted as to use for
ATM funding only
Indirect and derivative facilities
Movement in utilized overdraft
facilities:
Restricted as to use for ATM
funding only
No restrictions as to use
Balance as of June 30, 2023
Utilized
Repaid
(128,839 )
(2 )
(128,841 )
Foreign currency
adjustment
(1)
Balance as of December 31, 2023
Restricted as to use for ATM
funding only
No restrictions as to use
$
$
$
$
$
Interest rate as of December 31,
2023 (%)
(2)
-
-
Movement in utilized indirect and
derivative facilities:
Balance as of June 30, 2023
$
$
$
$
$
Foreign currency adjustment
(1)
Balance as of December 31, 2023
$
$
$
$
$
(1) Represents the effects of the fluctuations between the ZAR and the U.S. dollar.
(2) Facility E interest set at prime and the Connect facility at prime less
%.
24
8. Borrowings (continued)
Movement in long-term borrowings
Summarized below is the movement in the Company’s long-term borrowing from as of as of June 30, 2023 to as of December
31, 2023:
Facilities
G & H
A&B
CCC
Asset backed
Total
Included in current
$
$
$
$
$
Included in long-term
Opening balance as of June 30, 2023
Facilities utilized
Facilities repaid
(1,847 )
(1,968 )
(1,998 )
(5,813 )
Non-refundable fees paid
Non-refundable fees amortized
Capitalized interest
Capitalized interest repaid
(3,508 )
(3,508 )
Foreign currency adjustment
(1)
Closing balance as of December 31,
2023
Included in current
Included in long-term
Unamortized fees
(344 )
(204 )
(43 )
(591 )
Due within 2 years
Due within 3 years
Due within 4 years
Due within 5 years
$
$
$
$
$
Interest rates as of December 31, 2023
(%):
Base rate (%)
Margin (%)
Footnote number
(2)
(3)
(4)
(5)
(1) Represents the effects of the fluctuations between the ZAR and the U.S. dollar.
(2) Interest on Facility G and Facility H was calculated based on the 3-month JIBAR in effect from time to time plus a margin
of, from January 1, 2023 to September 30, 2023: (i)
% for as long as the aggregate balance under the Facilities is greater than
ZAR
% if the aggregate balance under the Facilities is equal to or less than ZAR
ZAR
% if the aggregate balance under the Facilities is less than ZAR
interest is calculated as described above.
(3) Interest on Facility A and Facility B is calculated based on JIBAR plus a margin, of
%, in effect from time to time.
(4) Interest is charged at prime plus
% per annum on the utilized balance.
(5) Interest is charged at prime plus
% per annum on the utilized balance.
Interest expense incurred under the Company’s South African long-term borrowings and included in the caption interest expense
on the condensed consolidated statement of operations during the three months ended December 31, 2023 and 2022, was $
and $
31, 2023 and 2022, respectively, were $
K2020 and CCC facilities relates to borrowings utilized to fund a portion of the Company’s merchant finance loans receivable and
this interest expense of $
servicing and support on the condensed consolidated statement of operations for the three months ended December 31, 2023 and 2022.
25
9. Other payables
Summarized below is the breakdown of other payables as of December 31, 2023, and June 30, 2023:
December 31,
June 30,
2023
2023
Clearing accounts
(1)
$
$
Vendor wallet balances
(1)
Accruals
Provisions
Value -added tax payable
Payroll-related payables
Participating merchants' settlement obligation
Other
$
$
(1) Clearing accounts and vendor wallet balances (previously defined as transactions-switching funds payables) as of June 30,
2023, were previously included in Other and have been reclassified to separate captions to conform with presentation as of December
31, 2023.
Other includes deferred income, client deposits and other payables.
10. Capital structure
Impact of non-vested equity shares on number of shares, net of treasury
The following table presents a reconciliation between the number of shares, net of treasury, presented in the unaudited condensed
consolidated statement of changes in equity during the six months ended December 31, 2023 and 2022, respectively, and the number
of shares, net of treasury, excluding non-vested equity shares that have not vested as of December 31, 2023 and 2022, respectively:
December 31,
December 31,
2023
2022
Number of shares, net of treasury:
Statement of changes in equity
Non-vested equity shares that have not vested as of end of period
Number of shares, net of treasury, excluding non-vested equity shares that have not
vested
11. Accumulated other comprehensive loss
The table below presents the change in accumulated other comprehensive loss per component during the three months ended
December 31, 2023:
Three months ended
December 31, 2023
Accumulated
foreign
currency
translation
reserve
Total
Balance as of October 1, 2023
$
(196,081 )
$
(196,081 )
Release of foreign currency translation reserve related to the disposal of Finbond
equity securities (Note 5)
Release of foreign currency translation reserve related to liquidation of subsidiaries
(952 )
(952 )
Movement in foreign currency translation reserve
Balance as of December 31, 2023
$
(189,378 )
$
(189,378 )
26
11. Accumulated other comprehensive loss (continued)
The table below presents the change in accumulated other comprehensive loss per component during the three months ended
December 31, 2022:
Three months ended
December 31, 2022
Accumulated
foreign
currency
translation
reserve
Total
Balance as of October 1, 2022
$
(188,490 )
$
(188,490 )
Release of foreign currency translation reserve related to disposal of Finbond equity
securities
Movement in foreign currency translation reserve
Balance as of December 31, 2022
$
(176,238 )
$
(176,238 )
The table below presents the change in accumulated other comprehensive loss per component during the six months ended
December 31, 2023:
Six months ended
December 31, 2023
Accumulated
foreign
currency
translation
reserve
Total
Balance as of July 1, 2023
$
(195,726 )
$
(195,726 )
Release of foreign currency translation reserve related to disposal of Finbond
equity securities (Note 5)
Release of foreign currency translation reserve related to liquidation of subsidiaries
(952 )
(952 )
Movement in foreign currency translation reserve related to equity-accounted
investment
Movement in foreign currency translation reserve
Balance as of December 31, 2023
$
(189,378 )
$
(189,378 )
The table below presents the change in accumulated other comprehensive loss per component during the six months ended
December 31, 2022:
a
Six months ended
December 31, 2022
Accumulated
foreign
currency
translation
reserve
Total
Balance as of July 1, 2022
$
(168,840 )
$
(168,840 )
Release of foreign currency translation reserve related to disposal of Finbond equity
securities
Movement in foreign currency translation reserve related to equity -accounted
investment
Movement in foreign currency translation reserve
(9,938 )
(9,938 )
Balance as of December 31, 2022
$
(176,238 )
$
(176,238 )
During the three and six months ended December 31, 2023, and the three and six months ended December 31, 2022, the Company
reclassified losses of $
comprehensive loss (accumulated foreign currency translation reserve) to net loss related to the disposal of shares in Finbond (refer to
Note 5). The Company also reclassified a gain of $
currency translation reserve) to net loss related to the liquidation of subsidiaries.
27
12. Stock-based compensation
The Company’s Amended and Restated 2022 Stock Incentive Plan (“20 22 Plan”) and the vesting terms of certain stock-based
awards granted are described in Note 17 to the Company’s audited consolidated financial statements included in its Annual Report on
Form 10-K for the year ended June 30, 2023.
Stock option and restricted stock activity
Options
The following table summarizes stock option activity for the six months ended December 31, 2023 and 2022:
Number of
shares
Weighted
average
exercise
price
($)
Weighted
average
remaining
contractual
term
(in years)
Aggregate
intrinsic
value
($'000)
Weighted
average
grant date
fair value
($)
Outstanding - June 30, 2023
Granted - December 2023
Exercised
(7,385 )
-
-
Forfeited
(186,846 )
-
-
Outstanding - December 31, 2023
Outstanding - June 30, 2022
Exercised
(109,826 )
-
-
Forfeited
-
-
Outstanding - December 31, 2022
The Company awarded
months ended December 31, 2023. These options will vest on the first anniversary of the grant date, provided that Mr. Mazandarani
continues to provide services as Executive Chair through the vesting date. These options will vest immediately if Mr. Mazanderani’s
employment is terminated by the Company without cause on or before the first anniversary of the grant date. These
options may only be exercised during a period commencing from January 31, 2028 to January 31, 2029.
during the three and six months ended December 31, 2022.
During the three and six months ended December 31, 2023, the Company received $
exercise of
received $
employee director forfeited an aggregate of
2023.
The fair value of each option is estimated on the date of grant using the Cox Ross Rubinstein binomial model that uses the
assumptions noted in the following table. The estimated expected volatility is calculated based on the Company’s 750-day volatility.
The estimated expected life of the option was determined based on the historical behavior of employees who were granted options
with similar terms.
The table below presents the range of assumptions used to value stock options granted during the six months ended December
31, 2023 and 2022:
Six months ended
December 31,
2023
2022
Expected volatility
%
%
Expected dividends
%
%
Expected life (in years)
0
Risk-free rate
2.1
%
%
28
12. Stock-based compensation (continued)
Stock option and restricted stock activity
Options
The following table presents stock options vested and expected to vest as of December 31, 2023:
Number of
shares
Weighted
average
exercise
price
($)
Weighted
average
remaining
contractual
term
(in years)
Aggregate
intrinsic
value
($’000)
Vested and expecting to vest - December 31, 2023
These options have an exercise price range of $
.
The following table presents stock options that are exercisable as of December 31, 2023:
Number of
shares
Weighted
average
exercise
price
($)
Weighted
average
remaining
contractual
term
(in years)
Aggregate
intrinsic
value
($’000)
Exercisable - December 31, 2023
During the three months ended December 31, 2023 and 2022, respectively,
During the six months ended December 31, 2023 and 2022, respectively,
Company issues new shares to satisfy stock option exercises.
29
12. Stock-based compensation (continued)
The Company’s Amended and Restated 2022 Stock Incentive Plan (“2022 Plan”) and the vesting terms of certain stock-based
awards granted are described in Note 17 to the Company’s audited consolidated financial statements included in its Annual Report on
Form 10-K for the year ended June 30, 2023.
Stock option and restricted stock activity (continued)
Restricted stock
The following table summarizes restricted stock activity for the six months ended December 31, 2023 and 2022:
Number of
shares of
restricted stock
Weighted
average grant
date fair value
($’000)
Non-vested – June 30, 2023
Total granted
Granted – October 2023
Granted – October 2023
Granted – October 2023
Total vested
(255,706 )
Vested – July 2023
(78,800 )
Vested – November 2023
(109,833 )
Vested – December 2023
(67,073 )
Forfeitures
(22,129 )
Non-vested – December 31, 2023
Non-vested – June 30, 2022
Total Granted
Granted – July 2022
Granted – August 2022
Granted – November 2022
Granted – December 2022
Granted – December 2022 - performance awards
Total vested
(145,694 )
Vested – July 2022
(78,801 )
Vested – November 2022
(59,833 )
Vested – December 2022
(7,060 )
Total granted and vested - December 2022
-
-
Granted - December 2022
Vested - December 2022
(300,000 )
Non-vested – December 31, 2022
30
12. Stock-based compensation (continued)
Stock option and restricted stock activity (continued)
Restricted stock (continued)
Grants
In October 2023, the Company awarded
The Company also awarded
except if the executive officer is terminated for cause, in which case the award will be forfeited.
In October 2023, the Company awarded
a time-based vesting condition and a market condition and vest in full only on the date, if any, that the following conditions are
satisfied: (1) a compounded annual
% appreciation in the Company’s stock price off a base price of $
period commencing on September 30, 2023 through November 17, 2026, and (2) the recipient is employed by the Company on a full-
time basis when the condition in (1) is met. If either of these conditions is not satisfied, then none of the shares of restricted stock will
vest and they will be forfeited. The Company’s closing price on September 30, 2023, was $
.
The appreciation levels (times and price) and vesting percentages as of each period ended are as follows:
●
Prior to the first anniversary of the grant date:
%;
●
Fiscal 2025, the Company’s 30-day volume weighted-average stock price (“VWAP”) before November 17, 2024 is
approximately
:
%;
●
Fiscal 2026, the Company’s VWAP before November 17, 2025 is
:
%;
●
Fiscal 2027, the Company’s VWAP before November 1, 2026 is
) than $
:
%.
The fair value of these shares of restricted stock was calculated using a Monte Carlo simulation. In scenarios where the shares
do not vest, the final vested value at maturity is zero. In scenarios where vesting occurs, the final vested value on maturity is the share
price on vesting date. In its calculation of the fair value of the restricted stock, the Company used an equally weighted volatility of
% for the closing price (of $
), a discounting based on U.S. dollar overnight indexed swap rates for the grant date, and no
future dividends. The equally weighted volatility was extracted from the time series for closing prices as the standard deviation of log
prices for the
In July 2022 and December 2022, the Company awarded
employees and an executive officer which have time -based vesting conditions. In December 2022, the Company awarded
shares of restricted stock to executive officers which contained time and performance-based (market conditions related to share price
performance) vesting conditions. The Company also agreed to match, on a
-for-one basis, (1) an employee’s purchase of up to $
million worth of the Company’s shares of common stock in open market purchases, and in August 2022, the Company granted
shares of restricted stock to the employee, and (2) another employee’s purchase of up to
stock, and in November 2022, the Company granted
stock contain time-based vesting conditions. The Company awarded
which vested on the date of the award.
The
condition and vest in full only on the date, if any, that the following conditions are satisfied: (1) a compounded annual
% appreciation
in the Company’s stock price off a base price of $
December 1, 2025, and (2) the recipient is employed by the Company on a full-time basis when the condition in (1) is met. If either of
these conditions is not satisfied, then none of the shares of restricted stock will vest and they will be forfeited. The Company’s closing
price on December 1, 2022, was $
.
The appreciation levels (times and price) and vesting percentages as of each period ended are as follows:
●
Prior to the first anniversary of the grant date:
%;
●
Fiscal 2024, stock price as of December 1, 2023 is
:
%;
●
Fiscal 2025, stock price as of December 1, 2024 is
:
%;
●
Fiscal 2026, stock price as of December 1, 2025 is
) than $
:
%.
The fair value of these shares of restricted stock was calculated using a Monte Carlo simulation. In scenarios where the shares
do not vest, the final vested value at maturity is zero. In scenarios where vesting occurs, the final vested value on maturity is the share
price on vesting date. In its calculation of the fair value of the restricted stock, the Company used an equally weighted volatility of
% for the closing price (of $
), a discounting based on U.S. dollar overnight indexed swap rates for the grant date, and no
future dividends. The equally weighted volatility was extracted from the time series for closing prices as the standard deviation of log
prices for the three years preceding the grant date.
31
12. Stock-based compensation (continued)
Stock option and restricted stock activity (continued)
Restricted stock (continued)
As fully described in Note 17 to the Company’s audited consolidated financial statements included in its Annual Report on Form
10-K for the year ended June 30, 2023, the Company granted a further
months ended December 31, 2022, respectively, which were ineligible for transfer until the earlier of December 31, 2022, or the
occurrence of the agreed event.
Vesting
In July 2023,
the withholding tax liability on the vesting of their shares. These
In July 2022,
satisfy the withholding tax liability on the vesting of these shares. In November and December 2022, an aggregate of
restricted stock granted to employees vested and they elected for
on the vesting of these shares. These
) shares have been included in our treasury shares.
Forfeitures
During the three and six months ended December 31, 2023, respectively, employees forfeited
22,129
restricted stock following their termination of employment with the Company.
three and six months ended December 31, 2022.
Stock-based compensation charge and unrecognized compensation cost
The Company recorded a stock-based compensation charge, net during the three months ended December 31, 2023 and 2022, of
$
Total charge
Allocated to cost
of goods sold, IT
processing,
servicing and
support
Allocated to
selling, general
and
administration
Three months ended December 31, 2023
Stock-based compensation charge
$
$
-
$
Reversal of stock compensation charge related to stock
options and restricted stock forfeited
(8 )
-
(8 )
Total - three months ended December 31, 2023
$
$
-
$
Three months ended December 31, 2022
Stock-based compensation charge
$
$
-
$
Total - three months ended December 31, 2022
$
$
-
$
32
12. Stock-based compensation (continued)
Stock-based compensation charge and unrecognized compensation cost (continued)
The Company recorded a stock-based compensation charge, net during the six months ended December 31, 2023 and 2022, of
$
a
Total charge
Allocated to cost
of goods sold, IT
processing,
servicing and
support
Allocated to
selling, general
and
administration
Six months ended December 31, 2023
Stock-based compensation charge
$
$
-
$
Reversal of stock compensation charge related to stock
options forfeited
(17 )
-
(17 )
Total - six months ended December 31, 2023
$
$
-
$
Six months ended December 31, 2022
Stock-based compensation charge
$
$
-
$
Total - six months ended December 31, 2022
$
$
-
$
The stock-based compensation charges have been allocated to selling, general and administration based on the allocation of the
cash compensation paid to the relevant employees.
As of December 31, 2023, the total unrecognized compensation cost related to stock options was $
Company expects to recognize over
. As of December 31, 2023, the total unrecognized compensation cost related to restricted
stock awards was $
.
As of December 31, 2023, and June 30, 2023, respectively, the Company recorded a deferred tax asset of $
million, related to the stock-based compensation charge recognized related to employees of Lesaka. As of December 31, 2023, and
June 30, 2023, respectively, the Company recorded a valuation allowance of $
asset because it does not believe that the stock-based compensation deduction would be utilized as it does not anticipate generating
sufficient taxable income in the United States. The Company deducts the difference between the market value on the date of exercise
by the option recipient and the exercise price from income subject to taxation in the United States.
13. (Loss) Earnings per share
The Company has issued redeemable common stock which is redeemable at an amount other than fair value. Redemption of a
class of common stock at other than fair value increases or decreases the carrying amount of the redeemable common stock and is
reflected in basic earnings per share using the two-class method. There were
carrying value of the redeemable common stock during the three and six months ended December 31, 2023 and 2022. Accordingly,
the two-class method presented below does not include the impact of any redemption. The Company’s redeemable common stock is
described in Note 14 to the Company’s audited consolidated financial statements included in its Annual Report on Form 10-K for the
year ended June 30, 2023.
Basic (loss) earnings per share includes shares of restricted stock that meet the definition of a participating security because these
shares are eligible to receive non -forfeitable dividend equivalents at the same rate as common stock. Basic (loss) earnings per share
has been calculated using the two-class method and basic (loss) earnings per share for the three and six months ended December 31,
2023 and 2022, reflects only undistributed earnings. The computation below of basic (loss) earnings per share excludes the net loss
attributable to shares of unvested restricted stock (participating non-vested restricted stock) from the numerator and excludes the
dilutive impact of these unvested shares of restricted stock from the denominator.
Diluted (loss) earnings per share has been calculated to give effect to the number of shares of additional common stock that
would have been outstanding if the potential dilutive instruments had been issued in each period. Stock options are included in the
calculation of diluted (loss) earnings per share utilizing the treasury stock method and are not considered to be participating securities,
as the stock options do not contain non-forfeitable dividend rights. The Company has excluded employee stock options to purchase
2023 and 2022, because the effect would be antidilutive.
The calculation of diluted (loss) earnings per share includes the dilutive effect of a portion of the restricted stock granted to
employees as these shares of restricted stock are considered contingently returnable shares for the purposes of the diluted (loss)
earnings per share calculation and the vesting conditions in respect of a portion of the restricted stock had been satisfied. The vesting
conditions for all awards made are discussed in Note 17 to the Company’s audited consolidated financial statements included in its
Annual Report on Form 10-K for the year ended June 30, 2023.
33
13. (Loss) Earnings per share (continued)
The following table presents net loss attributable to Lesaka and the share data used in the basic and diluted loss per share
computations using the two-class method:
Three months ended
Six months ended
December 31,
December 31,
2023
2022
2023
2022
(in thousands except
(in thousands except
percent and
percent and
per share data)
per share data)
Numerator:
Net loss attributable to Lesaka
$
(2,707 )
$
(6,649 )
$
(8,358 )
$
(17,345 )
Undistributed loss
(2,707 )
(6,649 )
(8,358 )
(17,345 )
Percent allocated to common shareholders
(Calculation 1)
Numerator for loss per share: basic and diluted
$
(2,588 )
$
(6,377 )
$
(7,961 )
$
(16,668 )
Denominator
Denominator for basic (loss) earnings per share:
weighted-average common shares outstanding
Effect of dilutive securities:
Denominator for diluted (loss) earnings
per share: adjusted weighted average
common shares outstanding and assuming
conversion
Loss per share:
Basic
$
(0.04 )
$
(0.11 )
$
(0.13 )
$
(0.28 )
Diluted
$
(0.04 )
$
(0.11 )
$
(0.13 )
$
(0.28 )
(Calculation 1)
Basic weighted-average common shares
outstanding (A)
Basic weighted-average common shares
outstanding and unvested restricted shares
expected to vest (B)
Percent allocated to common shareholders
Options to purchase
outstanding during the three months ended December 31, 2023, but were not included in the computation of diluted (loss) earnings
per share because the options’ exercise price was greater than the average market price of the Company’s common stock. Options to
purchase
the three months ended December 31, 2022, respectively, but were not included in the computation of diluted (loss) earnings per share
because the options’ exercise price was greater than the average market price of the Company’s common stock. The options, which
expire at various dates through February 3, 2032, were still outstanding as of December 31, 2023.
14. Supplemental cash flow information
The following table presents supplemental cash flow disclosures for the three and six months ended December 31, 2023 and
2022:
Three months ended
Six months ended
December 31,
December 31,
2023
2022
2023
2022
Cash received from interest
$
$
$
$
Cash paid for interest
$
$
$
$
Cash paid for income taxes
$
$
$
$
34
14. Supplemental cash flow information (continued)
Disaggregation of cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash included on the Company’s unaudited condensed consolidated statement of cash flows
includes restricted cash related to cash withdrawn from the Company’s debt facilities 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. Cash, cash equivalents and restricted
cash also includes cash in certain bank accounts that has been ceded to Nedbank. As this cash has been pledged and ceded it may not
be drawn and is considered restricted as to use and therefore is classified as restricted cash as well. Refer to Note 8 for additional
information regarding the Company’s facilities. The following table presents the disaggregation of cash, cash equivalents and restricted
cash as of December 31, 2023 and 2022, and June 30, 2023:
December 31,
2023
December 31,
2022
June 30, 2023
Cash and cash equivalents
$
$
$
Restricted cash
Cash, cash equivalents and restricted cash
$
$
$
Leases
The following table presents supplemental cash flow disclosure related to leases for the three and six months ended December
31, 2023 and 2022:
Three months ended
Six months ended
December 31,
December 31,
2023
2022
2023
2022
Cash paid for amounts included in the measurement of
lease liabilities
Operating cash flows from operating leases
$
$
$
$
Right-of-use assets obtained in exchange for lease
obligations
Operating leases
$
$
$
$
15. Revenue recognition
Disaggregation of revenue
The following table presents the Company’s revenue disaggregated by major revenue streams, including a reconciliation to
reportable segments for the three months ended December 31, 2023:
Merchant
Consumer
Total
Processing fees
$
$
$
South Africa
Rest of world
Technology products
South Africa
Rest of world
Telecom products and services
South Africa
Rest of world
Lending revenue
Interest from customers
Insurance revenue
Account holder fees
Other
South Africa
Rest of world
Total revenue, derived from the following geographic locations
South Africa
Rest of world
$
$
$
35
15. Revenue recognition (continued)
Disaggregation of revenue (continued)
The following table presents the Company’s revenue disaggregated by major revenue streams, including a reconciliation to
reportable segments for the three months ended December 31, 2022:
Merchant
Consumer
Total
Processing fees
$
$
$
South Africa
Rest of world
Technology products
South Africa
Rest of world
Telecom products and services
South Africa
Rest of world
Lending revenue
Interest from customers
Insurance revenue
Account holder fees
Other
South Africa
Rest of world
Total revenue, derived from the following geographic locations
South Africa
Rest of world
$
$
$
The following table presents the Company’s revenue disaggregated by major revenue streams, including a reconciliation to
reportable segments for the six months ended December 31, 2023:
Merchant
Consumer
Total
Processing fees
$
$
$
South Africa
Rest of world
Technology products
South Africa
Rest of world
Telecom products and services
South Africa
Rest of world
Lending revenue
Interest from customers
Insurance revenue
Account holder fees
Other
South Africa
Rest of world
Total revenue, derived from the following geographic locations
South Africa
Rest of world
$
$
$
36
15. Revenue recognition (continued)
Disaggregation of revenue (continued)
The following table presents the Company’s revenue disaggregated by major revenue streams, including a reconciliation to
reportable segments for the six months ended December 31, 2022:
Merchant
Consumer
Total
Processing fees
$
$
$
South Africa
Rest of world
Technology products
South Africa
Rest of world
Telecom products and services
South Africa
Rest of world
Lending revenue
Interest from customers
Insurance revenue
Account holder fees
Other
South Africa
Rest of world
Total revenue, derived from the following geographic locations
South Africa
Rest of world
$
$
$
16. Leases
The Company has entered into leasing arrangements classified as operating leases under accounting guidance. These leasing
arrangements relate primarily to the lease of its corporate head office, administration offices and branch locations through which the
Company operates its consumer business in South Africa. The Company’s operating leases have remaining lease terms of between
one and
. The Company also operates parts of its consumer business from locations which it leases for a period of less than
. The Company’s operating lease expense during the three months ended December 31, 2023 and 2022 was $
$
The Company has also entered into short-term leasing arrangements, primarily for the lease of branch locations and other
locations, to operate its consumer business in South Africa. The Company’s short-term lease expense during the three months ended
December 31, 2023 and 2022, was $
six months ended December 31, 2023 and 2022, was $
The following table presents supplemental balance sheet disclosure related to the Company’s right-of-use assets and its operating
lease liabilities as of December 31, 2023 and June 30, 2023:
December 31,
June 30,
2023
2023
Right of use assets obtained in exchange for lease obligations:
Weighted average remaining lease term (years)
Weighted average discount rate (percent)
37
16. Leases (continued)
The maturities of the Company’s operating lease liabilities as of December 31, 2023, are presented below:
Maturities of operating lease liabilities
Year ended June 30,
2024 (excluding six months to December 31, 2023)
$
2025
2026
2027
2028
Thereafter
Total undiscounted operating lease liabilities
Less imputed interest
Total operating lease liabilities, included in
Operating lease liability - current
Operating lease liability - long-term
$
17. Operating segments
Operating segments
The Company discloses segment information as reflected in the management information systems reports that its chief operating
decision maker uses in making decisions and to report certain entity-wide disclosures about products and services, and the countries in
which the entity holds material assets or reports material revenues. A description of the Company’s operating segments is contained in
Note 21 to the Company’s audited consolidated financial statements included in its Annual Report on Form 10-K for the year ended
June 30, 2023.
The Company analyzes its business and operations in terms of two inter-related but independent operating segments:
(1) Consumer Division (“Consumer”) and (2) Merchant Division (“Merchant”).
The reconciliation of the reportable segment’s revenue to revenue from external customers for the three months ended December
31, 2023 and 2022, is as follows:
Revenue
Reportable
Segment
Inter-
segment
From
external
customers
Merchant
$
$
$
Consumer
Total for the three months ended December 31, 2023
$
$
$
Merchant
$
$
$
Consumer
Total for the three months ended December 31, 2022
$
$
$
38
17. Operating segments (continued)
Operating segments (continued)
The reconciliation of the reportable segment’s revenue to revenue from external customers for the six months ended December
31, 2023 and 2022, is as follows:
Revenue
Reportable
Segment
Inter-
segment
From
external
customers
Merchant
$
$
$
Consumer
Total for the six months ended December 31, 2023
$
$
$
Merchant
$
$
$
Consumer
Total for the six months ended December 31, 2022
$
$
$
The Company 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”), the Company’s reportable segments’
measure of profit or loss. The Company does not allocate once -off items, stock-based compensation charges, certain lease charges
(“Lease adjustments”), depreciation and amortization, impairment of goodwill or other intangible assets, other items (including gains
or losses on disposal of investments, fair value adjustments to equity securities), interest income, interest expense, income tax expense
or loss from equity-accounted investments to its reportable segments. Group costs generally include: employee related costs in relation
to employees specifically hired for group roles and related directly to managing the US-listed entity; 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 officer’s insurance premiums. Once-off items represents non-recurring expense items, including costs related to acquisitions and
transactions consummated or ultimately not pursued. Unrealized loss FV for currency adjustments represents foreign currency mark-
to-market adjustments on certain intercompany accounts. The Lease adjustments reflect lease charges and the Stock-based
compensation adjustments reflect stock-based compensation expense and are both excluded from the calculation of Segment Adjusted
EBITDA and are therefore reported as reconciling items to reconcile the reportable segments’ Segment Adjusted EBITDA to the
Company’s loss before income tax expense.
The reconciliation of the reportable segments’ measure of profit or loss to loss before income taxes for the three and six months
ended December 31, 2023 and 2022, is as follows:
Three months ended
Six months ended
December 31,
December 31,
2023
2022
2023
2022
Reportable segments' measure of profit or loss
$
$
$
$
Operating loss: Group costs
(2,011 )
(2,256 )
(3,833 )
(4,556 )
Once-off costs
(119 )
(717 )
Unrealized Loss FV for currency adjustments
Lease adjustments
(678 )
(747 )
(1,374 )
(1,559 )
Stock-based compensation charge adjustments
(1,804 )
(2,849 )
(3,563 )
(4,311 )
Depreciation and amortization
(5,813 )
(5,919 )
(11,669 )
(11,917 )
Reversal of allowance of EMI doubtful debt
Gain on disposal of equity-accounted investments
(112 )
Interest income
Interest expense
(4,822 )
(4,388 )
(9,731 )
(8,424 )
Loss before income tax expense
$
(2,064 )
$
(6,303 )
$
(6,046 )
$
(14,351 )
39
17. Operating segments (continued)
Operating segments (continued)
The following tables summarize supplemental segment information for the three and six months ended December 31, 2023 and
2022:
Three months ended
Six months ended
December 31,
December 31,
2023
2022
2023
2022
Revenues
Merchant
$
$
$
$
Consumer
Total reportable segment revenue
Segment Adjusted EBITDA
Merchant
(1)
Consumer
(1)
(816 )
Total Segment Adjusted EBITDA
Depreciation and amortization
Merchant
Consumer
Subtotal: Operating segments
Group costs
Total
Expenditures for long-lived assets
Merchant
Consumer
Subtotal: Operating segments
Group costs
Total
$
$
$
$
(1) Segment Adjusted EBITDA for Merchant includes retrenchment costs of $
includes retrenchment costs of $
EBITDA for Merchant includes retrenchment costs of $
$
The segment information as reviewed by the chief operating decision maker does not include a measure of segment assets per
segment as all of the significant assets are used in the operations of all, rather than any one, of the segments. The Company does not
have dedicated assets assigned to a particular operating segment. Accordingly, it is not meaningful to attempt an arbitrary allocation
and segment asset allocation is therefore not presented.
18. Income tax
Income tax in interim periods
For the purposes of interim financial reporting, the Company determines the appropriate income tax provision by first applying
the effective tax rate expected to be applicable for the full fiscal year to ordinary income. This amount is then adjusted for the tax
effect of significant unusual items, for instance, changes in tax law, valuation allowances and non-deductible transaction-related
expenses that are reported separately, and have an impact on the tax charge. The cumulative effect of any change in the enacted tax
rate, if and when applicable, on the opening balance of deferred tax assets and liabilities is also included in the tax charge as a discrete
event in the interim period in which the enactment date occurs.
For the three and six months ended December 31, 2023, the Company’s effective tax rate was impacted by the tax expense
recorded by the Company’s profitable South African operations, non-deductible expenses, the on-going losses incurred by certain of
the Company’s South African businesses and the associated valuation allowances created related to the deferred tax assets recognized
regarding net operating losses incurred by these entities.
For the three and six months ended December 31, 2022, the Company’s effective tax rate was impacted by the tax expense
recorded by the Company’s profitable South African operations, non-deductible expenses, the on-going losses incurred by certain of
the Company’s South African businesses and the associated valuation allowances created related to the deferred tax assets recognized
regarding net operating losses incurred by these entities.
40
18. Income tax (continued)
Uncertain tax positions
The Company had
Company had
t expect changes related
to its unrecognized tax benefits will have a significant impact on its results of operations or financial position in the next 12 months.
The Company has
in the U.S. federal jurisdiction. As of December 31, 2023, the Company’s South African subsidiaries are no longer subject to income
tax examination by the South African Revenue Service for periods before June 30, 2019. The Company is subject to income tax in
other jurisdictions outside South Africa, none of which are individually material to its financial position, statement of cash flows, or
results of operations.
19. Commitments and contingencies
Guarantees
The South African Revenue Service and certain of the Company’s customers, suppliers and other business partners have asked
the Company to provide them with guarantees, including standby letters of credit, issued by South African banks. The Company is
required to procure these guarantees for these third parties to operate its business.
RMB has issued guarantees to these third parties amounting to ZAR
applicable as of December 31, 2023) thereby utilizing part of the Company’s short-term facilities. The Company pays commission of
between
% per annum to
% per annum of the face value of these guarantees and does not recover any of the commission from
third parties.
Nedbank has issued guarantees to these third parties amounting to ZAR
applicable as of December 31, 2023) thereby utilizing part of the Company’s short-term facilities. The Company pays commission of
between
% per annum to
% per annum of the face value of these guarantees and does not recover any of the commission from
third parties.
The Company has not recognized any obligation related to these guarantees in its consolidated balance sheet as of December 31,
2023. The maximum potential amount that the Company could pay under these guarantees is ZAR
at exchange rates applicable as of December 31, 2023). As discussed in Note 8, the Company has ceded and pledged certain bank
accounts to Nedbank as security for the guarantees issued by them with an aggregate value of ZAR
at exchange rates applicable as of December 31, 2023). The guarantees have reduced the amount available under its indirect and
derivative facilities in the Company’s short-term credit facilities described in Note 8.
Contingencies
The Company is subject to a variety of insignificant claims and suits that arise from time to time in the ordinary course of
business. Management currently believes that the resolution of these other matters, individually or in the aggregate, will not have a
material adverse impact on the Company’s financial position, results of operations or cash flows.
41
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:
70.0 million) primarily due to higher interest rates; and
●
Foreign exchange movements:
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:
131.5 million) primarily due to higher interest rates; and
●
Foreign exchange movements:
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 $0.1 million. We expect to fund these expenditures through internally generated funds and
available facilities.
59
Item 3. Quantitative and Qualitative Disclosures About Market Risk
In addition to the tables below, see Note 4 to the unaudited condensed consolidated financial statements for a discussion of
market risk.
We have short and long-term borrowings in South Africa which attract interest at rates that fluctuate based on changes in the
South African prime and 3-month JIBAR interest rates. The following table illustrates the effect on our annual expected interest charge,
translated at exchange rates applicable as of December 31, 2023, as a result of changes in the South African prime and 3-month JIBAR
interest rates, using our outstanding short and long-term borrowings as of December 31, 2023. The effect of a hypothetical 1% (i.e.
100 basis points) increase and a 1% decrease in the interest rates applicable to the borrowings as of December 31, 2023, are shown.
The selected 1% hypothetical change does not reflect what could be considered the best- or worst-case scenarios.
Table 18
As of December 31, 2023
Annual expected
interest charge
($ ’000)
Hypothetical
change in
interest rates
Estimated annual
expected interest
charge after
hypothetical change
in interest rates
($ ’000)
Interest on South African borrowings
22,345
1%
24,105
(1%)
20,585
60
Item 4. Controls and Procedures
Under the supervision and with the participation of our management, including our group chief executive officer and our group
chief financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-
15(e) promulgated under the Securities Exchange Act of 1934, as amended, as of December 31, 2023. Management recognizes that
any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their
objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and
procedures. Based on this evaluation, the group chief executive officer and the group chief financial officer concluded that our
disclosure controls and procedures were effective as of December 31, 2023.
Changes in Internal Control over Financial Reporting
There have not been any changes in our internal control over financial reporting during the fiscal quarter ended December 31,
2023, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
61
Part II. Other Information
Item 1A. Risk Factors
See “Item 1A RISK FACTORS” in Part I of our Annual Report on Form 10-K for the fiscal year ended June 30, 2023, for a
discussion of risk factors relating to (i) our business, (ii) operating in South Africa and other foreign markets, (iii) government
regulation, and (iv) our common stock. There have been no material changes from the risk factors previously disclosed in our Annual
Report on Form 10-K for the fiscal year ended June 30, 2023.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The table below presents information relating to purchases of shares of our common stock during the second quarter of fiscal
2024:
Table 19
(a)
(b)
(c)
(d)
Period
Total number
of shares
purchased
Average price
paid per share
(US dollars)
Total number of shares
purchased as part of publicly
announced plans or
programs
Maximum dollar value of
shares that may yet be
purchased under the plans
or programs
Oct-23
-
-
100,000,000
Nov-23
(1)
26,925
4.55
-
100,000,000
Dec-23
(1)
24,050
3.14
-
100,000,000
Total
50,975
-
(1) Relates to the delivery of shares of our common stock to us by certain of our employees to settle their income tax liabilities.
These shares do not reduce the repurchase authority under the share repurchase program.
Item 5. Other Information
Our Section 16 officers and directors, as defined in Rule 16a-1(f) of the Securities Exchange Act of 1934 (the “Exchange Act”),
may from time to time enter into plans for the purchase or sale of our common stock that are intended to satisfy the affirmative defense
conditions of Rule 10b5-1(c) of the Exchange Act. During the quarter ended December 31, 2023, no officers or directors, as defined
in Rule 16a-1(f),
, modified, or
as defined in Item 408 of Regulation S-K.
62
Item 6. Exhibits
The following exhibits are filed as part of this Form 10-Q:
Incorporated by Reference Herein
Exhibit
No.
Description of Exhibit
Included
Herewith
Form
Exhibit
Filing Date
10.44
8-K
10.1
December 1,
2023
10.45
8-K
10.1
December 4,
2023
X
X
X
101.INS
XBRL Instance Document
X
101.SCH
XBRL Taxonomy Extension Schema
X
101.CAL
XBRL Taxonomy Extension Calculation Linkbase
X
101.DEF
XBRL Taxonomy Extension Definition Linkbase
X
101.LAB
XBRL Taxonomy Extension Label Linkbase
X
101.PRE
XBRL Taxonomy Extension Presentation Linkbase
X
104
Cover page formatted as Inline XBRL and contained in
Exhibit 101
63
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on February 6, 2024.
LESAKA TECHNOLOGIES, INC.
By: /s/ Chris G.B. Meyer
Chris G.B. Meyer
Group Chief Executive Officer
By: /s/ Naeem E. Kola
Naeem E. Kola
Group Chief Financial Officer, Treasurer and Secretary