10-Q
LESAKA TECHNOLOGIES INC (LSAK)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
10-Q
(Mark One)
☒
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended
September 30, 2023
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the transition period from
To
Commission file number:
000-31203
LESAKA TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Florida
98-0171860
(State or other jurisdiction
(IRS Employer
of incorporation or organization)
Identification No.)
President Place, 4
th
Floor
,
Cnr. Jan Smuts Avenue and Bolton Road
,
Rosebank, Johannesburg
,
2196
,
South Africa
(Address of principal executive offices, including zip code)
Registrant’s telephone number,
including area code:
27
-
11
-
343-2000
Not Applicable
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Title of each class
Trading Symbol(s)
Name of each exchange
on which registered
Common stock, par value $0.001 per share
LSAK
NASDAQ
Global Select Market
Indicate by check mark whether
the registrant (1) has filed
all reports required to be
filed by Section 13 or
15(d)
of
the
Securities
Exchange
Act
of
1934
during
the
preceding
12
months
(or
for
such
shorter
period
that
the
registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90
days.
YES
☒
NO
☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File
required
to
be
submitted
pursuant
to
Rule
405
of
Regulation
S-T
(§232.405
of
this
chapter)
during
the
preceding
12
months (or for such shorter period that the registrant was required to submit such files).
YES
☒
NO
☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated
filer, smaller
reporting company
or an
emerging growth
company. See the
definitions of
“large accelerated
filer,”
“accelerated
filer,”
“smaller
reporting
company,”
and
“emerging
growth
company”
in
Rule 12b-2
of
the
Exchange Act (check one):
☐
Large accelerated filer
☒
Accelerated filer
☐
Non-accelerated filer
☒
Smaller reporting company
☐
Emerging growth company
If an
emerging
growth company,
indicate by
check mark
if the
registrant has
elected not
to use
the extended
transition period
for complying
with any
new or
revised financial
accounting standards
provided pursuant
to
Section 13(a) of the Exchange Act.
☐
Indicate by
check mark
whether the
registrant is
a shell
company (as
defined in
Rule 12b-2
of the
Exchange
Act). YES
☐
NO
☒
As of November
1, 2023 (the
latest practicable date),
62,384,522
shares of the
registrant’s
common stock, par
value $0.001 per share, net of treasury shares, were outstanding.
1
Form 10-Q
LESAKA TECHNOLOGIES, INC.
Table
of Contents
Page No.
PART
I. FINANCIAL INFORMATION
Item 1.
Financial Statements
Unaudited Condensed Consolidated Balance Sheets as of September 30, 2023 and June
30, 2023
2
Unaudited Condensed Consolidated Statements of Operations for the three months ended
September 30, 2023 and 2022
3
Unaudited Condensed Consolidated Statements of Comprehensive (Loss) Income for the
three months ended September 30, 2023 and 2022
4
Unaudited Condensed Consolidated Statement of Changes in Equity for the three months
ended September 30, 2023 and 2022
5
Unaudited Condensed Consolidated Statements of Cash Flows for the three months
ended September 30, 2023 and 2022
7
Notes to Unaudited Condensed Consolidated Financial Statements
8
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
37
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
49
Item 4.
Controls and Procedures
50
Part II. OTHER INFORMATION
Item 1A.
Risk Factors
51
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
51
Item 6.
Exhibits
52
Signatures
53
2
Part I. Financial information
Item 1. Financial Statements
LESAKA TECHNOLOGIES, INC.
Unaudited Condensed Consolidated Balance Sheets
September 30,
June 30,
2023
2023
(A)
(In thousands, except share data)
ASSETS
CURRENT ASSETS
Cash and cash equivalents
$
35,141
$
35,499
Restricted cash related to ATM funding
and credit facilities (Note 8)
19,865
23,133
Accounts receivable, net and other receivables (Note 2)
27,939
25,665
Finance loans receivable, net (Note 2)
35,735
36,744
Inventory (Note 3)
27,754
27,337
Total current assets before settlement assets
146,434
148,378
Settlement assets
26,352
15,258
Total current assets
172,786
163,636
PROPERTY,
PLANT AND EQUIPMENT, net of accumulated depreciation of - September: $
35,331
June:
$
36,563
27,663
27,447
OPERATING LEASE RIGHT-OF-USE (Note 16)
5,655
4,731
EQUITY-ACCOUNTED INVESTMENTS
(Note 5)
2,253
3,171
GOODWILL (Note 6)
133,139
133,743
INTANGIBLE ASSETS, NET (Note 6)
117,595
121,597
DEFERRED INCOME TAXES
9,859
10,315
OTHER LONG-TERM ASSETS, including reinsurance assets (Note 5 and 7)
77,822
77,594
TOTAL ASSETS
546,772
542,234
LIABILITIES
CURRENT LIABILITIES
Short-term credit facilities for ATM funding (Note 8)
19,754
23,021
Short-term credit facilities (Note 8)
8,983
9,025
Accounts payable
13,595
12,380
Other payables (Note 9)
35,105
36,297
Operating lease liability - current (Note 16)
1,722
1,747
Current portion of long-term borrowings (Note 8)
3,630
3,663
Income taxes payable
1,292
1,005
Total current liabilities before settlement obligations
84,081
87,138
Settlement obligations
25,362
14,774
Total current liabilities
109,443
101,912
DEFERRED INCOME TAXES
45,713
46,840
OPERATING LEASE LIABILITY - LONG TERM (Note 16)
4,081
3,138
LONG-TERM BORROWINGS (Note 8)
130,587
129,455
OTHER LONG-TERM LIABILITIES, including insurance policy liabilities (Note 7)
2,253
1,982
TOTAL LIABILITIES
292,077
283,327
REDEEMABLE COMMON STOCK
79,429
79,429
EQUITY
COMMON STOCK (Note 10)
Authorized:
200,000,000
with $
0.001
par value;
Issued and outstanding shares, net of treasury - September:
63,638,912
June:
63,640,246
83
83
PREFERRED STOCK
Authorized shares:
50,000,000
with $
0.001
par value;
Issued and outstanding shares, net of treasury:
September:
-
June:
-
-
-
ADDITIONAL PAID-IN-CAPITAL
337,490
335,696
TREASURY SHARES, AT
COST: September:
25,244,286
June:
25,244,286
(288,238)
(288,238)
ACCUMULATED OTHER
COMPREHENSIVE LOSS (Note 11)
(196,081)
(195,726)
RETAINED EARNINGS
322,012
327,663
TOTAL LESAKA EQUITY
175,266
179,478
NON-CONTROLLING INTEREST
-
-
TOTAL EQUITY
175,266
179,478
TOTAL LIABILITIES, REDEEMABLE COMMON STOCK AND SHAREHOLDERS’ EQUITY
$
546,772
$
542,234
(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
September 30,
2023
2022
(In thousands, except per
share data)
REVENUE (Note 15)
$
136,089
$
124,786
EXPENSE
Cost of goods sold, IT processing, servicing and support
107,490
100,528
Selling, general and administration
22,515
22,931
Depreciation and amortization
5,856
5,998
OPERATING INCOME (LOSS)
228
(4,671)
REVERSAL OF (ALLOWANCE) OF EMI
DOUBTFUL DEBT (Note 2 and 5)
250
-
NET GAIN ON DISPOSAL OF EQUITY-ACCOUNTED INVESTMENTS (Note 5)
-
248
INTEREST INCOME
449
411
INTEREST EXPENSE
4,909
4,036
LOSS BEFORE INCOME TAX EXPENSE
(3,982)
(8,048)
INCOME TAX EXPENSE (Note 18)
264
31
NET LOSS BEFORE LOSS FROM EQUITY-ACCOUNTED INVESTMENTS
(4,246)
(8,079)
LOSS FROM EQUITY-ACCOUNTED INVESTMENTS
(Note 5)
1,405
2,617
NET LOSS
$
(5,651)
$
(10,696)
Net loss per share, in United States dollars
(Note 13):
Basic loss attributable to Lesaka shareholders
$
(0.09)
$
(0.17)
Diluted loss attributable to Lesaka shareholders
$
(0.09)
$
(0.17)
See Notes to Unaudited Condensed Consolidated Financial Statements
LESAKA TECHNOLOGIES, INC.
Unaudited Condensed Consolidated Statements of Comprehensive (Loss) Income
4
Three months ended
September 30,
2023
2022
(In thousands)
Net loss
$
(5,651)
$
(10,696)
Other comprehensive (loss) income, net of taxes
Movement in foreign currency translation reserve
(844)
(22,093)
Movement in foreign currency translation reserve related to equity-accounted
investments
489
2,441
Release of foreign currency translation reserve related to disposal of Finbond
equity
securities
-
2
Total other comprehensive
loss, net of taxes
(355)
(19,650)
Comprehensive loss
(6,006)
(30,346)
Add comprehensive loss attributable to non-controlling interest
-
-
Comprehensive loss attributable to Lesaka
$
(6,006)
$
(30,346)
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 September 30, 2022 (dollar amounts
in thousands)
Balance – July 1, 2022
87,215,613
$
83
(24,891,292)
$
(286,951)
62,324,321
$
327,891
$
362,737
$
(168,840)
$
234,920
$
-
$
234,920
$
79,429
Shares repurchased (Note 12)
(35,460)
(185)
(35,460)
-
(185)
(185)
Restricted stock granted (Note 12)
231,523
231,523
-
-
Exercise of stock options
2,000
-
2,000
6
6
6
Stock-based compensation charge
(Note 12)
-
1,462
1,462
1,462
Stock-based compensation charge
related to equity-accounted investment
(Note 5)
-
6
6
6
Net loss
-
(10,696)
(10,696)
-
(10,696)
Other comprehensive loss (Note 11)
(19,650)
(19,650)
-
(19,650)
Balance – September 30, 2022
87,449,136
$
83
(24,926,752)
$
(287,136)
62,522,384
$
329,365
$
352,041
$
(188,490)
$
205,863
$
-
$
205,863
$
79,429
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 September 30, 2023 (dollar amounts
in thousands)
Balance – July 1, 2023
88,884,532
$
83
(25,244,286)
$
(288,238)
63,640,246
$
335,696
$
327,663
$
(195,726)
$
179,478
$
-
$
179,478
$
79,429
Exercise of stock option (Note 12)
6,793
-
6,793
21
21
21
Stock-based compensation charge
(Note 12)
-
-
1,768
1,768
1,768
Reversal of stock-based compensation
charge (Note 12)
(8,127)
(8,127)
(9)
(9)
(9)
Stock-based compensation charge
related to equity-accounted investment
(Note 5)
14
14
14
Net loss
(5,651)
(5,651)
-
(5,651)
Other comprehensive loss (Note 11)
(355)
(355)
-
(355)
Balance – September 30, 2023
88,883,198
$
83
(25,244,286)
$
(288,238)
63,638,912
$
337,490
$
322,012
$
(196,081)
$
175,266
$
-
$
175,266
$
79,429
See Notes to Unaudited Condensed Consolidated Financial
Statements
LESAKA TECHNOLOGIES, INC.
Unaudited Condensed Consolidated Statements of Cash Flows
7
Three months ended
September 30,
2023
2022
(In thousands)
Cash flows from operating activities
Net loss
$
(5,651)
$
(10,696)
Depreciation and amortization
5,856
5,998
Movement in allowance for doubtful accounts receivable and finance loans receivable
1,525
1,049
Loss from equity-accounted investments (Note 5)
1,405
2,617
Movement in allowance for doubtful loans to equity-accounted investments
(250)
-
Fair value adjustment related to financial liabilities
(34)
63
Interest payable
1,764
26
Facility fee amortized
227
249
Net gain on disposal of equity-accounted investments (Note 5)
-
(248)
Profit on disposal of property, plant and equipment
(36)
(208)
Stock-based compensation charge (Note 12)
1,759
1,462
Dividends received from equity-accounted investments
-
21
Increase in accounts receivable and other receivables
(2,345)
(2,943)
Increase in finance loans receivable
(488)
(3,581)
Increase in inventory
(479)
(279)
Increase (Decrease) in accounts payable and other payables
375
(438)
Increase in taxes payable
308
642
Decrease in deferred taxes
(562)
(1,394)
Net cash provided by (used in) operating activities
3,374
(7,660)
Cash flows from investing activities
Capital expenditures
(2,809)
(4,501)
Proceeds from disposal of property, plant and equipment
284
417
Acquisition of intangible assets
(135)
-
Proceeds from disposal of equity-accounted investments (Note 5)
-
253
Loan to equity-accounted investment
-
112
Repayment of loans by equity-accounted investments
-
(112)
Net change in settlement assets
(11,237)
(1,884)
Net cash used in investing activities
(13,897)
(5,715)
Cash flows from financing activities
Proceeds from bank overdraft (Note 8)
59,574
146,068
Repayment of bank overdraft (Note 8)
(62,793)
(136,922)
Long-term borrowings utilized (Note 8)
2,471
1,059
Repayment of long-term borrowings (Note 8)
(2,629)
(1,580)
Acquisition of treasury stock (Note 12)
-
(185)
Proceeds from exercise of stock options
21
6
Net change in settlement obligations
10,696
1,987
Net cash provided by financing activities
7,340
10,433
Effect of exchange rate changes on cash
(443)
(8,487)
Net decrease in cash, cash equivalents and restricted cash
(3,626)
(11,429)
Cash, cash equivalents and restricted cash – beginning of period
58,632
104,800
Cash, cash equivalents and restricted cash – end of period (Note 14)
$
55,006
$
93,371
See Notes to Unaudited Condensed Consolidated Financial Statements
8
LESAKA TECHNOLOGIES, INC
Notes to the Unaudited Condensed Consolidated Financial Statements
for the three months ended September 30, 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 months
ended
September 30,
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 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
Financial
Instruments—Credit
Losses (Topic
326),
Derivatives and
Hedging
(Topic
815),
and
Leases
(Topic
842).
The
guidance
provides
a
framework
to
stagger
effective
dates
for
future
major
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
by the
Company from
July 1, 2020
to July
1, 2023.
The guidance
became effective
for the
Company beginning
July 1,
- 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 September 30, 2023
There are no recent accounting pronouncements that have not yet been adopted
as of September 30, 2023.
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 September 30, 2023, and June 30, 2023, are presented in
the table below:
September 30,
June 30,
2023
2023
Accounts receivable, trade, net
$
10,231
$
11,037
Accounts receivable, trade, gross
10,401
11,546
Allowance for doubtful accounts receivable, end of period
170
509
Beginning of period
509
509
Reallocation to allowance for doubtful finance loans receivable
-
(418)
Reversed to statement of operations
(235)
(31)
Charged to statement of operations
179
2,005
Utilized
(284)
(1,645)
Foreign currency adjustment
1
89
Current portion of amount outstanding related to sale of interest in Carbon,
net of
allowance: September 2023: $
750
; June 2023: $
750
250
-
Current portion of total held to maturity investments
-
-
Investment in
7.625
% of Cedar Cellular Investment 1 (RF) (Pty) Ltd
8.625
% notes
-
-
Other receivables
17,458
14,628
Total accounts receivable,
net and other receivables
$
27,939
$
25,665
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.
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.
10
2.
Accounts receivable, net and other receivables and
finance loans receivable, net (continued)
Accounts receivable, net and other receivables (continued)
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 $
0.25
million, net of an
allowance for doubtful loans receivable of $
0.25
million as of June 30, 2023, and an amount due related to the sale of the loan, with a
face value of $
3.0
million, which was sold in
September 2022 for $
0.75
million, net of an allowance for
doubtful loans receivable of
$
0.75
million, refer
to Note 5 for
additional information.
The Company received
the outstanding $
0.25
million related to
the sale of
the equity-accounted investment in
October 2023, and has
reversed the allowance for
doubtful loans receivable of
$
0.25
million during
the three months ended September 30, 2023.
Investment in
7.625
% of Cedar Cellular
Investment 1 (RF) (Pty) Ltd
8.625
% 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
September 30, 2023,
and
June 30, 2023, respectively was $
0
(zero).
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 September 30, 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 ($
0.0
million).
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 September 30, 2023, and June 30, 2023, is presented
in the table below:
September 30,
June 30,
2023
2023
Microlending finance loans receivable, net
$
20,877
$
20,605
Microlending finance loans receivable, gross
22,328
22,037
Allowance for doubtful finance loans receivable, end of period
1,451
1,432
Beginning of period
1,432
1,394
Reversed to statement of operations
(27)
-
Charged to statement of operations
416
1,452
Utilized
(364)
(1,214)
Foreign currency adjustment
(6)
(200)
Merchant finance loans receivable, net
14,858
16,139
Merchant finance loans receivable, gross
17,800
18,289
Allowance for doubtful finance loans receivable, end of period
2,942
2,150
Beginning of period
2,150
297
Reallocation from allowance for doubtful accounts receivable
-
418
Reversed to statement of operations
(202)
(1,268)
Charged to statement of operations
1,394
3,068
Utilized
(376)
-
Foreign currency adjustment
(24)
(365)
Total finance
loans receivable, net
$
35,735
$
36,744
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 have been pledged as 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
six months
, with the majority
of loans
originated having
a tenor of
six months
. 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
five years
and uses historical default experience over the lifetime of
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
September 30, 2023,
was
6.50
%. The performing
component (that is,
outstanding loan payments
not in arrears) of the book exceeds more than
99
% of outstanding lending book as of September 30, 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
twelve months
, with
the majority
of
loans originated having a tenor of
approximately
seven months
. 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)
Microlending finance loans receivable (continued)
The
Company
has
recently
(in
the
past
two years
)
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
September 30, 2023, was approximately
1.18
%. 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
84
%,
11
% and
5
%,
respectively,
of the
outstanding lending book as of September 30, 2023.
3.
Inventory
The Company’s inventory
comprised the following categories as of September 30, 2023, and June 30, 2023:
September 30,
June 30,
2023
2023
Raw materials
$
2,642
$
2,819
Work-in-progress
230
30
Finished goods
24,882
24,488
$
27,754
$
27,337
As of
September
30,
2023 and
June 30,
2023, finished
goods includes
$
8.5
million
and $
8.6
million, respectively,
of Cell
C
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
10
million of Cell C inventory from the
Company per month. The amount
to be repurchased by Cell C is calculated as ZAR
10
million less the face value of any sales made by the Company during that month.
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
10
million a month through this channel from October 1, 2023, then Cell C would
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 are trending upwards and
the Company expects
higher interest rates
in the foreseeable 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
75,000,000
class “A” shares in Cell
C, a significant
mobile telecoms
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 September 30, 2023 and June 30, 2023, respectively,
and valued Cell C at $
0.0
(zero) and $
0.0
(zero) as
of September 30, 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
10
%
to
20
%
and
the
minority
discount
from
15
%
to
24
%
due
to
the
reduction
in
the
Company’s
shareholding percentage
from
15
% to
5
% 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
September 30,
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 September 30, 2023
and June 30, 2023:
Weighted Average
Cost of Capital ("WACC"):
Between
20
% and
31
% over the period of the forecast
Long term growth rate:
4.5
% (
4.5
% as of June 30, 2023)
Marketability discount:
20
% (
20
% as of June 30, 2023)
Minority discount:
24
% (
24
% as of June 30, 2023)
Net adjusted external debt - September 30, 2023:
(1)
ZAR
8
billion ($
0.4
billion), no lease liabilities included
Net adjusted external debt - June 30, 2023:
(2)
ZAR
8.1
billion ($
0.4
billion), no lease liabilities included
(1) translated from ZAR to U.S. dollars at exchange rates applicable as of
September 30, 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 September
30, 2023, all
amounts
translated at exchange rates applicable as of September 30, 2023:
Sensitivity for fair value of Cell C investment
1.0% increase
1.00% decrease
WACC
rate
$
-
$
621
EBITDA margin
$
1,954
$
-
The fair
value of
the Cell
C shares
as of
September 30,
2023, represented
0
% 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
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
no
outstanding foreign exchange contracts as of September 30, 2023, and June
30, 2023.
The
following
table
presents
the
Company’s
assets
measured
at
fair
value
on
a
recurring
basis
as
of
September
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, cash equivalents and
restricted cash (included
in other long-term assets)
251
-
-
251
Fixed maturity
investments (included in
cash and cash equivalents)
3,661
-
-
3,661
Foreign exchange
contracts
-
-
-
-
Total assets at fair value
$
3,912
$
-
$
-
$
3,912
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)
258
-
-
258
Fixed maturity investments
(included in cash and cash
equivalents)
3,119
-
-
3,119
Total assets at fair value
$
3,377
$
-
$
-
$
3,377
There have been
no
transfers in or out of Level 3 during the three months ended September 30, 2023 and 2022,
respectively.
There was
no
movement in the carrying value of assets measured at fair value on a recurring basis, and categorized within Level
3, during the three months ended September 30, 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 three months ended September
30, 2023:
Carrying value
Assets
Balance as of June 30, 2023
$
-
Foreign currency adjustment
(1)
-
Balance as of September 30, 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 September
30, 2022:
Carrying value
Assets
Balance as of June 30, 2022
$
-
Foreign currency adjustment
(1)
-
Balance as of September 30, 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.
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
no
liabilities that
are measured at
fair value
on a
nonrecurring
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 September 30, 2023,
and June 30, 2023, was as
follows:
September 30,
June 30,
2023
2023
Finbond Group Limited (“Finbond”)
27.8
%
27.8
%
Sandulela Technology
(Pty) Ltd ("Sandulela")
49.0
%
49.0
%
SmartSwitch Namibia (Pty) Ltd (“SmartSwitch Namibia”)
50.0
%
50.0
%
Finbond
As of September 30, 2023, the Company owned
220,523,358
shares in Finbond representing approximately
27.8
% of its issued
and outstanding
ordinary shares.
Finbond is
listed on
the Johannesburg
Stock Exchange
(“JSE”) and
its closing price
on September
29, 2023, the last trading
day of the month, was ZAR
0.41
per share. The market value,
using the September 29, 2023,
closing price,
of
the
Company’s
holding
in
Finbond
on
September
30,
2023,
was
ZAR
90.4
million
($
4.8
million
translated
at
exchange
rates
applicable as of September 30, 2023).
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
64.2
million ($
3.4
million using
exchange
rates
applicable
as
of
September
30,
2023),
or
ZAR
0.2911
per
share.
The
transaction
is
subject
to
certain
conditions,
including
regulatory
and
shareholder
approvals,
and
all
conditions
are
required
to
be
fulfilled
on
or
before
December
31,
2023,
otherwise the transaction will lapse.
Sale of Finbond shares during the three
months ended September 2022
The Company sold
81,935
shares in Finbond for cash during the three months ended September 30, 2022, and recorded a loss of
$
0.002
million which
is included
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 loss on disposal of
Finbond shares during the three months
ended September
30, 2022:
Three months
ended September
30,
2022
Loss on disposal of Finbond shares:
Consideration received in cash
$
3
Less: carrying value of Finbond shares sold
(3)
Less: release of foreign currency translation reserve from accumulated other
comprehensive loss
(2)
Add: release of stock-based compensation charge related to
equity-accounted investment
-
Loss on sale of Finbond shares
$
(2)
Finbond impairments recorded
during the three months ended September 30, 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,
- The Company recorded an impairment loss of $
1.2
million during the quarter ended September 30, 2023, which represented the
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
0.2911
referenced in
the August
2023 agreement referred to above to calculate the determined fair
value for Finbond.
Finbond impairments recorded
during the three months ended September 30, 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,
- The
Company
recorded
an
impairment
loss
of
$
1.1
million
during
the
quarter
ended
September
30,
2022,
related
to
the
other-than-
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
80
% of
its issued
and outstanding
shares between
them. The
Company calculated
a fair
value per
share for
Finbond by
applying a
liquidity discount of
25
% to
the September 30,
2022, Finbond closing
price of
ZAR
0.49
. The
Company increased the
liquidity discount
from
15
% (used
in the
previous impairment
assessment) to
25
% 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
25
%,
in Carbon
to
Etobicoke for
$
0.5
million and
a loan
due from
Carbon, with
a face
value of
$
3.0
million, to
Etobicoke for
$
0.75
million. Both
the
equity
interest and
the loan
had a
carrying value
of $
0
(zero) at
June 30,
- The
parties have
agreed that
Etobicoke pledge
the
Carbon shares purchased as security for the amounts outstanding
under the binding term sheet.
The Company received $
0.25
million on closing and the outstanding balance due by Etobicoke is expected to be paid
as follows:
(i) $
0.25
million on September 30, 2023 (the
amount was received in October 2023),
and (ii) the remaining amount,
of $
0.75
million
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 September 30, 2023. The Company has allocated the $
0.25
million received to the sale of
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 $
0
(zero), which is in
line with
the carrying value as of June 30, 2022, and has created an allowance for
doubtful loans receivable related to the $
1.0
million due from
Etobicoke. The Company did not incur any significant
transaction costs. The Company has included the gain of $
0.25
million related
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
$
250
Less: carrying value of Carbon
-
Gain on disposal of Carbon shares:
(1)
$
250
(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 three months ended September 30, 2023:
Finbond
Other
(1)
Total
Investment in equity
Balance as of June 30, 2023
$
3,040
$
131
$
3,171
Stock-based compensation
14
-
14
Comprehensive income:
(956)
40
(916)
Other comprehensive income
489
-
489
Equity accounted (loss) earnings
(1,445)
40
(1,405)
Share of net (loss) earnings
(278)
40
(238)
Impairment
(1,167)
-
(1,167)
Foreign currency adjustment
(2)
(14)
(2)
(16)
Balance as of September 30, 2023
$
2,084
$
169
$
2,253
(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 September
30, 2023, and June 30, 2023:
September 30,
June 30,
2023
2023
Total equity investments
$
76,297
$
76,297
Investment in
5
% of Cell C (June 30, 2023:
5
%) at fair value (Note 4)
-
-
Investment in
10
% of MobiKwik (June 30, 2023:
10
%)
(1)
76,297
76,297
Investment in
87.5
% of CPS (June 30, 2023:
87.5
%) at fair value
(1)(2)
-
-
Policy holder assets under investment contracts (Note 7)
251
257
Reinsurance assets under insurance contracts (Note 7)
1,274
1,040
Total other long-term
assets
$
77,822
$
77,594
(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 September 30, 2023:
Cost basis
Unrealized
holding
Unrealized
holding
Carrying
gains
losses
value
Equity securities:
Investment in MobiKwik
$
26,993
$
49,304
$
-
$
76,297
Investment in CPS
-
-
-
-
Held to maturity:
Investment in Cedar Cellular notes (Note 2)
-
-
-
-
Total
$
26,993
$
49,304
$
-
$
76,297
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
$
26,993
$
49,304
$
-
$
76,297
Investment in CPS
-
-
-
-
Held to maturity:
Investment in Cedar Cellular notes
-
-
-
-
Total
$
26,993
$
49,304
$
-
$
76,297
20
6.
Goodwill and intangible assets, net
Goodwill
Summarized below is the movement in the carrying value of goodwill
for the three months ended September 30, 2023:
Gross value
Accumulated
impairment
Carrying
value
Balance as of June 30, 2023
$
152,619
$
(18,876)
$
133,743
Foreign currency adjustment
(1)
(664)
60
(604)
Balance as of September 30, 2023
$
151,955
$
(18,816)
$
133,139
(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
$
-
$
133,743
$
133,743
Foreign currency adjustment
(1)
-
(604)
(604)
Balance as of September 30, 2023
$
-
$
133,139
$
133,139
(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
September 30, 2023, and
June
30, 2023:
As of September 30, 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
$
24,865
$
(12,005)
$
12,860
$
24,978
$
(11,565)
$
13,413
Software, integrated
platform and unpatented
technology
110,535
(16,419)
94,116
110,906
(13,711)
97,195
FTS patent
2,025
(2,025)
-
2,034
(2,034)
-
Brands and trademarks
13,789
(3,170)
10,619
13,852
(2,863)
10,989
Total finite-lived
intangible
assets
$
151,214
$
(33,619)
$
117,595
$
151,770
$
(30,173)
$
121,597
Aggregate amortization
expense on the
finite-lived intangible assets
for the three
months ended September
30, 2023 and
2022,
was approximately $
3.6
million and $
4.0
million, respectively.
Future estimated annual
amortization expense for
the next five fiscal
years
and
thereafter,
assuming
exchange
rates
that
prevailed
on
September
30,
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 (three months ended September 30, 2023)
$
10,742
Fiscal 2025
14,327
Fiscal 2026
14,328
Fiscal 2027
14,274
Fiscal 2028
14,232
Thereafter
49,692
Total future
estimated annual amortization expense
$
117,595
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 three
months ended September 30, 2023:
Reinsurance
Assets
(1)
Insurance
contracts
(2)
Balance as of June 30, 2023
$
1,040
$
(1,600)
Increase in policy holder benefits under insurance contracts
378
(1,952)
Claims and decrease in policyholders’ benefits under insurance contracts
(136)
1,671
Foreign currency adjustment
(3)
(8)
10
Balance as of September 30, 2023
$
1,274
$
(1,871)
(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
three months
ended September 30, 2023:
Assets
(1)
Investment
contracts
(2)
Balance as of June 30, 2023
$
257
$
(241)
Increase in policy holder benefits under investment contracts
3
(3)
Foreign currency adjustment
(3)
(9)
1
Balance as of September 30, 2023
$
251
$
(243)
(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.
22
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”) on September 30, 2023, was
8.33
%. The prime rate on September 30, 2023, was
11.75
%.
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
September
30,
2023,
the
Company’s
had
utilized
ZAR
10.0
million
($
0.5
million)
of
its
ZAR
200
million
Facility
G
revolving credit facility.
The interest rate on this facility as of September 30, 2023, was JIBAR plus
5.50
%.
Available short-term facility -
Facility E
As of September
30, 2023, the
aggregate amount of
the Company’s
short-term South African
overdraft facility with
RMB was
ZAR
1.4
billion ($
74.0
million). As of September 30, 2023, the Company had utilized approximately ZAR
0.4
billion ($
19.8
million)
of this overdraft 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.
Connect Facilities, comprising long-term borrowings and a short-term facility
As of September 30, 2023, the
Connect Facilities include (i) an overdraft facility (general
banking facility) of ZAR
205.0
million
(of which ZAR
170.0
million has been utilized); (ii) Facility A of
ZAR
700.0
million; (iii) Facility B of ZAR
550.0
million (both fully
utilized); and (iv) an asset-backed facility of ZAR
200.0
million (of which ZAR
152.5
million has been utilized).
CCC Revolving Credit Facility, comprising
long-term borrowings
As of
September
30,
2023,
the amount
of the
CCC Revolving
Credit Facility
was ZAR
300.0
million (of
which
ZAR
205.5
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
0.95
% per annum.
RMB facility, comprising indirect facilities
As of September
30, 2023, the aggregate
amount of the Company’s
short-term South African
indirect credit facility
with RMB
was ZAR
135.0
million ($
7.1
million), which includes facilities for guarantees, letters of credit and forward exchange contracts. As
of
September
30, 2023
and
June 30,
2023,
the
Company
had utilized
approximately
ZAR
33.1
million
($
1.7
million)
and
ZAR
33.1
million ($
1.8
million), respectively,
of its indirect and derivative facilities of
ZAR
135.0
million (June 30, 2023: ZAR
135.0
million)
to enable the bank to issue guarantees, letters of credit and forward exchange
contracts (refer to Note 19).
Nedbank facility, comprising short-term facilities
As of
September 30, 2023,
the aggregate amount
of the Company’s short-term
South African
credit facility with
Nedbank Limited
was ZAR
156.6
million ($
8.3
million). The credit facility represents indirect and derivative facilities
of up to ZAR
156.6
million ($
8.3
million), which include guarantees, letters of credit and forward exchange
contracts.
As of September 30, 2023 and June 30, 2023, the Company had utilized approximately ZAR
2.1
million ($
0.1
million) and ZAR
2.1
million
($
0.1
million),
respectively,
of
its
indirect
and
derivative
facilities
of
ZAR
156.6
million
(June
30,
2023:
ZAR
156.6
million) to enable the bank to issue guarantees, letters of credit and forward
exchange contracts (refer to Note 19).
23
8.
Borrowings (continued)
Movement in short-term credit facilities
Summarized below are the
Company’s short-term facilities as of
September 30, 2023, and
the movement in
the Company’s short-
term facilities from as of June 30, 2023 to as of September 30, 2023:
RMB
RMB
RMB
Nedbank
Facility E
Indirect
Connect
Facilities
Total
Short-term facilities available as of September 30, 2023
$
73,982
$
7,134
$
10,833
$
8,273
$
100,222
Overdraft
-
-
10,833
-
10,833
Overdraft restricted as to use for ATM
funding only
73,982
-
-
-
73,982
Indirect and derivative facilities
-
7,134
-
8,273
15,407
Movement in utilized overdraft facilities:
Restricted as to use for ATM
funding only
23,021
-
-
-
23,021
No restrictions as to use
-
-
9,025
-
9,025
Balance as of June 30, 2023
23,021
-
9,025
-
32,046
Utilized
59,574
-
-
-
59,574
Repaid
(62,793)
-
-
-
(62,793)
Foreign currency adjustment
(1)
(48)
-
(42)
-
(90)
Balance as of September 30, 2023
19,754
-
8,983
-
28,737
Restricted as to use for ATM
funding only
19,754
-
-
-
19,754
No restrictions as to use
$
-
$
-
$
8,983
$
-
$
8,983
Interest rate as of September 30, 2023 (%)
(2)
11.75
-
11.65
-
Movement in utilized indirect and derivative facilities:
Balance as of June 30, 2023
$
-
$
1,757
$
-
$
112
$
1,869
Foreign currency adjustment
(1)
-
(8)
-
-
(8)
Balance as of September 30, 2023
$
-
$
1,749
$
-
$
112
$
1,861
(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
0.10
%.
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 September
30, 2023:
Facilities
G & H
A&B
CCC
Asset
backed
Total
Included in current
$
-
$
-
$
-
$
3,663
$
3,663
Included in long-term
48,965
64,436
11,802
4,252
129,455
Opening balance as of June 30, 2023
48,965
64,436
11,802
7,915
133,118
Facilities utilized
1,372
-
-
1,099
2,471
Facilities repaid
(797)
-
(904)
(928)
(2,629)
Non-refundable fees paid
-
-
-
-
-
Non-refundable fees amortized
202
12
13
-
227
Capitalized interest
1,756
-
-
-
1,756
Capitalized interest repaid
(58)
-
-
-
(58)
Foreign currency adjustment
(1)
(297)
(293)
(50)
(28)
(668)
Closing balance as of September 30, 2023
51,143
64,155
10,861
8,058
134,217
Included in current
-
-
-
3,630
3,630
Included in long-term
51,143
64,155
10,861
4,428
130,587
Unamortized fees
(397)
(210)
(53)
-
(660)
Due within 2 years
-
-
-
3,179
3,179
Due within 3 years
51,540
4,954
10,914
1,142
68,550
Due within 4 years
-
7,596
-
104
7,700
Due within 5 years
$
-
$
51,815
$
-
$
3
$
51,818
Interest rates as of September 30, 2023 (%):
13.83
12.08
12.70
12.50
Base rate (%)
8.33
8.33
11.75
11.75
Margin (%)
5.50
3.75
0.95
0.75
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 is calculated based
on the 3-month JIBAR in
effect from time to time
plus a margin of,
from January 1, 2023:
(i)
5.50
% for as long as
the aggregate balance under
the Facilities is greater
than ZAR
800
million; (ii)
4.25
%
if the aggregate balance under the Facilities is equal to or less than ZAR
800
million, but greater than ZAR
350
million; or (iii)
2.50
%
if the aggregate balance under the Facilities is less than ZAR
350
million
(3) Interest on Facility A and Facility B is calculated based on JIBAR plus a margin,
of
3.75
%, in effect from time to time.
(4) Interest is charged at prime plus
0.95
% per annum on the utilized balance.
(5) Interest is charged at prime plus
0.75
% 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 September 30, 2023 and
2022, was $
4.0
million
and $
2.7
million, respectively.
Prepaid facility fees amortized
included in interest expense
during the three months
ended September
30, 2023
and 2022,
respectively,
were $
0.2
million and
$
0.2
million, respectively.
Interest expense
incurred under
the Company’s
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
$
0.4
million
and
$
0.2
million,
respectively,
is
included
in
the
caption
cost
of
goods
sold,
IT
processing,
servicing and support on
the condensed consolidated statement
of operations for the
three months ended September
30, 2023 and
2022.
25
9.
Other payables
Summarized below is the breakdown of other payables as of September
30, 2023, and June 30, 2023:
September 30,
June 30,
2023
2023
Accruals
$
6,619
$
7,078
Provisions
3,282
7,429
Value
-added tax payable
983
1,247
Payroll-related payables
2,125
1,038
Participating merchants' settlement obligation
39
39
Other
22,057
19,466
$
35,105
$
36,297
Other includes transactions-switching funds payable, deferred income, client
deposits and other payables.
10.
Capital structure
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 as of September 30, 2023
and 2022, respectively:
September 30,
September 30,
2023
2022
Number of shares, net of treasury:
Statement of changes in equity
63,638,912
62,522,384
Non-vested equity shares that have not vested as of end of period
2,527,492
2,518,546
Number of shares, net of treasury,
excluding non-vested equity shares that have not
vested
61,111,420
60,003,838
11.
Accumulated other comprehensive loss
The table
below presents
the change
in accumulated
other comprehensive
loss per
component
during the
three months
ended
September 30, 2023:
Three months ended
September 30, 2023
Accumulated
foreign
currency
translation
reserve
Total
Balance as of July 1, 2023
$
(195,726)
$
(195,726)
Movement in foreign currency translation reserve related to equity-accounted
investment
489
489
Movement in foreign currency translation reserve
(844)
(844)
Balance as of September 30, 2023
$
(196,081)
$
(196,081)
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
September 30, 2022:
Three months ended
September 30, 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
2
2
Movement in foreign currency translation reserve related to equity-accounted
investment
2,441
2,441
Movement in foreign currency translation reserve
(22,093)
(22,093)
Balance as of September 30, 2022
$
(188,490)
$
(188,490)
There were
no
reclassifications from accumulated other
comprehensive loss to net (loss) income
during the three months ended
September 30, 2023. During the three months ended September 30, 2022, the Company reclassified $
0.002
million from accumulated
other comprehensive
loss (accumulated
foreign currency
translation reserve)
to net
loss related
to the
disposal of
shares in
Finbond
(refer to Note 5).
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 three months
ended September 30, 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
673,274
4.37
5.14
239
1.67
Exercised
(6,793)
3.07
-
5
-
Forfeited
(175,776)
3.58
-
-
1.22
Outstanding - September 30, 2023
490,705
4.68
6.30
199
1.82
Outstanding - June 30, 2022
926,225
4.14
6.60
1,249
1.60
Exercised
(2,000)
3.07
-
1
-
Forfeited
-
-
-
-
-
Outstanding - September 30, 2022
924,225
4.14
6.36
226
1.60
No
stock options were
awarded during each of
the three months ended
September 30, 2023 and
- During the
three months
ended September
30, 2023
and 2022, respectively,
the Company
received approximately
$
0.02
million and $
0.006
million from
the
exercise of
6,793
and
2,000
stock options.
Employees and
a non-employee
director forfeited
an aggregate
of
175,776
stock options
during the
three months
ended September
30, 2023.
No
stock options
were forfeited
during the
three months
ended September
30,
2022.
27
12.
Stock-based compensation
Stock option and restricted stock activity
Options
The following table presents stock options vested and expected to vest as of
September 30, 2023:
Number of
shares
Weighted
average
exercise
price
($)
Weighted
average
remaining
contractual
term
(in years)
Aggregate
intrinsic
value
($’000)
Vested
and expecting to vest - September 30, 2023
490,705
4.68
6.30
199
These options have an exercise price range of $
3.01
to $
11.23
.
The following table presents stock options that are exercisable as of September
30, 2023:
Number of
shares
Weighted
average
exercise
price
($)
Weighted
average
remaining
contractual
term
(in years)
Aggregate
intrinsic
value
($’000)
Exercisable - September 30, 2023
341,317
5.05
5.77
121
No
stock options became exercisable during each of the three months ended September 30, 2023 and 2022. The Company issues
new shares to satisfy stock option exercises.
Restricted stock
The following table summarizes restricted stock activity for the three
months ended September 30, 2023 and 2022:
Number of
shares of
restricted
stock
Weighted
average
grant date
fair value
($’000)
Non-vested – June 30, 2023
2,614,419
11,869
Total vested
(78,800)
302
Forfeitures
(8,127)
32
Non-vested – September 30, 2023
2,527,492
11,475
Non-vested – June 30, 2022
2,385,267
11,879
Total Granted
212,080
1,167
Granted – July 2021
32,582
172
Granted – August 2021
179,498
995
Total vested
(78,801)
410
Vested
– July 2022
(78,801)
410
Non-vested – September 30, 2022
2,518,546
12,568
28
12.
Stock-based compensation (continued)
Stock option and restricted stock activity (continued)
Restricted stock (continued)
Grants
No
restricted stock was awarded during the three months ended September 30, 2023. In July 2022, the Company granted
32,582
shares of restricted
stock to employees
which have time
-based vesting conditions.
The Company agreed
to match, on
a
one
-for-one
basis, an employee’s
purchase of up to
$
1.0
million worth of the Company’s
shares of common stock
in open market purchases,
and
in August
2022,
the Company
granted
179,498
shares of
restricted stock
to the
employee.
These shares
of restricted
stock contain
time-based vesting conditions.
In October 2023, the
Company awarded
225,000
shares of restricted stock to
an executive officer
which vest on June 30,
2025,
except if the executive officer is terminated for cause,
in which case the award will be forfeited. The Company also awarded
310,916
shares of restricted stock
to
three
of its executive officers
which are subject to 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
10
% appreciation in the
Company’s stock price off a base price of $
4.00
over the measurement 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 $
3.90
.
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:
0
%;
●
Fiscal
2025,
the
Company’s
30-day
volume
weighted-average
stock
price
(“VWAP”)
before
November
17,
2024
is
approximately
1.10
times higher (i.e. $
4.40
or higher) than $
4.00
:
33
%;
●
Fiscal 2026, the Company’s
VWAP before
November 17, 2025 is
1.21
times higher (i.e. $
4.84
or higher) than $
4.00
:
67
%;
●
Fiscal 2027, the Company’s
VWAP before
November 1, 2026 is
1.33
times higher (i.e. $
5.32
) than $
4.00
:
100
%.
The
Company
also
awarded
333,080
shares
of
restricted
stock
with
time-based
vesting
conditions
to
approximately
150
employees
in October
2023, which
are subject
to the
employees continued
employment with
the Company
through the
applicable
vesting dates.
The Company has not yet determined the fair value of these shares of restricted
stock awarded in October 2023.
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
19,443
shares to an
advisor during the
three months ended
September
30, 2022 which were ineligible for transfer until the earlier of December
31, 2022, or the occurrence of the agreed event.
Vesting
In July 2023,
78,800
shares of restricted
stock granted to
Mr. Meyer vested. In
July 2022,
78,801
shares of restricted
stock granted
to Mr.
Meyer vested
and he
elected for
35,460
shares to
be withheld
to satisfy
the withholding
tax liability
on the
vesting of
these
shares. The
35,460
shares have been included in the Company’s
treasury shares.
Forfeitures
During
the
three
months
ended
September
30,
2023,
employees
forfeited
8,127
shares
of
restricted
stock
following
their
termination of employment with the Company.
No
shares of restricted stock were forfeited during the three months ended September
30, 2022.
29
12.
Stock-based compensation (continued)
Stock-based compensation charge and unrecognized compensation
cost
The Company recorded a stock-based compensation charge, net during the three months ended September 30, 2023 and 2022, of
$
1.8
million and $
1.5
million, respectively,
which comprised:
Total
charge
Allocated to cost
of goods sold, IT
processing,
servicing and
support
Allocated to
selling, general
and
administration
Three months ended September 30, 2023
Stock-based compensation charge
$
1,768
$
-
$
1,768
Reversal of stock compensation charge related to stock
options and restricted stock forfeited
(9)
-
(9)
Total - three months
ended September 30, 2023
$
1,759
$
-
$
1,759
Three months ended September 30, 2022
Stock-based compensation charge
$
1,462
$
-
$
1,462
Total - three months
ended September 30, 2022
$
1,462
$
-
$
1,462
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
September 30,
2023, the
total unrecognized
compensation cost
related to
stock options
was approximately
$
0.1
million,
which
the
Company
expects
to
recognize
over
approximately
two years
.
As
of
September
30,
2023,
the
total
unrecognized
compensation cost related
to restricted stock
awards was approximately
$
5.8
million, which the
Company expects to
recognize over
approximately
two years
.
As of
September 30,
2023, and
June 30,
2023, respectively,
the Company
recorded a
deferred tax
asset of
approximately $
0.6
million and $
0.6
million, related to the stock-based compensation charge recognized related to employees of Lesaka.
As of September
30,
2023,
and
June
30,
2023,
respectively,
the
Company
recorded
a
valuation
allowance
of
approximately
$
0.6
million
and
$
0.6
million, related to the deferred tax 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
no
redemptions of common stock, or
adjustments to the
carrying value of the redeemable common stock during
the three months ended September 30, 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 months ended September
30, 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
41,809
and
210,530
shares of common stock
from the calculation of
diluted loss per share during
the three months ended
September
30, 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.
30
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
September 30,
2023
2022
(in thousands except
percent and
per share data)
Numerator:
Net loss attributable to Lesaka
$
(5,651)
$
(10,696)
Undistributed (loss) earnings
$
(5,651)
$
(10,696)
Percent allocated to common shareholders (Calculation 1)
96
96
Numerator for (loss) earnings per share: basic and diluted
(5,402)
(10,277)
Continuing
(5,402)
(10,277)
Denominator
Denominator for basic (loss) earnings per share:
Weighted-average
common shares outstanding
60,990
59,996
Denominator for diluted (loss) earnings per share: adjusted weighted
average
common shares outstanding and assuming conversion
60,990
59,996
(Loss) Earnings per share:
Basic
$
(0.09)
$
(0.17)
Diluted
$
(0.09)
$
(0.17)
(Calculation 1)
Basic weighted-average common shares outstanding (A)
60,990
59,996
Basic weighted-average common shares outstanding and unvested restricted
shares
expected to vest (B)
63,805
62,445
Percent allocated to common shareholders
(A) / (B)
96
96
Options
to purchase
262,506
shares of
the Company’s
common
stock at
prices ranging
from $
4.87
to $
11.23
per share
were
outstanding during
the three months
ended September
30, 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
324,619
shares of the Company’s
common stock at prices
ranging from $
4.87
to $
11.23
per share were outstanding
during
the three months ended September
30, 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 September 30, 2023.
14.
Supplemental cash flow information
The following table presents supplemental cash flow disclosures for
the three months ended September 30, 2023 and 2022:
Three months ended
September 30,
2023
2022
Cash received from interest
$
445
$
409
Cash paid for interest
$
2,925
$
4,011
Cash paid for income taxes
$
604
$
677
31
14.
Supplemental cash flow information (continued)
Leases
The following table presents supplemental cash flow disclosure related to leases for the three months ended September 30, 2023
and 2022:
Three months ended
September 30,
2023
2022
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases
$
693
$
805
Right-of-use assets obtained in exchange for lease obligations
Operating leases
$
1,543
$
61
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 September 30, 2023:
Merchant
Consumer
Total
Processing fees
$
28,760
$
5,733
$
34,493
South Africa
27,400
5,733
33,133
Rest of world
1,360
-
1,360
Technology
products
2,037
19
2,056
South Africa
1,986
19
2,005
Rest of world
51
-
51
Telecom products
and services
87,313
41
87,354
South Africa
82,559
41
82,600
Rest of world
4,754
-
4,754
Lending revenue
-
5,373
5,373
Interest from customers
1,520
-
1,520
Insurance revenue
-
2,611
2,611
Account holder fees
-
1,368
1,368
Other
879
435
1,314
South Africa
830
435
1,265
Rest of world
49
-
49
Total revenue, derived
from the following geographic locations
120,509
15,580
136,089
South Africa
114,295
15,580
129,875
Rest of world
$
6,214
$
-
$
6,214
32
15.
Revenue recognition (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 September 30, 2022:
Merchant
Consumer
Total
Processing fees
$
27,297
$
6,535
$
33,832
South Africa
26,028
6,535
32,563
Rest of world
1,269
-
1,269
Technology
products
3,897
37
3,934
South Africa
3,830
37
3,867
Rest of world
67
-
67
Telecom products
and services
76,120
-
76,120
South Africa
72,029
-
72,029
Rest of world
4,091
-
4,091
Lending revenue
-
4,711
4,711
Interest from customers
1,223
-
1,223
Insurance revenue
-
2,181
2,181
Account holder fees
-
1,411
1,411
Other
1,245
129
1,374
South Africa
1,201
129
1,330
Rest of world
44
-
44
Total revenue, derived
from the following geographic locations
109,782
15,004
124,786
South Africa
104,311
15,004
119,315
Rest of world
$
5,471
$
-
$
5,471
33
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
five years
. The Company also operates parts
of its consumer business from
locations which it leases for a period
of less than
one year
. The Company’s operating lease expense during the three months ended September 30, 2023 and 2022 was $
0.7
million and
$
0.8
million, respectively.
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
September 30, 2023 and 2022, was $
0.9
million and $
1.1
million, respectively.
The following table presents supplemental balance
sheet disclosure related to the
Company’s right-of-use assets and its operating
lease liabilities as of September 30, 2023 and June 30, 2023:
September 30,
June 30,
2023
2023
Right of use assets obtained in exchange for lease obligations:
Weighted average
remaining lease term (years)
3.71
1.77
Weighted average
discount rate (percent)
10.1
9.7
The maturities of the Company’s
operating lease liabilities as of September 30, 2023, are presented below:
Maturities of operating lease liabilities
Year
ended June 30,
2024 (excluding three months to September 30, 2023)
$
1,699
2025
1,638
2026
1,305
2027
1,239
2028
1,159
Thereafter
120
Total undiscounted
operating lease liabilities
7,160
Less imputed interest
1,357
Total operating lease liabilities,
included in
5,803
Operating lease liability - current
1,722
Operating lease liability - long-term
$
4,081
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
”).
34
17.
Operating segments
(continued)
Operating segments (continued)
The reconciliation of the
reportable segment’s revenue to revenue from external
customers for the three
months ended September
30, 2023 and 2022, is as follows:
Revenue
Reportable
Segment
Inter-
segment
From
external
customers
Merchant
$
121,361
$
852
$
120,509
Consumer
15,580
-
15,580
Total for the three
months ended September 30, 2023
$
136,941
$
852
$
136,089
Merchant
$
109,782
$
-
$
109,782
Consumer
15,004
-
15,004
Total for the three
months ended September 30, 2022
$
124,786
$
-
$
124,786
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
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’
measures of profit or
loss to loss before
income tax expense for
the three months
ended September 30, 2023 and 2022, is as follows:
Three months ended
September 30,
2023
2022
Reportable segments measure of profit or loss
$
10,541
$
6,499
Operating loss: Group costs
(1,822)
(2,300)
Once-off costs
(78)
(598)
Unrealized Loss FV for currency adjustments
(102)
-
Lease adjustments
(696)
(812)
Stock-based compensation charge adjustments
(1,759)
(1,462)
Depreciation and amortization
(5,856)
(5,998)
Reversal of allowance of EMI doubtful debt
250
-
Gain on disposal of equity-accounted investments
-
248
Interest income
449
411
Interest expense
(4,909)
(4,036)
Loss before income tax expense
$
(3,982)
$
(8,048)
35
17.
Operating segments (continued)
Operating segments (continued)
The following
tables summarize
segment
information
that is
prepared
in accordance
with GAAP
for
the three
months
ended
September 30, 2023 and 2022:
Three months ended
September 30,
2023
2022
Revenues
Merchant
$
121,361
$
109,782
Consumer
15,580
15,004
Total reportable segment
revenue
136,941
124,786
Segment Adjusted EBITDA
Merchant
(1)
8,061
7,893
Consumer
(1)
2,480
(1,394)
Total Segment Adjusted
EBITDA
10,541
6,499
Depreciation and amortization
Merchant
2,078
1,825
Consumer
169
245
Subtotal: Operating segments
2,247
2,070
Group costs
3,609
3,928
Total
5,856
5,998
Expenditures for long-lived assets
Merchant
2,763
3,873
Consumer
46
628
Subtotal: Operating segments
2,809
4,501
Group costs
-
-
Total
$
2,809
$
4,501
(1)
Segment
Adjusted
EBITDA
for
Merchant
includes
retrenchment
costs
of
$
0.2
million
(ZAR
4.6
million)
and
Consumer
includes retrenchment costs of $
0.1
million (ZAR
1.5
million) for the three months ended September 30, 2023.
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 months ended September 30, 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 months ended September 30, 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.
36
18.
Income tax (continued)
Uncertain tax positions (continued)
The Company had
no
significant uncertain
tax positions during
the three months
ended September 30,
2023, and therefore,
the
Company had
no
accrued interest related to uncertain tax positions
on its balance sheet. The Company does
no
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
no
unrecognized tax benefits.
The Company
files income tax
returns mainly
in South Africa,
Botswana and
in the U.S. federal jurisdiction. As of September 30, 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
33.1
million
($
1.7
million,
translated
at
exchange
rates
applicable as of September 30, 2023) thereby utilizing part of the Company’s short-term facilities. The Company pays commission of
between
3.42
% per annum to
3.44
% 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
2.1
million ($
0.1
million, translated
at exchange
rates
applicable as of September 30, 2023) thereby utilizing part of the Company’s short-term facilities. The Company pays commission of
between
0.47
% per annum to
1.84
% 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 September 30,
- The maximum
potential amount that
the Company could
pay under these
guarantees is ZAR
35.2
million ($
1.9
million, translated
at exchange
rates applicable
as of
September 30,
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
2.1
million ($
0.1
million, translated
at
exchange
rates
applicable
as of
September
30,
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.
37
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
first quarter
of fiscal
2024 as
a result
of positive
operational momentum in both of our Merchant and Consumer divisions.
Revenue
of
$136.1
million
(ZAR
2.5
billion)
was
at
the
upper
end
of
our
revenue
guidance
despite
prevailing
negative
macroeconomic and socio-political conditions in South Africa.
We
reached
an
important
milestone
this
quarter,
with
operating
income
turning
positive
to
$0.2
million
(ZAR
4.2
million),
compared
with
an
operating
loss
of
$4.7
million
(ZAR
80.0
million)
during
the
first
quarter
of
fiscal
2023.
We
delivered
Group
Adjusted EBITDA,
a non-GAAP measure,
of ZAR 162.5
million ($8.7 million)
this quarter,
compared to Group
Adjusted EBITDA
of ZAR 71.9
million ($4.2
million) in
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.
38
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
34%
year-on-year growth in the number of devices
deployed. We had approximately 77,000 devices deployed as of September
30,
2023,
compared
to
approximately
57,000
devices
one
year ago.
We
experienced
a
slight slowdown
in
net
device
growth
during our current quarter, growing by
just over 2,000 devices.
o
The reason
for the
slight slowdown
in net
growth is
attributed to
a more
selective device
placement strategy
that
followed
the
six
month
period
to
March
31,
2023,
during
which
we
installed
a
significant
number
of
devices
at
informal merchants to support their supplier payments to three major FMCG companies in South Africa. Following
that accelerated roll out program we have prioritised deployment at merchants where we can sell more products and
services through
the channel
and earn
higher margins.
Therefore, during
the fourth
quarter of
fiscal 2023
and the
first quarter of fiscal 2024 we focused on optimising this new fleet and removing sub-optimal
devices.
o
As communicated in the fourth quarter of fiscal 2023, our product mix for VAS
sales has changed with low-margin
money
transfers
reducing
significantly,
currently
approximately
5%
of
VAS
throughput
is
money
transfers,
compared to approximately 30% a year ago. The impact on overall profitability
has not been material.
●
We
provide card acquiring
solutions in the informal
sector via Kazang
Pay and in
the formal sector we
provide this service
through Card
Connect. Card-enabled
POS devices increased
to approximately
46,600 as of
September 30,
2023, compared
to approximately 27,700 a year ago, a growth of 68% in deployed devices;
●
Our Merchant Credit
offering includes Capital Connect
in the
formal market and
Kazang Pay Advance
in the informal
market.
We
disbursed ZAR
196 million during
this quarter,
compared to approximately
ZAR 226 million
in the comparable
period
last year, representing a 13% decrease.
In the formal market we continue to see demand for our
merchant credit offering but
as previously disclosed,
we experienced a
slight pullback in
credit extension in
this business
since March 2023
as we
tightened
our
credit
criteria
in
response
to
the
higher
interest
rate
and
inflationary
pressures
in
the
South
African
economy.
In
the
informal
market, as
we innovate
and
execute quickly
in the
Merchant
Division, we
have decided
the current
Kazang Pay
Advance credit product is not suitable to continue with, especially in the high interest rate environment,
and have suspended
it,
while
we
explore
other
options
with
respect
to
our
Kazang
Pay
Advance
offering.
Overall,
Kazang
Pay
Advance
has
generated positive returns despite recent losses incurred being greater
than expected. A reduction in origination of
new loans,
loan book and disbursements is primarily a result of the decision to
suspend Kazang Pay Advance during the period but was
also partially impacted by the slight pull back in credit
extension in Capital Connect.
●
Our
automated
cash management
offering,
Cash Connect,
effectively
puts
the “bank”
in approximately
4,400
merchants’
stores, compared
to approximately
4,200 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.
Consumer Division
Over the past five 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.
The progress on our three key initiatives is as follows:
●
Driving customer acquisition
o
Our total
active EPE
transactional
account base
stood at
more than
1.3 million
at the
end of
September 2023,
of
which more than
1.1 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. Gross
EPE account
activations, for
the permanent
base, during
our
current
quarter
showed
significant
improvement
due
to
various
strategic
initiatives.
We
achieved
approximately
76,000 gross account activations in
the first quarter, compared
to approximately 45,000 in the first
quarter of fiscal
2023.
After
adjusting
for
account
churn,
net
active
account
growth
for
the
quarter
was
approximately
42,000
accounts, compared to approximately 2,700 in first quarter of fiscal 2023
39
●
Progress on cross
selling
EasyPay Loans
o
We
originated
approximately 222,000
loans during
the quarter
with our
consumer loan
book, before
allowances,
increasing 20% to
ZAR 423 million
as at September
30, 2023, compared
to ZAR 351
million as of
September 30,
2022.
o
We have not
amended our credit scoring or other lending criteria to grow our Consumer lending book.
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,
remains flat at approximately 6% on an annualized basis, compared to the fourth
quarter of fiscal 2023.
EasyPay Insurance
o
Our insurance product sales continue to grow 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 September
30, 2023, compared
to below 25% as
of September 30, 2022.
Approximately 37,500 new
policies
were written
in the
quarter,
compared to
approximately 25,000
in the
comparable period
in fiscal
- The
total
number of active policies has
grown by 34% to approximately
359,000 policies as of September
30, 2023, compared
to September 30, 2022.
ARPU
o
ARPU
for
our
permanent
client
base
has
increased
to
above
ZAR
83
for
the
first
quarter
of
fiscal
2024,
from
approximately ZAR 74 in the first 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,
inflation
and
unemployment
remaining
at
elevated
levels.
These
factors
are
compounded by daily power cuts (known as load-shedding
in South Africa), although we did see a reduction in load shedding
during
this quarter. 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.
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.
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.
40
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 September 30, 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
September
30,
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
Year
ended
September 30,
June 30,
2023
2022
2023
ZAR : $ average exchange rate
18.6457
17.0201
17.7641
Highest ZAR : $ rate during period
19.2202
18.0545
19.7558
Lowest ZAR : $ rate during period
17.6278
16.2035
16.2034
Rate at end of period
18.9236
18.0126
18.8376
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 months
ended September
30, 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
Year
ended
Table 2
September 30,
June 30,
2023
2022
2023
Income and expense items: $1 = ZAR
18.7088
17.1307
17.9400
Balance sheet items: $1 = ZAR
18.9236
18.0126
18.8376
41
We have translated the results of operations
and operating segment information for the three months ended September 30, 2023,
provided in the
tables below using
the actual average
exchange rates per
month (i.e. for
each of July
2023, August 2023,
and September
2023) 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
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 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.
Fiscal 2024
and 2023 includes Connect for the entire quarter.
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.
First quarter of fiscal 2024 compared to first quarter
of fiscal 2023
The following factors had a significant impact on
our results of operations during the first
quarter of fiscal 2024 as compared with
the same period in the prior year:
●
Higher revenue:
Our revenues increased 19% 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 income was
achieved following years
of operating losses as
a result of the
various
cost reduction initiatives in Consumer implemented in prior periods
as well as the contribution from Connect;
●
Higher net
interest charge:
The net
interest charge
increased to
$4.5 million
(ZAR 83.1
million) from
$3.6 million
(ZAR
62.1 million) primarily due to higher interest rates; and
●
Foreign
exchange
movements:
The
U.S.
dollar
was 9%
stronger
against the
ZAR during
the
first
quarter
of
fiscal
2024
compared to the prior period, which adversely impacted our U.S. dollar
reported results.
42
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 September 30,
2023
2022
%
$ ’000
$ ’000
change
Revenue
136,089
124,786
9%
Cost of goods sold, IT processing, servicing and support
107,490
100,528
7%
Selling, general and administration
22,515
22,931
(2%)
Depreciation and amortization
5,856
5,998
(2%)
Operating income (loss)
228
(4,671)
nm
Reversal of allowance of EMI doubtful debt receivable
250
-
nm
Net gain on disposal of equity-accounted investments
-
248
nm
Interest income
449
411
9%
Interest expense
4,909
4,036
22%
Loss before income tax expense
(3,982)
(8,048)
(51%)
Income tax expense
264
31
752%
Net loss before loss from equity-accounted investments
(4,246)
(8,079)
(47%)
Loss from equity-accounted investments
1,405
2,617
(46%)
Net loss attributable to us
(5,651)
(10,696)
(47%)
Table 4
In South African Rand
Three months ended September 30,
2023
2022
%
ZAR ’000
ZAR ’000
change
Revenue
2,537,659
2,137,671
19%
Cost of goods sold, IT processing, servicing and support
2,004,465
1,722,115
16%
Selling, general and administration
419,861
392,824
7%
Depreciation and amortization
109,166
102,749
6%
Operating income (loss)
4,167
(80,017)
nm
Reversal of allowance of EMI doubtful debt receivable
4,741
-
nm
Net gain on disposal of equity-accounted investments
-
4,248
nm
Interest income
8,368
7,041
19%
Interest expense
91,429
69,140
32%
Loss before income tax expense
(74,153)
(137,868)
(46%)
Income tax expense
4,825
532
807%
Net loss before loss from equity-accounted investments
(78,978)
(138,400)
(43%)
Loss from equity-accounted investments
26,657
44,831
(41%)
Net loss attributable to us
(105,635)
(183,231)
(42%)
Revenue increased
by $11.3
million (ZAR
0.4 billion),
or 9.1%
(in ZAR,
18.7%), 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 $7.0 million
(ZAR 0.3 billion), or 6.9% (in ZAR, 16.4%),
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 $0.4 million, or 1.8%,
and in ZAR increased by ZAR 27.0 million, or
6.9%.
In ZAR, the increase was primarily due
to higher employee-related expenses related to the expansion
of our senior management
team,
the
year-over-year
impact
of
inflationary
increases
on
employee-related
expenses
and
the
inclusion
of
expenses
related
to
Connect’s operations, which were
partially offset by the benefits of various cost reduction initiatives in
Consumer.
Depreciation and amortization expense
decreased by $0.1 million, or 2.4%
,
and in ZAR increased by
ZAR 6.4 million or 6.2%.
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 quarter of fiscal 2024 and 2023 was
0.2% and (3.7%), respectively. We
discuss
the components of operating loss margin under “—Results of operations
by operating segment.”
43
We did not record any changes in the fair value of equity interests in MobiKwik and Cell C
during the first quarter of fiscal 2024
or 2023, respectively. We
continue to carry our investment in Cell
C at $0 (zero). Refer to Note
4 for the methodology and inputs used
in the fair value calculation for Cell C.
We recorded
a gain of $0.3 million related to
the disposal of our entire interest
in Carbon during the first
quarter 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 $0.4 million (ZAR 8.4
million) from $0.4 million (ZAR
7.0 million), primarily due to
higher
interest rates.
Interest
expense increased
to $4.9
million (ZAR
91.4 million)
from $4.0
million (ZAR
69.1 million),
primarily
as a
result of
higher overall interest rates and higher overall borrowings
during the first 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 $(0.3) million (ZAR (4.8) million) compared to $0.0
million (ZAR 0.5 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.
The table below presents the relative (loss) earnings from our equity-accounted
investments:
Table 5
Three months ended September 30,
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
40
14
186%
Total
loss from equity-accounted investments
(1,405)
(2,617)
(46%)
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 September 30,
2023
% of
2022
% of
% change
Operating Segment
$ ’000
total
$ ’000
total
Consolidated revenue:
Merchant
121,361
89%
109,782
88%
11%
Consumer
15,580
11%
15,004
12%
4%
Subtotal: Operating segments
136,941
100%
124,786
100%
10%
Eliminations
(852)
-
-
-
nm
Total
consolidated revenue
136,089
100%
124,786
100%
9%
Segment Adjusted EBITDA:
Merchant
(1)
8,061
92%
7,893
188%
2%
Consumer
(1)
2,480
28%
(1,394)
(33%)
nm
Group costs
(1,822)
(21%)
(2,300)
(55%)
(21%)
Group Adjusted EBITDA (non-GAAP)
(2)
8,719
100%
4,199
100%
108%
(1) Segment Adjusted EBITDA for Merchant includes retrenchments costs of $0.2 million and Consumer includes retrenchment
costs of $0.1 million for the three months ended September 30, 2023.
(2) Group Adjusted EBITDA
is a non-GAAP measure, refer
to reconciliation below at
“—Results of Operations—Use of
Non-
GAAP Measures”.
44
Table 7
In South African Rand
Three months ended September 30,
2023
% of
2022
% of
% change
Operating Segment
ZAR ’000
total
ZAR ’000
total
Consolidated revenue:
Merchant
2,263,001
89%
1,880,642
88%
20%
Consumer
290,629
11%
257,029
12%
13%
Subtotal: Operating segments
2,553,630
100%
2,137,671
100%
19%
Eliminations
(15,971)
-
-
-
nm
Total
consolidated revenue
2,537,659
100%
2,137,671
100%
19%
Segment Adjusted EBITDA:
Merchant
(1)
150,181
92%
135,212
188%
11%
Consumer
(1)
46,302
28%
(23,880)
(33%)
nm
Group costs
(33,980)
(21%)
(39,400)
(55%)
(14%)
Group Adjusted EBITDA (non-GAAP)
(2)
162,503
100%
71,932
100%
126%
(1)
Segment
Adjusted
EBITDA
for
Merchant
includes
retrenchments
costs
of
ZAR
4.6
million
and
Consumer
includes
retrenchment costs of ZAR 1.5 million for the three months ended September 30,
2023.
(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. 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 first
quarter of
fiscal 2024 and 2023 was
6.6% and
7.2%, 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
for four consecutive quarters.
Our Segment Adjusted EBITDA (loss) margin for the first quarter of fiscal 2024 and 2023
was
15.9% and
(9.3%),
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.
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.
45
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.
The table below presents the reconciliation between GAAP net loss attributable
to Lesaka to Group Adjusted EBITDA:
Table 8
Three months ended
September 30,
2023
2022
$ ’000
$ ’000
Loss attributable to Lesaka - GAAP
(5,651)
(10,696)
(Earnings) loss from equity accounted investments
1,405
2,617
Net loss before (earnings) loss from equity-accounted investments
(4,246)
(8,079)
Income tax (benefit) expense
264
31
Loss before income tax expense
(3,982)
(8,048)
Interest expense
4,909
4,036
Interest income
(449)
(411)
Reversal of allowance for doubtful EMI loan receivable
(250)
-
Net gain on disposal of equity-accounted investment
-
(248)
Operating income (loss)
228
(4,671)
PPA amortization
(amortization of acquired intangible assets)
3,608
3,928
Depreciation and amortization
2,248
2,070
Stock-based compensation charges
1,759
1,462
Lease adjustments
696
812
Once-off items
(1)
78
598
Unrealized Loss FV for currency adjustments
102
-
Group Adjusted EBITDA - Non-GAAP
8,719
4,199
(1) The table below presents the components of once-off
items for the periods presented:
Table 9
Three months ended
September 30,
2023
2022
$ ’000
$ ’000
Transaction costs
78
203
Expenses incurred related to closure of legacy businesses
-
395
Total once-off
items
78
598
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.
Expenses
incurred
related
to close
of
legacy
businesses
represents
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 September 30, 2023, our
cash and cash equivalents were $35.1
million and comprised of U.S. dollar-denominated balances
of $2.2 million,
ZAR-denominated balances of
ZAR 586.7 million
($31.0 million), and
other currency deposits,
primarily Botswana
pula, of $1.9
million, all amounts
translated at exchange
rates applicable as
of September 30,
- The increase
in our unrestricted
cash balances from
June 30, 2023,
was primarily due
to a positive contribution
from our Merchant
and Consumer operations,
which
was partially offset
by the utilization
of cash reserves
to fund certain
scheduled repayments of
our borrowings,
purchase ATMs
and
safe assets, and to make an investment in working capital.
46
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
safe assets.
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
September 30, 2023:
Table 10
RMB Facility E
RMB Indirect
RMB Connect
Nedbank
$ ’000
ZAR ’000
$ ’000
ZAR ’000
$ ’000
ZAR ’000
$ ’000
ZAR ’000
Total
short-term facilities
available, comprising:
Overdraft
-
-
-
-
10,833
205,008
-
-
Overdraft restricted as to
use
(1)
73,982
1,400,014
-
-
-
-
-
-
Total overdraft
73,982
1,400,014
-
-
10,833
205,008
-
-
Indirect and derivative
facilities
(2)
-
-
7,134
134,992
-
-
8,273
156,552
Total
short-term
facilities available
73,982
1,400,014
7,134
134,992
10,833
205,008
8,273
156,552
Utilized short-term
facilities:
Overdraft
-
-
-
-
8,983
169,981
-
-
Overdraft restricted as to
use
(1)
19,754
373,811
-
-
-
-
-
-
Indirect and derivative
facilities
(2)
-
-
1,749
33,100
-
-
112
2,119
Total
short-term
facilities available
19,754
373,811
1,749
33,100
8,983
169,981
112
2,119
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
2.5
billion
($134.2
million
translated
at
exchange
rates
as
of
September 30, 2023)
as described in Note
- 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 three
months ended
September 30,
2023, and
ZAR 10.0
million was
drawn
as of
September 30,
2023, with
the
remaining balance available for utilization in the future. In contemplation of the Connect transaction, Connect obtained
total facilities
of approximately
ZAR 1.3 billion,
which were
utilized to repay
its existing borrowings,
to fund a
portion of
its capital expenditures
and to settle
obligations under the
transaction documents,
and which has
subsequently been
upsized for its
operational requirements
and has an outstanding balance as of September 30,
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.
47
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
September
30,
2023,
includes
restricted
cash
of
approximately
$19.8
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
September 30,
2023, includes
restricted
cash of
approximately
$0.1 million
that has
been ceded
and
pledged.
Cash flows from operating activities
First quarter
Net cash provided
by operating activities
during the first
quarter of fiscal
2024 was $3.4
million (ZAR 63.1
million) compared
to net cash used
in operating activities of
$7.7 million (ZAR 131.2
million) during the first
quarter of fiscal 2023.
Excluding the impact
of
income
taxes,
our
cash
provided
by
operating
activities
during
the
first
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 Saturday and settled in the following week.
During the first quarter of fiscal
2024, we paid first provisional South
African tax payments of $0.6 million
(ZAR 10.9 million)
related
to our
2023
tax year.
During
the first
quarter of
fiscal
2023,
we
paid
first provisional
South
African
tax payments
of
$0.5
million (ZAR 8.2 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.
Taxes paid during
the first quarter of fiscal 2024 and 2023 were as follows:
Table 11
Three months ended September 30,
2023
2022
2023
2022
$
$
ZAR
ZAR
‘000
‘000
‘000
‘000
First provisional payments
-
492
-
8,216
Second provisional payments
-
191
-
3,371
Taxation paid related
to prior years
572
-
10,859
-
Tax refund received
(31)
(57)
(640)
(970)
Total South African
taxes paid
541
626
10,219
10,617
Foreign taxes paid
63
51
1,196
886
Total
tax paid
604
677
11,415
11,503
Cash flows from investing activities
First quarter
Cash used
in
investing
activities
for
the
first
quarter
of
fiscal
2024
included
capital
expenditures
of
$2.8
million
(ZAR 52.6
million), primarily due to the acquisition of safe assets and POS devices.
Cash
used
in
investing
activities
for
the
first
quarter
of
fiscal
2023
included
capital
expenditures
of
$4.5
million
(ZAR 77.1
million), primarily due to the acquisition of safe assets, POS devices and computer equipment.
During the first quarter of fiscal 2023,
we received proceeds $0.25 million related
to the first tranche (of two) from
the disposal of our entire interest
in Carbon. The second
tranche, of $0.25 million, was received in October 2023.
48
Cash flows from financing activities
First quarter
During the
first quarter
of fiscal
2024,
we utilized
approximately $59.6
million from
our South
African overdraft
facilities to
fund
our
ATMs
and
our
cash
management
business
through
Connect,
and
repaid
$62.8
million
of
those
facilities.
We
utilized
approximately $2.5 million of our long-term borrowings to fund
the acquisition of certain capital expenditures and for working
capital
requirements.
We
repaid approximately
$2.6 million of
long-term borrowings in
accordance with our
repayment schedule as
well as
to settle a portion of our revolving credit facility utilized.
During the
first quarter
of fiscal 2023,
we utilized approximately
$146.1 million
from our South
African overdraft
facilities to
fund
our
ATMs
and
our
cash
management
business
through
Connect,
and
repaid
$136.9
million
of
those
facilities.
We
utilized
approximately
$1.1
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 approximately
$1.6 million
of long-term
borrowings
in accordance
with our
repayment schedule. We paid $0.2 million to repurchase shares from an employee in order for the employee 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
second quarter of
fiscal 2024
to primarily include
spending for acquisition
of POS devices,
safe assets,
computer software,
computer and
office equipment,
as well as
for our ATM
infrastructure and
branch network
in South
Africa. Our capital expenditures
for the first
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 September 30, 2023, of $0.7 million. We expect to fund these expenditures through internally generated funds and
available facilities.
49
Item 3. Quantitative and Qualitative Disclosures About
Market Risk
In addition to the tables below, see
Note 4 to the unaudited condensed consolidated financial statements for
a discussion of
market risk.
We
have
short and
long-term borrowings
in South
Africa which
attract interest
at rates
that fluctuate
based on
changes in
the
South African prime
and 3-month JIBAR
interest rates. The
following table illustrates
the effect on
our annual expected
interest charge,
translated at exchange rates
applicable as of September
30, 2023, as a
result of changes in
the South African
prime and 3-month JIBAR
interest rates, using
our outstanding
short and long-term
borrowings as of
September 30, 2023.
The effect
of a hypothetical
1% (i.e.
100 basis points)
increase and a 1%
decrease in the
interest rates applicable
to the borrowings
as of September
30, 2023, are shown.
The selected 1% hypothetical change does not reflect what could be considered
the best- or worst-case scenarios.
Table 12
As of September 30, 2023
Annual expected
interest charge
($ ’000)
Hypothetical
change in
interest rates
Estimated annual
expected interest
charge after
hypothetical change
in interest rates
($ ’000)
Interest on South African borrowings
20,667
1%
22,304
(1%)
19,033
50
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
September 30, 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
September 30, 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 September
30,
2023,
that have materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting.
51
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
None.
52
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
Certification of Principal Executive Officer pursuant to
Rule 13a-14(a) under the Exchange Act
X
Certification of Principal Financial Officer pursuant to Rule
13a-14(a) under the Exchange Act
X
Certification pursuant to 18 USC Section 1350
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
53
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 November 7,
2023.
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
ex311
1
Exhibit 31.1
CERTIFICATION
OF PRINCIPAL
EXECUTIVE OFFICER
PURSUANT TO RULES 13A-14(A) AND 15D-14(A)
UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
I, Chris G.B. Meyer,
certify that:
1.
I have
reviewed this
quarterly report
on Form
10-Q of
Lesaka Technologies,
Inc. (“Lesaka”)
for the
quarter ended
September
30, 2023;
2.
Based
on
my
knowledge,
this
report
does
not
contain
any
untrue
statement
of
a
material
fact
or
omit
to
state
a
material
fact
necessary to
make the
statements made,
in light
of the
circumstances under
which such
statements were
made, not
misleading with
respect to the period covered by this report;
3.
Based on
my knowledge,
the financial
statements, and
other
financial
information
included
in this
report,
fairly
present in
all
material respects
the financial
condition, results
of operations
and cash
flows of
Lesaka as
of, and
for, the
periods presented
in this
report;
4.
I am
responsible
for
establishing and
maintaining
disclosure controls
and
procedures (as
defined
in Exchange
Act Rules
13a-
15(e)
and 15d-15(e))
and
internal control
over financial
reporting (as
defined
in Exchange
Act Rules
13a-15(f)
and 15d-15(f))
for
Lesaka and have:
(a) Designed
such disclosure
controls and
procedures, or
caused such
disclosure controls
and procedures
to be
designed
under our supervision,
to ensure that material
information relating to
Lesaka, including
its consolidated subsidiaries,
is made known
to us by others within those entities, particularly during the period in which
this report is being prepared;
(b) Designed
such internal
control over
financial reporting,
or caused
such internal
control over financial
reporting to
be
designed under our supervision, to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted
accounting principles;
(c)
Evaluated
the
effectiveness
of
Lesaka’s
disclosure
controls
and
procedures
and
presented
in
this
report
our
conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by
this report based
on such evaluation; and
(d) Disclosed in this report
any change in Lesaka’s
internal control over financial reporting
that occurred during Lesaka’s
most
recent
fiscal
quarter
that
has
materially
affected,
or
is
reasonably
likely
to
materially
affect,
Lesaka’s
internal
control
over
financial reporting; and
5.
I have
disclosed, based
on our
most recent
evaluation of
internal control
over financial
reporting, to
Lesaka’s
auditors and
the
Audit Committee of Lesaka’s Board
of Directors (or persons performing the equivalent functions):
(a)
All
significant
deficiencies
and
material
weaknesses
in
the
design
or
operation
of
internal
control
over
financial
reporting
which
are
reasonably
likely
to
adversely
affect
Lesaka’s
ability
to
record,
process,
summarize
and
report
financial
information; and
(b)
Any
fraud,
whether
or
not
material,
that
involves
management
or
other
employees
who
have
a
significant
role
in
Lesaka’s internal control over financial
reporting.
Date: November 7, 2023
/s/ Chris G.B. Meyer
Chris G.B. Meyer
Group Chief Executive Officer
ex312
1
Exhibit 31.2
CERTIFICATION
OF PRINCIPAL
FINANCIAL OFFICER
PURSUANT TO RULES 13A-14(A) AND 15D-14(A)
UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
I, Naeem E. Kola, certify that:
1.
I have
reviewed this
quarterly report
on Form
10-Q of
Lesaka Technologies,
Inc. (“Lesaka”)
for the
quarter ended
September
30, 2023;
2.
Based
on
my
knowledge,
this
report
does
not
contain
any
untrue
statement
of
a
material
fact
or
omit
to
state
a
material
fact
necessary to
make the
statements made,
in light
of the
circumstances under
which such
statements were
made, not
misleading with
respect to the period covered by this report;
3.
Based on
my knowledge,
the financial
statements, and
other
financial
information
included
in this
report,
fairly
present in
all
material respects
the financial
condition, results
of operations
and cash
flows of
Lesaka as
of, and
for, the
periods presented
in this
report;
4.
I am
responsible
for
establishing and
maintaining
disclosure controls
and
procedures (as
defined
in Exchange
Act Rules
13a-
15(e)
and 15d-15(e))
and
internal control
over financial
reporting (as
defined
in Exchange
Act Rules
13a-15(f)
and 15d-15(f))
for
Lesaka and have:
(a) Designed
such disclosure
controls and
procedures, or
caused such
disclosure controls
and procedures
to be
designed
under our supervision,
to ensure that material
information relating to
Lesaka, including
its consolidated subsidiaries,
is made known
to us by others within those entities, particularly during the period in which
this report is being prepared;
(b) Designed
such internal
control over
financial reporting,
or caused
such internal
control over financial
reporting to
be
designed under our supervision, to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted
accounting principles;
(c)
Evaluated
the
effectiveness
of
Lesaka’s
disclosure
controls
and
procedures
and
presented
in
this
report
our
conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by
this report based
on such evaluation; and
(d) Disclosed in this report
any change in Lesaka’s
internal control over financial reporting
that occurred during Lesaka’s
most
recent
fiscal
quarter
that
has
materially
affected,
or
is
reasonably
likely
to
materially
affect,
Lesaka’s
internal
control
over
financial reporting; and
5.
I have
disclosed, based
on our
most recent
evaluation of
internal control
over financial
reporting, to
Lesaka’s
auditors and
the
Audit Committee of Lesaka’s Board
of Directors (or persons performing the equivalent functions):
(a)
All
significant
deficiencies
and
material
weaknesses
in
the
design
or
operation
of
internal
control
over
financial
reporting
which
are
reasonably
likely
to
adversely
affect
Lesaka’s
ability
to
record,
process,
summarize
and
report
financial
information; and
(b)
Any
fraud,
whether
or
not
material,
that
involves
management
or
other
employees
who
have
a
significant
role
in
Lesaka’s internal control over financial
reporting.
Date: November 7, 2023
/s/ Naeem E. Kola
Naeem E. Kola
Group Chief Financial Officer
ex32
1
Exhibit 32
CERTIFICATION
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In
connection
with
the
quarterly
report
of
Lesaka
Technologies,
Inc.
(“Lesaka”)
on
Form 10-Q
for
the
quarter
ended
September 30, 2023, as filed with
the Securities and Exchange Commission
on the date hereof (the “Report”),
Chris G.B. Meyer and
Naeem E.
Kola, Group
Chief Executive
Officer and
Group Chief
Financial Officer,
respectively,
of Lesaka,
certify,
pursuant to
18
U.S.C. § 1350, that to their knowledge:
1.
The
Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange
Act of 1934,
as amended;
and
2.
The information contained in the Report fairly presents, in all material respects, the financial
condition and results
of operations of Lesaka.
Date: November 7, 2023
/s/: Chris G.B. Meyer
Name: Chris G.B. Meyer
Group Chief Executive Officer
Date: November 7, 2023
/s/: Naeem E. Kola
Name: Naeem E. Kola
Group Chief Financial Officer