Quarterly Report • Nov 7, 2023
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Download Source FileUNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM10-Q
(Mark One)
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the quarterly period endedSeptember 30, 2023
OR
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934 For the transition period fromTo
Commission file number:000-31203
LESAKA TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Florida98-0171860 (State or other jurisdiction(IRS Employer of incorporation or organization)Identification No.)
President Place, 4thFloor,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)
Name of each exchange Title of each classTrading Symbol(s)on which registered Common stock, par value $0.001 per shareLSAKNASDAQGlobal 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),62,384,522shares of the registrant’s common stock, par value $0.001 per share, net of treasury shares, were outstanding.
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 June2| | 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 |
1
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: $ | | 35,331June: | | | | |
| $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 $ | 0.001par 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
2
LESAKA TECHNOLOGIES, INC.
Unaudited Condensed Consolidated Statements of Operations| | | | 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 | | | | |
3
LESAKA TECHNOLOGIES, INC.
Unaudited Condensed Consolidated Statements of Comprehensive (Loss) Income
Three months ended
September 30,
20232022 (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
4
LESAKA TECHNOLOGIES, INC.
Unaudited Condensed Consolidated Statements of Changes in Equity
Lesaka Technologies, Inc. Shareholders
Accumulated Number ofNumber ofAdditionalotherTotalNon-Redeemable Number ofTreasuryTreasuryshares, net ofPaid-InRetainedcomprehensiveLesakacontrollingcommon SharesAmountSharesSharestreasuryCapitalEarningslossEquityInterestTotalstock
For the three months ended September 30, 2022 (dollar amounts in thousands) Balance – July 1, 202287,215,613$83( 24,891,292 )$( 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)231,523231,523--| 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 chargerelated 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, 202287,449,136$83( 24,926,752 )$( 287,136 )62,522,384$329,365$352,041$( 188,490 )$205,863$-$205,863$79,429
5
LESAKA TECHNOLOGIES, INC.
Unaudited Condensed Consolidated Statements of Changes in Equity
Lesaka Technologies, Inc. Shareholders
Accumulated Number ofNumber ofAdditionalotherTotalNon-Redeemable Number ofTreasuryTreasuryshares, net ofPaid-InRetainedcomprehensiveLesakacontrollingcommon SharesAmountSharesSharestreasuryCapitalEarningslossEquityInterestTotalstock
For the three months ended September 30, 2023 (dollar amounts in thousands)
Balance – July 1, 202388,884,532$83( 25,244,286 )$( 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 compensationcharge (Note 12) | ( 8,127 ) | | ( 8,127 ) | ( 9 ) | ( 9 ) | ( 9 ) |
| Stock-based compensation chargerelated 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, 202388,883,198$83( 25,244,286 )$( 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
6
LESAKA TECHNOLOGIES, INC.
Unaudited Condensed Consolidated Statements of Cash Flows
Three months ended
September 30,
20232022 (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
7
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)
8
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.
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.
9
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).
10
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.
11
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.
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.
12
13
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.
14
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.
15
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.
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).
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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, 2023. 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, 2022. 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.
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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.
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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
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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
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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.
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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 %.
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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.
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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
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 )
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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).
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 2022. 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.
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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
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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.
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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.
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
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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
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
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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
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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
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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 )
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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.
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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.
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, 2023. 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.
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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.
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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.
oThe 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.
oAs 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
oOur 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.
oOur 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
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●Progress on cross selling
EasyPay Loans
oWe 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.
oWe have not amended our credit scoring or other lending criteria to grow our Consumer lending book.
oThe loan conversion rate continues to improve following the implementation of a number of targeted consumer lending campaigns during the current quarter.
oThe 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
oOur 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 2023. 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
oARPU 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.
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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 |
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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.
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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:| | 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%) |
| 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.”
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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:| | | Three months ended September 30, | | | | |
| --- | --- | --- | --- | --- | --- | --- |
| | 2023 | % of | 2022 | % of | | |
| Operating Segment | $ ’000 | total | $ ’000 | total | | % change |
| 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”.
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| Three months ended September 30, | ||||||
|---|---|---|---|---|---|---|
| 2023 | % of | 2022 | % of | |||
| Operating Segment | ZAR ’000 | total | ZAR ’000 | total | % change | |
| 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; nonemployee 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.
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Non-GAAP Measures
Group Adjusted EBITDA is earnings before interest, tax, depreciation and amortization (“EBITDA”), adjusted for nonoperational 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:| | $ ’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, 2023. The increase in our unrestricted cash balances from June 30, 2023, was primarily due to a positive contribution from our Merchant and Consumer operations, 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.
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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----8,983169,981-- Overdraft restricted as to use(1)19,754373,811------ Indirect and derivative facilities(2)--1,74933,100--1122,119
Total short-term facilities available19,754373,8111,74933,1008,983169,9811122,119
Interest rate, based on South African prime rate11.75%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 8. These borrowings include outstanding long-term borrowings obtained by Lesaka SA of
ZAR 1.0 billion, including accrued interest, which was used to partially fund the acquisition of Connect. The Lesaka SA borrowing arrangements were amended in March 2023 to include a ZAR 200 million revolving credit facility. We used this revolving credit facility during the 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.
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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.
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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 $0.7 million. We expect to fund these expenditures through internally generated funds and available facilities.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
In addition to the tables below, see Note 4 to the unaudited condensed consolidated financial statements for a discussion of market risk.
We have short and long-term borrowings in South Africa which attract interest at rates that fluctuate based on changes in the South African prime and 3-month JIBAR interest rates. The following table illustrates the effect on our annual expected interest charge, translated at exchange rates applicable as of September 30, 2023, as a result of changes in the South African prime and 3-month JIBAR interest rates, using our outstanding short and long-term borrowings as of September 30, 2023. The effect of a hypothetical 1% (i.e.
100 basis points) increase and a 1% decrease in the interest rates applicable to the borrowings as of September 30, 2023, are shown.
The selected 1% hypothetical change does not reflect what could be considered the best- or worst-case scenarios.
Table 12As of September 30, 2023| | | | | | expected interest | |
| --- | --- | --- | --- | --- | --- | --- |
| | | | | | charge after | |
| | Annual expected | | Hypothetical | | hypothetical change | |
| | interest charge | | change in | | in interest rates | |
| | ($ ’000) | | interest rates | | ($ ’000) | |
| Interest on South African borrowings | | 20,667 | | 1% | | 22,304 |
| | | | | (1%) | | 19,033 |
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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.
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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.
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Item 6. Exhibits
The following exhibits are filed as part of this Form 10-Q:
Incorporated by Reference Herein
ExhibitIncluded
No.Description of ExhibitHerewithFormExhibitFiling Date
31.1Certification of Principal Executive Officer pursuant to Rule 13a-14(a) under the Exchange ActX 31.2Certification of Principal Financial Officer pursuant to Rule 13a-14(a) under the Exchange ActX 32Certification pursuant to 18 USC Section 1350X 101.INSXBRL Instance DocumentX 101.SCHXBRL Taxonomy Extension SchemaX 101.CALXBRL Taxonomy Extension Calculation LinkbaseX 101.DEFXBRL Taxonomy Extension Definition LinkbaseX 101.LABXBRL Taxonomy Extension Label LinkbaseX 101.PREXBRL Taxonomy Extension Presentation LinkbaseX 104Cover page formatted as Inline XBRL and contained in Exhibit 101
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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
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