LESAKA TECHNOLOGIES INC
10-Ks and 10-Qs
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
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(Address of principal executive offices, including zip code)
Registrant’s telephone number,
including area code:
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if Changed Since Last Report)
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on which registered
Indicate by check mark whether
the registrant (1) has filed
all reports required to be
filed by Section 13 or
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of
the
Securities
Exchange
Act
of
1934
during
the
preceding
12
months
(or
for
such
shorter
period
that
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registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90
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be
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Rule
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of
Regulation
S-T
(§232.405
of
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chapter)
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preceding
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filer, smaller
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definitions of
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filer,”
“accelerated
filer,”
“smaller
reporting
company,”
and
“emerging
growth
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of
the
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growth company,
indicate by
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if the
registrant has
elected not
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As of
February 1,
2024 (the
latest practicable
date),
value $0.001 per share, net of treasury shares, were outstanding.
1
Form 10-Q
LESAKA TECHNOLOGIES, INC.
Table
of Contents
Page No.
PART
I. FINANCIAL INFORMATION
Notes to Unaudited Condensed Consolidated Financial Statements
8
61
Item 5.
Other Information
61
2
Part I. Financial information
Item 1. Financial Statements
LESAKA TECHNOLOGIES, INC.
Unaudited Condensed Consolidated Balance Sheets
December 31,
June 30,
2023
2023
(A)
(In thousands, except share data)
ASSETS
CURRENT ASSETS
Cash and cash equivalents
$
$
Restricted cash related to ATM funding
and credit facilities (Note 8)
Accounts receivable, net and other receivables (Note 2)
Finance loans receivable, net (Note 2)
Inventory (Note 3)
Total current assets before settlement assets
Settlement assets
Total current assets
PROPERTY,
PLANT AND EQUIPMENT, net of accumulated depreciation of - December: $
$
OPERATING LEASE RIGHT-OF-USE (Note 16)
EQUITY-ACCOUNTED INVESTMENTS
(Note 5)
GOODWILL (Note 6)
INTANGIBLE ASSETS, NET (Note 6)
DEFERRED INCOME TAXES
OTHER LONG-TERM ASSETS, including reinsurance assets (Note 5 and 7)
TOTAL ASSETS
LIABILITIES
CURRENT LIABILITIES
Short-term credit facilities for ATM funding (Note 8)
Short-term credit facilities (Note 8)
Accounts payable
Other payables (Note 9)
Operating lease liability - current (Note 16)
Current portion of long-term borrowings (Note 8)
Income taxes payable
Total current liabilities before settlement obligations
Settlement obligations
Total current liabilities
DEFERRED INCOME TAXES
OPERATING LEASE LIABILITY - LONG TERM (Note 16)
LONG-TERM BORROWINGS (Note 8)
OTHER LONG-TERM LIABILITIES, including insurance policy liabilities (Note 7)
TOTAL LIABILITIES
REDEEMABLE COMMON STOCK
EQUITY
COMMON STOCK (Note 10)
Authorized:
Issued and outstanding shares, net of treasury - December:
PREFERRED STOCK
Authorized shares:
Issued and outstanding shares, net of treasury:
December:
-
-
ADDITIONAL PAID-IN-CAPITAL
TREASURY SHARES, AT
COST: December:
(
288,436
)
(
288,238
)
ACCUMULATED OTHER
COMPREHENSIVE LOSS (Note 11)
(
189,378
)
(
195,726
)
RETAINED EARNINGS
TOTAL LESAKA EQUITY
NON-CONTROLLING INTEREST
TOTAL EQUITY
TOTAL LIABILITIES, REDEEMABLE COMMON STOCK AND SHAREHOLDERS’ EQUITY
$
$
(A) – Derived from audited financial statements
See Notes to Unaudited Condensed Consolidated Financial Statements
LESAKA TECHNOLOGIES, INC.
Unaudited Condensed Consolidated Statements of Operations
3
Three months ended
Six months ended
December 31,
December 31,
2023
2022
2023
2022
(In thousands, except per share
data)
(In thousands, except per share
data)
REVENUE (Note 15)
$
$
$
$
EXPENSE
Cost of goods sold, IT processing, servicing and support
Selling, general and administration
Depreciation and amortization
OPERATING INCOME (LOSS)
(
2,192
)
(
6,863
)
REVERSAL OF ALLOWANCE FOR
DOUBTFUL EMI DEBT
RECEIVABLE
(LOSS) GAIN ON DISPOSAL OF EQUITY-ACCOUNTED
INVESTMENT (Note 5)
(
112
)
INTEREST INCOME
INTEREST EXPENSE
LOSS BEFORE INCOME TAX EXPENSE
(
2,064
)
(
6,303
)
(
6,046
)
(
14,351
)
INCOME TAX EXPENSE (Note 18)
NET LOSS BEFORE EARNINGS (LOSS) FROM EQUITY-
ACCOUNTED INVESTMENTS
(
2,750
)
(
6,667
)
(
6,996
)
(
14,746
)
EARNINGS (LOSS) FROM EQUITY-ACCOUNTED INVESTMENTS
(Note 5)
(
1,362
)
(
2,599
)
NET LOSS ATTRIBUTABLE
TO LESAKA
$
(
2,707
)
$
(
6,649
)
$
(
8,358
)
$
(
17,345
)
Net loss per share, in United States dollars
(Note 13):
Basic loss attributable to Lesaka shareholders
$
(
0.04
)
$
(
0.11
)
$
(
0.13
)
$
(
0.28
)
Diluted loss attributable to Lesaka shareholders
$
(
0.04
)
$
(
0.11
)
$
(
0.13
)
$
(
0.28
)
See Notes to Unaudited Condensed Consolidated Financial Statements
LESAKA TECHNOLOGIES, INC.
Unaudited Condensed Consolidated Statements of Comprehensive (Loss) Income
4
Three months ended
Six months ended
December 31,
December 31,
2023
2022
2023
2022
(In thousands)
(In thousands)
Net loss
$
(
2,707
)
$
(
6,649
)
$
(
8,358
)
$
(
17,345
)
Other comprehensive income (loss), net of taxes
Movement in foreign currency translation reserve
(
9,938
)
Release of foreign currency translation reserve related to
disposal of Finbond equity securities (Note 11)
Release of foreign currency translation reserve related to
liquidation of subsidiaries
(
952
)
(
952
)
Movement in foreign currency translation reserve related
to equity-accounted investments
Total other comprehensive
income (loss), net of
taxes
(
7,398
)
Comprehensive income (loss)
(
2,010
)
(
24,743
)
Comprehensive income (loss) attributable to
Lesaka
$
$
$
(
2,010
)
$
(
24,743
)
See Notes to Unaudited Condensed Consolidated Financial Statements
LESAKA TECHNOLOGIES, INC.
Unaudited Condensed Consolidated Statements of Changes in Equity
5
Lesaka Technologies, Inc. Shareholders
Number of
Shares
Amount
Number of
Treasury
Shares
Treasury
Shares
Number of
shares, net of
treasury
Additional
Paid-In
Capital
Retained
Earnings
Accumulated
other
comprehensive
loss
Total
Lesaka
Equity
Non-
controlling
Interest
Total
Redeemable
common
stock
For the three months ended December 31, 2022 (dollar amounts
in thousands)
Balance – October 1, 2022
$
(
24,926,752
)
$
(
287,136
)
$
$
$
(
188,490
)
$
$
$
$
Shares repurchased (Note 12)
(
30,102
)
(
108
)
(
30,102
)
(
108
)
(
108
)
Restricted stock granted (Note 12)
Exercise of stock options
Stock-based compensation charge
(Note 12)
-
Stock-based compensation charge
related to equity-accounted investment
(Note 5)
-
(
4
)
(
4
)
(
4
)
Net loss
-
(
6,649
)
(
6,649
)
(
6,649
)
Other comprehensive income (Note
11)
Balance – December 31, 2022
$
(
24,956,854
)
$
(
287,244
)
$
$
$
(
176,238
)
$
$
$
$
For the six months ended December 31, 2022 (dollar
amounts in thousands)
Balance – July
1, 2022
$
(
24,891,292
)
$
(
286,951
)
$
$
$
(
168,840
)
$
$
$
$
Share repurchased (Note 12)
(
65,562
)
(
293
)
(
65,562
)
(
293
)
(
293
)
Restricted stock granted
Exercise of stock options
Stock-based compensation charge
(Note 12)
Reversal of stock-based compensation
charge (Note 12)
Stock-based compensation charge
related to equity-accounted investment
Net loss
(
17,345
)
(
17,345
)
(
17,345
)
Other comprehensive loss (Note 11)
(
7,398
)
(
7,398
)
(
7,398
)
Balance – December 31, 2022
$
(
24,956,854
)
$
(
287,244
)
$
$
$
(
176,238
)
$
$
$
$
See Notes to Unaudited Condensed Consolidated Financial
Statements
LESAKA TECHNOLOGIES, INC.
Unaudited Condensed Consolidated Statements of Changes in Equity
6
Lesaka Technologies, Inc. Shareholders
Number of
Shares
Amount
Number of
Treasury
Shares
Treasury
Shares
Number of
shares, net of
treasury
Additional
Paid-In
Capital
Retained
Earnings
Accumulated
other
comprehensive
loss
Total
Lesaka
Equity
Non-
controlling
Interest
Total
Redeemable
common
stock
For the three months ended December 31, 2023 (dollar amounts
in thousands)
Balance – October 1, 2023
$
(
25,244,286
)
$
(
288,238
)
$
$
$
(
196,081
)
$
$
$
$
Shares repurchased (Note 12)
(
50,975
)
(
198
)
(
50,975
)
(
198
)
(
198
)
Restricted stock granted (Note 12)
Exercise of stock option (Note 12)
Stock-based compensation charge
(Note 12)
-
-
Reversal of stock-based compensation
charge (Note 12)
(
14,002
)
(
14,002
)
(
8
)
(
8
)
(
8
)
Stock-based compensation charge
related to equity-accounted investment
(Note 5)
(
147
)
(
147
)
(
147
)
Net loss
(
2,707
)
(
2,707
)
(
2,707
)
Other comprehensive income (Note
11)
Balance – December 31, 2023
$
(
25,295,261
)
$
(
288,436
)
$
$
$
(
189,378
)
$
$
$
$
For the six months ended December 31, 2023 (dollar
amounts in thousands)
Balance – July 1,
2023
$
(
25,244,286
)
$
(
288,238
)
$
$
$
(
195,726
)
$
$
$
$
Shares repurchased (Note 12)
(
50,975
)
(
198
)
(
50,975
)
(
198
)
(
198
)
Restricted stock granted
Exercise of stock option (Note 12)
Stock-based compensation charge
(Note 12)
-
-
Reversal of stock-based compensation
charge (Note 12)
(
22,129
)
(
22,129
)
(
17
)
(
17
)
(
17
)
Stock-based compensation charge
related to equity-accounted investment
(Note 5)
(
133
)
(
133
)
(
133
)
Net loss
(
8,358
)
(
8,358
)
(
8,358
)
Other comprehensive income (Note
11)
Balance – December 31, 2023
$
(
25,295,261
)
$
(
288,436
)
$
$
$
(
189,378
)
$
$
$
$
See Notes to Unaudited Condensed Consolidated Financial
Statements
LESAKA TECHNOLOGIES, INC.
Unaudited Condensed Consolidated Statements of Cash Flows
7
Three months ended
Six months ended
December 31,
December 31,
2023
2022
2023
2022
(In thousands)
(In thousands)
Cash flows from operating activities
Net loss
$
(
2,707
)
$
(
6,649
)
$
(
8,358
)
$
(
17,345
)
Depreciation and amortization
Movement in allowance for doubtful accounts receivable
Fair value adjustment related to financial liabilities
(
836
)
(
870
)
Loss on disposal of equity-accounted investments (Note 5)
(
136
)
(Earnings) Loss from equity-accounted investments
(
43
)
(
18
)
Movement in allowance for doubtful loans to equity-accounted investments
(
250
)
Profit on disposal of property, plant and equipment
(
163
)
(
113
)
(
199
)
(
321
)
Movement in interest payable
(
1,573
)
Facility fee amortized
Stock-based compensation charge (Note 12)
Dividends received from equity-accounted investments
(Increase) Decrease in accounts receivable
(
13,157
)
(
15,502
)
(
981
)
Increase in finance loans receivable
(
2,889
)
(
5,230
)
(
3,377
)
(
8,811
)
Decrease (Increase) in inventory
(
1,193
)
(
1,472
)
Increase in accounts payable and other payables
(Decrease) Increase in taxes payable
(
654
)
(
513
)
(
346
)
Decrease in deferred taxes
(
1,032
)
(
1,728
)
(
1,594
)
(
3,122
)
Net cash provided by (used in) operating activities
(
4,240
)
Cash flows from investing activities
Capital expenditures
(
2,198
)
(
3,992
)
(
5,007
)
(
8,493
)
Proceeds from disposal of property, plant and equipment
Acquisition of intangible assets
(
47
)
(
120
)
(
182
)
(
120
)
Proceeds from disposal of equity-accounted investment (Note 5)
Loan to equity-accounted investment (Note 5)
(
112
)
Repayment of loans by equity-accounted investments
Net change in settlement assets
(
43
)
(
10,131
)
(
11,280
)
(
12,015
)
Net cash provided by (used in) investing activities
(
13,760
)
(
11,991
)
(
19,475
)
Cash flows from financing activities
Proceeds from bank overdraft (Note 8)
Repayment of bank overdraft (Note 8)
(
66,048
)
(
175,380
)
(
128,841
)
(
312,302
)
Long-term borrowings utilized (Note 8)
Repayment of long-term borrowings (Note 8)
(
3,184
)
(
1,688
)
(
5,813
)
(
3,268
)
Acquisition of treasury stock (Note 12)
(
198
)
(
108
)
(
198
)
(
293
)
Proceeds from exercise of stock options
Guarantee fee
(
100
)
(
100
)
Net change in settlement obligations
Net cash provided by financing activities
Effect of exchange rate changes on cash and cash equivalents
(
3,681
)
Net increase (decrease) in cash, cash equivalents and restricted cash
(
8,024
)
Cash, cash equivalents and restricted cash – beginning of period
Cash, cash equivalents and restricted cash – end of period (Note 14)
$
$
$
$
See Notes to Unaudited Condensed Consolidated Financial Statements
8
LESAKA TECHNOLOGIES, INC
Notes to the Unaudited Condensed Consolidated Financial Statements
for the three and six months ended December 31, 2023 and 2022
(All amounts in tables stated in thousands or thousands of U.S. dollars, unless otherwise stated)
1.
Basis of Presentation and Summary of Significant Accounting
Policies
Unaudited Interim Financial Information
The accompanying
unaudited condensed
consolidated financial
statements include
all majority-owned
subsidiaries over
which
the Company exercises
control and have been
prepared in accordance with
U.S. generally accepted accounting
principles (“GAAP”)
and
the rules
and
regulations
of
the United
States Securities
and
Exchange
Commission
for
Quarterly Reports
on Form
10-Q
and
include all of
the information and
disclosures required
for interim financial
reporting. The results
of operations
for the three
and six
months ended December 31, 2023 and
2022, are not necessarily indicative of
the results for the full year.
The Company believes that
the disclosures are adequate to make the information presented not misleading.
These
unaudited
condensed
consolidated
financial
statements
should
be
read
in
conjunction
with
the
financial
statements,
accounting policies and financial notes thereto included in the
Company’s Annual Report on Form 10-K for the fiscal year ended June
30,
2023.
In
the
opinion
of
management,
the
accompanying
unaudited
condensed
consolidated
financial
statements
reflect
all
adjustments (consisting only of normal recurring adjustments), which are necessary for a fair
representation of financial results for the
interim periods presented.
References to “Lesaka” are references
solely to Lesaka Technologies,
Inc. References to the “Company” refer
to Lesaka and its
consolidated subsidiaries, collectively,
unless the context otherwise requires.
Recent accounting pronouncements adopted
In June 2016, the Financial Accounting Standards Board (“FASB”) issued guidance regarding
Measurement of Credit Losses on
Financial Instruments
. The guidance
replaces the incurred
loss impairment
methodology in
current GAAP
with a methodology
that
reflects expected credit losses
and requires consideration of a
broader range of reasonable and
supportable information to inform credit
loss estimates.
For trade and
other receivables,
loans, and
other financial
instruments, an entity
is required
to use a
forward-looking
expected loss
model rather
than the incurred
loss model for
recognizing credit
losses, which reflects
losses that are
probable. Credit
losses relating to
available-for-sale debt securities will
also be
recorded through an
allowance for credit
losses rather than
as a
reduction
in the amortized cost basis of the securities. The guidance became effective for the Company beginning July 1, 2023. The adoption of
this guidance did not have a material impact on the Company’s
financial statements and related disclosures, refer to Note 2.
In November
2019, the
FASB
issued guidance
regarding
Hedging
(Topic
815),
and
Leases
(Topic
842).
accounting
standards
and
amends
the
effective
dates
for
certain
major
new
accounting
standards
to
give
implementation
relief
to
certain types
of entities,
including Smaller
Reporting Companies.
The Company
is a Smaller
Reporting Company.
Specifically,
the
guidance changes some effective
dates for certain
new standards on
the following topics
in the FASB Codification, namely Derivatives
and Hedging
(ASC 815);
Leases (ASC
842); Financial
Instruments —
Credit Losses
(ASC 326);
and Intangibles
— Goodwill
and
Other
(ASC
350).
The
guidance
defers
the
adoption
date
of
guidance
regarding
Measurement
of
Credit
Losses
on
Financial
Instruments
2023. The
adoption of
this guidance
did not
have a
material impact
on the
Company’s
financial statements
and related
disclosures,
refer to Note 2.
The Company’s updated accounting
policy regarding allowance for credit losses is as follows:
Allowance for doubtful accounts receivable
Allowance for doubtful finance loans receivable
The Company uses historical default experience over the lifetime of loans in order to calculate a lifetime loss rate for its lending
books. The allowance for credit losses related
to Consumer finance loans receivables is calculated by multiplying the
lifetime loss rate
with
the
month-end
outstanding
lending
book.
The
allowance
for
credit
losses
related
to
Merchant
finance
loans
receivables
is
calculated
by
adding
together
actual
receivables
in
default
plus
multiplying
the
lifetime
loss
rate
with
the
month-end
outstanding
lending
book.
Prior to
July 1,
2023,
the
Company
regularly
reviewed
the ageing
of outstanding
amounts
due
from borrowers
and
adjusted its allowance based on management’s estimate of the recoverability of the finance loans
receivable. The Company writes off
microlending finance
loans receivable and
related service fees
and interest if
a borrower is
in arrears with
repayments for more
than
three months
or is
deceased. The
Company writes
off merchant
and working
capital finance
receivables and
related fees
when it
is
evident that reasonable recovery procedures, including where deemed necessary,
formal legal action, have failed.
9
1.
Basis of Presentation and Summary of Significant Accounting
Policies (continued)
Allowance for doubtful accounts receivable (continued)
Allowance for doubtful accounts receivable
The Company uses a lifetime loss rate by expressing write-off
experience as a percentage of corresponding invoice amounts (as
opposed to outstanding balances).
The allowance for credit
losses related to these
receivables has been calculated
by multiplying the
lifetime loss
rate with
recent invoice/origination amounts.
Prior to
July 1,
2023, a specific
provision is
established where it
is considered
likely that all or
a portion of
the amount due
from customers renting
safe assets, point of
sale (“POS”) equipment,
receiving support
and
maintenance
or
transaction
services
or
purchasing
licenses
or
SIM
cards
from
the
Company
will
not
be
recovered.
Non-
recoverability
is assessed
based
on a
quarterly
review
by management
of
the ageing
of outstanding
amounts,
the
location
and
the
payment history of the customer in relation to those specific amounts.
Recent accounting pronouncements not yet adopted
as of December 31, 2023
In
November
2023.
the
FASB
issued
guidance
regarding
Segment
Reporting
(Topic
280)
disclosure
requirements,
primarily
through
enhanced
disclosures
about
significant
segment
expenses.
In
addition,
the
guidance
enhances
interim disclosure requirements, clarifies circumstances in which an entity can disclose multiple segment measures of profit
or loss,
provides
new segment
disclosure
requirements
for entities
with a
single reportable
segment,
and
contains
other disclosure
requirements. This
guidance is
effective
for the
Company beginning
July 1,
2024 for
its year
ended June
30, 2025,
and for
interim
periods commencing from July
1, 2025 (i.e.
for the quarter
ended September 30, 2025).
The Company is currently
assessing the impact
of this guidance on its financial statements and related disclosures.
In
December
2023,
the
FASB
issued
guidance
regarding
Income
Taxes
(Topic
740)
requirements. The guidance requires
entities, on an
annual basis, to
(1) disclose specific categories
in the income tax
rate reconciliation
and (2) provide additional information for reconciling items that meet a quantitative threshold (if the effect
of those reconciling items
is equal
to or
greater
than
five percent
of the
amount computed
by multiplying
pre-tax
income
or loss
by the
applicable
statutory
income tax rate). This guidance
is effective for the Company
beginning July 1, 2025. The Company
is currently assessing the impact
of this guidance on its financial statements and related disclosures.
2.
Accounts receivable, net and other receivables and
finance loans receivable, net
Accounts receivable, net and other receivables
The Company’s accounts receivable,
net, and other receivables as of December 31, 2023, and June 30, 2023, are presented in
the table below:
December 31,
June 30,
2023
2023
Accounts receivable, trade, net
$
$
Accounts receivable, trade, gross
Allowance for doubtful accounts receivable, end of period
Beginning of period
Reallocation to allowance for doubtful finance loans receivable
(
418
)
Reversed to statement of operations
(
227
)
(
31
)
Charged to statement of operations
Utilized
(
458
)
(
1,645
)
Foreign currency adjustment
Current portion of amount outstanding related to sale of interest in Carbon,
net of
allowance: December 2023: $
; June 2023: $
Current portion of total held to maturity investments
Investment in
% of Cedar Cellular Investment 1 (RF) (Pty) Ltd
% notes
Other receivables
Total accounts receivable,
net and other receivables
$
$
Trade receivables include amounts
due from customers
which generally have
a very short-term
life from
date of invoice
or service
provided to settlement. The duration
is less than a year in all cases and
generally less than 30 days in many
instances. The short-term
nature
of
these
exposures
often
results
in
balances
at
month-end
that
are
disproportionately
small
compared
to
the
total
invoiced
amounts.
The
month-end
outstanding
balance
are
more
volatile
than
the
monthly
invoice
amounts
because
they
are
affected
by
operational timing issues and
the fact that a balance
is outstanding at month-end is
not necessarily an indication of
increased risk but
rather a matter of operational timing.
10
2.
Accounts receivable, net and other receivables and
finance loans receivable, net (continued)
Accounts receivable, net and other receivables (continued)
Credit risk in respect of trade receivables are generally not
significant and the Company has not developed a sophisticated model
for these basic
credit exposures. The
Company determined to
use a lifetime
loss rate by
expressing write-off experience as
a percentage
of corresponding
invoice amounts
(as opposed
to outstanding
balances). The
allowance for credit
losses related to
these receivables
has
been
calculated
by
multiplying
the
lifetime
loss
rate
with
recent
invoice/origination
amounts.
Management
actively
monitors
performance of these
receivables over short periods
of time. Different
balances have different
rules to identify an
account in distress
but,
generally
speaking,
account
balances
in
distress
are
identified
very
early
and
specific
allowances
are
immediately
created.
Subsequent recovery from distressed accounts are generally limited.
Current portion of amount outstanding related to sale of interest in Carbon represents the amount due from the purchaser related
to the sale of the Company’s
interest in Carbon Tech
Limited (“Carbon”), an equity-accounted investment of $
allowance for doubtful loans receivable of $
face value of $
$
the equity-accounted investment in
October 2023, and has
reversed the allowance for
doubtful loans receivable of
$
the six months ended December 31, 2023.
Investment in
% of Cedar Cellular
Investment 1 (RF) (Pty) Ltd
% notes represents the
investment in a note which was
due to mature
in August 2022 and
forms part of
Cell C’s
capital structure. The
carrying value as of
each of December 31,
2023, and
June 30, 2023, respectively was $
Other receivables includes prepayments, deposits, income taxes receivable
and other receivables.
Contractual maturities of held to maturity investments
Summarized below is the contractual maturity of the Company’s
held to maturity investment as of December 31, 2023:
Cost basis
Estimated
fair
value
(1)
Due in one year or less
$
$
Due in one year through five years
(2)
Due in five years through ten years
Due after ten years
Total
$
$
(1) The estimated fair value of the Cedar Cellular note has been calculated utilizing the
Company’s portion of the assets held by
Cedar Cellular, namely,
Cedar Cellular’s investment in Cell C.
(2) The cost basis is zero ($
11
2.
Accounts receivable, net and other receivables and
finance loans receivable, net (continued)
Finance loans receivable, net
The Company’s finance
loans receivable, net, as of December 31, 2023, and June 30, 2023, is presented
in the table below:
December 31,
June 30,
2023
2023
Microlending finance loans receivable, net
$
$
Microlending finance loans receivable, gross
Allowance for doubtful finance loans receivable, end of period
Beginning of period
Reversed to statement of operations
(
86
)
Charged to statement of operations
Utilized
(
787
)
(
1,214
)
Foreign currency adjustment
(
200
)
Merchant finance loans receivable, net
Merchant finance loans receivable, gross
Allowance for doubtful finance loans receivable, end of period
Beginning of period
Reallocation from allowance for doubtful accounts receivable
Reversed to statement of operations
(
202
)
(
1,268
)
Charged to statement of operations
Utilized
(
521
)
Foreign currency adjustment
(
365
)
Total finance
loans receivable, net
$
$
Total
finance
loans
receivable,
net,
comprises
microlending
finance
loans
receivable
related
to
the
Company’s
microlending
operations
in South
Africa as
well as
its merchant
finance loans
receivable related
to Connect’s
lending activities
in South
Africa.
Certain merchant finance loans receivable with an aggregate balance
of $
security for the Company’s
revolving credit facility (refer to Note 8).
Allowance for credit losses
Microlending finance loans receivable
Microlending finance
loans receivable
related to
the Company’s
microlending operations
in South
Africa whereby
it provides
unsecured short-term
loans to qualifying
customers. Loans to customers
have a tenor
of up to
, with the majority
of loans
originated having
a tenor of
. The Company
analyses this lending
book as a
single portfolio
because the
loans within the
portfolio have similar characteristics and management uses similar processes to monitor and assess
the credit risk of the lending book.
Refer to Note 4 related to the Company risk management process related to
these receivables.
The Company has operated this lending book for more than
loans in order
to calculate a
lifetime loss rate
for the lending
book. The allowance
for credit losses
related to these
microlending finance
loans receivables
is calculated
by multiplying
the lifetime
loss rate
with the
month end
outstanding lending
book. The
lifetime loss
rate as
of each of
July 1, 2023
and December
31, 2023,
was
%. The performing
component (that
is, outstanding
loan payments
not in arrears) of the book exceeds more than
% of outstanding lending book as of December 31, 2023.
Merchant finance loans receivable
Merchant
finance loans
receivable related
to the
Company’s
Merchant
lending activities
in South
Africa whereby
it provides
unsecured
short-term loans
to qualifying
customers. Loans
to customers
have a
tenor of
up to
, with
the majority
of
loans originated having a tenor of approximately
. The Company analyses this lending book as a single portfolio because
the loans within the portfolio have similar characteristics and management uses similar processes to monitor and assess the credit risk
of the lending book.
Refer to Note 4 related to the Company risk management process related to these receivables.
12
2.
Accounts receivable, net and other receivables and
finance loans receivable, net (continued)
Finance loans receivable, net (continued)
Allowance for credit losses (continued)
Merchant finance loans receivable (continued)
The
Company
has
recently
(in
the
past
)
commenced
lending
to
merchant
customers
and
uses
historical
default
experience over
the lifetime of
loans generated thus
far in order
to calculate a
lifetime loss rate
for the lending
book. The allowance
for credit losses related to these merchant finance loans receivables
is calculated by adding together actual receivables in default
plus
multiplying the lifetime
loss rate with the
month-end outstanding
lending book. The
lifetime loss rate as
of each of
July 1, 2023 and
December 31, 2023, was approximately
%. The performing component (that is, outstanding loan payments not in arrears), under-
performing
component (that
is, outstanding
loan payments
that are
in arrears)
and non-performing
component (that
is, outstanding
loans
for
which
payments
appeared
to have
ceased)
of the
book represents
approximately
%,
% and
%,
respectively,
of
the
outstanding lending book as of December 31, 2023.
3.
Inventory
The Company’s inventory
comprised the following categories as of December 31, 2023, and June 30, 2023:
December 31,
June 30,
2023
2023
Raw materials
$
$
Work-in-progress
Finished goods
$
$
As of
December
31,
2023 and
June
30,
2023,
finished
goods
includes
$
airtime inventory that was previously
classified as finished goods subject
to sale restrictions. In support of
Cell C’s liquidity
position
and pursuant to
Cell C’s
recapitalization process, the
Company limited the
resale of this airtime
to its own distribution
channels. On
September 30, 2022, Cell C
concluded its recapitalization process and
the Company and Cell C
entered into an agreement under which
Cell C agreed to repurchase, from October
2023, up to ZAR
to be repurchased by Cell C is calculated as ZAR
The Company’s ability to sell this airtime has increased significantly since the acquisition of Connect because Connect is
a significant
reseller of
Cell C airtime.
As a
result, the
Company has
sold higher
volumes of
airtime through
this channel
than it
did prior
to the
Cell C
recapitalization,
however,
continued
sales at
these volumes
is dependent
on prevailing
conditions
continuing in
the airtime
market. If the Company is able to sell at least ZAR
not be
required to
repurchase any
airtime from
the Company
during any
specific month.
The Company
has agreed
to notify
Cell C
prior to selling any of this airtime, however, there is no
restriction placed on the Company on the sale of the airtime
.
13
4.
Fair value of financial instruments
Initial recognition and measurement
Financial instruments
are recognized
when the
Company becomes
a party
to the
transaction. Initial
measurements are
at cost,
which includes transaction costs.
Risk management
The Company manages its exposure
to currency exchange, translation, interest rate,
credit, microlending credit and equity price
and liquidity risks as discussed below.
Currency exchange risk
The
Company
is
subject
to
currency
exchange
risk
because
it
purchases
components
for
its
safe
assets,
that
the
Company
assembles, and inventories that it is required to settle in other currencies, primarily the euro, renminbi, and U.S. dollar.
The Company
has
used forward
contracts
in order
to limit
its exposure
in these
transactions
to fluctuations
in exchange
rates
between
the South
African rand (“ZAR”), on the one hand, and the U.S. dollar and the euro, on
the other hand.
Translation risk
Translation risk relates to
the risk that
the Company’s results of operations
will vary significantly
as the U.S.
dollar is its
reporting
currency,
but it earns a
significant amount of its
revenues and incurs a
significant amount of its
expenses in ZAR. The
U.S. dollar to
the ZAR
exchange rate
has fluctuated
significantly over
the past
three years.
As exchange
rates are
outside the
Company’s
control,
there can be no
assurance that future fluctuations will
not adversely affect the Company’s results of operations and
financial condition.
Interest rate risk
As a result of its
normal borrowing activities, the Company’s operating results are exposed to fluctuations in
interest rates, which
it manages primarily through regular financing activities. Interest rates in South Africa have been trending
upwards in recent quarters
but have now
stabilized and are
expected to remain
at current
levels, or perhaps
even decline moderately
over calendar 2024.
Therefore,
ignoring the impact of changes to the margin on its borrowings (refer to Note 8),
the Company expects its cost of borrowing to remain
stable,
or
even
to
decline
moderately,
in
the foreseeable
future,
however
if
the upward
trend
resumes
the Company
would
expect
higher
interest
rates
in
the
future
which
will
increase
its
cost
of
borrowing.
The
Company
periodically
evaluates
the
cost
and
effectiveness of interest rate hedging strategies
to manage this risk.
The Company generally maintains surplus cash
in cash equivalents
and held to maturity investments and has occasionally invested in marketable securities
.
Credit risk
Credit
risk
relates
to
the
risk
of
loss
that
the
Company
would
incur
as
a
result
of
non-performance
by
counterparties.
The
Company
maintains
credit
risk
policies
in
respect
of
its
counterparties
to
minimize
overall
credit
risk.
These
policies
include
an
evaluation
of
a
potential
counterparty’s
financial
condition,
credit
rating,
and
other
credit
criteria
and
risk
mitigation
tools
as
the
Company’s
management deems appropriate.
With respect
to credit risk on
financial instruments, the
Company maintains a
policy of
entering
into such
transactions only
with South
African
and European
financial
institutions
that have
a credit
rating of
“B” (or
its
equivalent) or better, as determined by credit
rating agencies such as Standard & Poor’s, Moody’s
and Fitch Ratings.
Consumer microlending credit
risk
The Company
is exposed
to credit
risk in
its Consumer
microlending activities,
which provides
unsecured short-term
loans to
qualifying customers.
Credit bureau
checks as
well as
an affordability
test are
conducted as
part of
the origination
process, both
of
which are in line with local regulations. The Company considers this
policy to be appropriate because the affordability test it
performs
takes into account
a variety of
factors such
as other debts
and total expenditures
on normal household
and lifestyle expenses.
Additional
allowances may
be required
should the
ability of
its customers
to make
payments when
due deteriorate
in the
future. A
significant
amount of
judgment is required
to assess the
ultimate recoverability
of these finance
loan receivables,
including ongoing
evaluation
of the creditworthiness of each customer.
Merchant lending
The Company maintains an allowance for
doubtful finance loans receivable related to
its Merchant services segment with
respect
to short-term loans to qualifying merchant customers. The
Company’s risk management procedures include adhering to its proprietary
lending criteria which uses
an online-system loan application
process, obtaining necessary customer transaction-history
data and credit
bureau checks.
The Company considers
these procedures
to be appropriate
because it takes
into account
a variety of
factors such
as
the customer’s credit capacity and customer-specific
risk factors when originating a loan.
14
4.
Fair value of financial instruments (continued)
Risk management (continued)
Equity price and liquidity risk
Equity price risk relates to the risk of loss that the Company would incur as a result of the volatility in the exchange-traded price
of equity
securities that
it holds.
The market
price of
these securities
may fluctuate
for a
variety of
reasons and,
consequently,
the
amount that the Company may obtain in a subsequent sale of these securities may significantly differ
from the reported market value.
Equity liquidity risk
relates to the risk
of loss that the
Company would incur as
a result of the lack
of liquidity on the
exchange
on
which
those
securities
are
listed.
The
Company
may
not be
able
to
sell some
or
all
of
these
securities
at
one
time,
or
over
an
extended period of time without influencing the exchange-traded price,
or at all.
Financial instruments
The following
section describes
the valuation
methodologies the
Company uses
to measure
its significant
financial assets
and
liabilities at fair value.
In general, and where applicable, the Company uses quoted prices in
active markets for identical assets or liabilities
to determine
fair value.
This pricing
methodology would
apply to
Level 1
investments. If quoted
prices in
active markets
for identical
assets or
liabilities are
not available
to determine
fair value,
then the
Company uses
quoted
prices for
similar assets
and
liabilities or
inputs
other
than
the
quoted
prices
that
are
observable
either
directly
or
indirectly. These
investments
would
be included
in
Level
2
investments. In
circumstances
in
which
inputs
are
generally
unobservable,
values
typically
reflect
management’s
estimates
of
assumptions that market participants would use in pricing the asset or liability.
The fair values are therefore determined using model-
based techniques that include
option pricing models,
discounted cash flow models,
and similar techniques. Investments
valued using
such techniques are included in Level 3 investments.
Asset measured at fair value using significant unobservable inputs – investment
in Cell C
The Company’s
Level 3 asset represents
an investment of
provider in South Africa.
The Company used a discounted cash flow model developed by the Company to determine
the fair value of
its investment in Cell C as of December 31, 2023 and June 30, 2023, respectively,
and valued Cell C at $
of December 31, 2023, and
June 30, 2023, respectively.
The Company incorporates the payments
under Cell C’s
lease liabilities into
the cash
flow forecasts
and assumes
that Cell
C’s
deferred tax
assets would
be utilized
over the
forecast period.
The Company
has
increased
the
marketability
discount
from
%
to
%
and
the
minority
discount
from
%
to
%
due
to
the
reduction
in
the
Company’s
shareholding percentage
from
% to
% as well
as current
market conditions.
The Company
utilized the latest
revised
business plan
provided by
Cell C
management for
the period
ended December
31, 2025,
for the
December 31,
2023, and
June 30,
2023, valuations. Adjustments have been made to the WACC
rate to reflect the Company’s
assessment of risk to Cell C achieving its
business plan.
The following key valuation inputs were used as of December 31, 2023
and June 30, 2023:
Weighted Average
Cost of Capital ("WACC"):
Between
% and
% over the period of the forecast
Long term growth rate:
% (
% as of June 30, 2023)
Marketability discount:
% (
% as of June 30, 2023)
Minority discount:
% (
% as of June 30, 2023)
Net adjusted external debt - December 31, 2023:
(1)
ZAR
Net adjusted external debt - June 30, 2023:
(2)
ZAR
(1) translated from ZAR to U.S. dollars at exchange rates applicable as of December
31, 2023.
(2) translated from ZAR to U.S. dollars at exchange rates applicable as of June 30,
2023.
The following table presents the impact on the carrying value of the Company’s
Cell C investment of a 1.0% increase and 1.0%
decrease in the
WACC
rate and
the EBITDA margins
respectively used
in the Cell
C valuation
on December
31, 2023, all
amounts
translated at exchange rates applicable as of December 31, 2023:
Sensitivity for fair value of Cell C investment
1.0% increase
1.0% decrease
WACC
rate
$
$
EBITDA margin
$
$
The fair
value
of the
Cell C
shares
as of
December
31,
2023, represented
% of
the Company’s
total assets,
including
these
shares.
The Company expects
to hold these
shares for an
extended period of
time and that
there will
be short-term equity
price volatility
with respect to these shares particularly given that Cell C remains in a turnaround
process.
15
4.
Fair value of financial instruments (continued)
Financial instruments (continued)
Derivative transactions - Foreign exchange contracts
As part
of
the
Company’s
risk
management
strategy,
the Company
enters
into
derivative
transactions
to
mitigate
exposures
to
foreign
currencies
using
foreign
exchange
contracts. These
foreign
exchange
contracts
are
over-the-counter
derivative
transactions. Substantially all of the Company’s derivative exposures are with counterparties that have long-term credit ratings of “B”
(or equivalent)
or better.
The Company
uses quoted
prices in
active markets
for similar
assets and liabilities
to determine
fair value
(Level 2). The Company has no derivatives
that require fair value measurement under Level 1 or 3 of the fair value hierarchy.
The Company had
The following table
presents the
Company’s assets measured at
fair value on
a recurring
basis as
of December 31,
2023, according
to the fair value hierarchy:
Quoted Price in
Active Markets
for Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
Assets
Investment in Cell C
$
$
$
$
Related to insurance
business:
Cash, cash equivalents and
restricted cash (included
in other long-term assets)
Fixed maturity
investments (included in
cash and cash equivalents)
Total assets at fair value
$
$
$
$
The following table presents the
Company’s assets measured
at fair value on a recurring basis as of
June 30, 2023, according to
the fair value hierarchy:
Quoted Price in
Active Markets
for Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
Assets
Investment in Cell C
$
$
$
$
Related to insurance business
Cash and cash equivalents
(included in other long-term
assets)
Fixed maturity investments
(included in cash and cash
equivalents)
Total assets at fair value
$
$
$
$
There
have
been
respectively.
There was
3, during the six months ended December 31, 2023 and 2022.
16
4.
Fair value of financial instruments (continued)
Summarized below is the movement in the carrying value of
assets and liabilities measured at fair value on a recurring
basis, and
categorized within Level 3, during the six months ended December 31, 2023:
Carrying value
Assets
Balance as of June 30, 2023
$
Foreign currency adjustment
(1)
Balance as of December 31, 2023
$
(1) The foreign currency adjustment represents the effects of the fluctuations of the
South African rand against the U.S. dollar on
the carrying value.
Summarized below is the movement in the carrying value
of assets and liabilities measured at fair value on
a recurring basis, and
categorized within Level 3, during the three months ended December 31, 2022:
Carrying value
Assets
Balance as of June 30, 2022
$
Foreign currency adjustment
(1)
Balance as of December 31, 2022
$
(1) The
foreign currency
adjustment represents the
effects of
the fluctuations
of the South
African rand
against the U.S.
dollar
on the carrying value.
Assets measured at fair value on a nonrecurring basis
The Company
measures equity
investments without
readily determinable
fair values
at fair value
on a
nonrecurring basis.
The
fair values of
these investments
are determined
based on
valuation techniques
using the best
information available
and may include
quoted market prices, market comparables, and discounted cash flow
projections. An impairment charge is recorded when the cost
of
the
asset
exceeds
its
fair
value
and
the
excess
is
determined
to
be
other-than-temporary.
Refer
to
Note
5
for
impairment
charges
recorded during the
reporting periods presented
herein. The Company
has
basis.
5.
Equity-accounted investments and other long-term assets
Refer to Note 9 to the Company’s audited consolidated
financial statements included in its Annual Report on Form 10-K for the
year ended June 30, 2023, for additional information regarding its equity-accounted
investments and other long-term assets.
Equity-accounted investments
The Company’s
ownership percentage in its equity-accounted
investments as of December 31,
2023, and June 30, 2023, was as
follows:
December 31,
June 30,
2023
2023
Finbond Group Limited (“Finbond”)
%
%
Sandulela Technology
(Pty) Ltd ("Sandulela")
%
%
SmartSwitch Namibia (Pty) Ltd (“SmartSwitch Namibia”)
%
%
Finbond
In December
2023, the
Company sold
its entire
remaining equity
interest in
Finbond which
comprised of
and which represented approximately
% of Finbond’s issued and outstanding
ordinary shares immediately prior to the sale.
17
5.
Equity-accounted investments and other long-term assets (continued)
Equity-accounted investments (continued)
Finbond (continued)
August 2023 agreement to sell entire
stake in Finbond
On
August
10,
2023,
the
Company,
through
its
wholly
owned
subsidiary
Net1
Finance
Holdings
(Pty)
Ltd,
entered
into
an
agreement with Finbond to sell its remaining shareholding to Finbond for a cash consideration of ZAR
ZAR
finalized in December 2023. The
Company did
t record a gain or loss on the
disposal because the sale proceeds were
equivalent to
the net carrying
value, including accumulated
reserves, of the
investment in Finbond
as of
the disposal
date. The cash
proceeds received
of ZAR
Sale of Finbond shares during the three
and six months ended December 31, 2023
The Company
sold
2022, respectively,
and recorded a loss of $
equity-accounted investments in the Company’s
unaudited condensed consolidated statements of operations.
The following
table presents
the calculation
of the
loss on
disposal of
Finbond
shares during
the three
and six
months ended
December 31, 2023:
Three months ended
Six months ended
December 31,
December 31,
2023
2022
2023
2022
Loss on disposal of Finbond shares:
Consideration received in cash
$
$
$
$
Less: carrying value of Finbond shares sold
(
2,112
)
(
157
)
(
2,112
)
(
160
)
Less: release of foreign currency translation reserve from
accumulated other comprehensive loss
(
1,543
)
(
97
)
(
1,543
)
(
99
)
Add: release of stock-based compensation charge related
to
equity-accounted investment
Loss on sale of Finbond shares
$
$
(
112
)
$
$
(
114
)
Finbond impairments recorded
during the six months ended December 31, 2023
As noted earlier, the Company has entered into an agreement to exit its position in Finbond and the Company considered this an
impairment indicator. The
Company is required to include any foreign currency translation reserve
and other equity account amounts
in its impairment assessment if it considers exiting an equity method investment. The Company performed an impairment assessment
of its
holding in
Finbond, including
the foreign
currency translation
reserve and
other equity
account amounts,
as of September
30,
2023. The Company recorded an impairment loss of $
difference between
the determined fair value
of the Company’s
interest in Finbond and
the Company’s
carrying value, including
the
foreign currency
translation reserve
(before the
impairment). The
Company used
the price of
ZAR
2023 agreement referred to above to calculate the determined fair
value for Finbond.
Finbond impairments recorded
during the six months ended December 31, 2022
The Company considered
the combination of
the ongoing losses
incurred and reported
by Finbond and
its lower share price
as
impairment indicators. The
Company performed an
impairment assessment of its
holding in Finbond
as of September 30,
2022. The
Company
recorded
an
impairment
loss
of
$
temporary decrease in Finbond’s value, which represented the difference between the determined fair value of the Company’s interest
in Finbond and the Company’s
carrying value (before the impairment).
The Company observed continued
limited trading in Finbond
shares on the JSE during the
three months ended September 30, 2022,
because a small number of shareholders
owned approximately
% of
its issued
and outstanding
shares between
them. The
Company calculated
a fair
value per
share for
Finbond by
applying a
liquidity discount of
% to
the September 30,
2022, Finbond closing
price of
ZAR
. The
Company increased the
liquidity discount
from
% (used
in the
previous impairment
assessment) to
% as
a result
of the
ongoing limited
trading activity
observed on
the
JSE.
18
5.
Equity-accounted investments and other long-term assets (continued)
Equity-accounted investments (continued)
Carbon
In September
2022, the
Company,
through its
wholly-owned subsidiary,
Net1 Applied
Technologies
Netherlands B.V.
(“Net1
BV”),
entered
into
a binding
term
sheet
with the
Etobicoke
Limited
(“Etobicoke”)
to sell
its entire
interest, or
%,
in Carbon
to
Etobicoke for
$
equity
interest and
the loan
had a
carrying value
of $
Carbon shares purchased as security for the amounts outstanding
under the binding term sheet.
The Company received $
(i) $
in March 2024. Both
amounts are included
in the caption accounts
receivable, net and other
receivables in the Company’s
unaudited
condensed consolidated balance sheet as of December
31, 2023. The Company has allocated the $
the equity interest and will allocate the funds received first to the sale of the equity
interest and then to the loans.
The Company currently
believes that the fair
value of the Carbon
shares provided as security
is $
the carrying value as of June 30, 2022, and has created an allowance for
doubtful loans receivable related to the $
Etobicoke. The Company did not incur any significant
transaction costs. The Company has included the gain of $
to the
sale of
the Carbon equity
interest in the
caption net gain
on disposal of
equity-accounted investments
in the
Company’s unaudited
condensed consolidated statements of operations.
The following table presents the calculation of the gain on disposal of Carbon
in September 2022:
Three months
ended September
30,
2022
Gain on disposal of Carbon shares:
Consideration received in cash in September 2022
$
Less: carrying value of Carbon
Gain on disposal of Carbon shares:
(1)
$
(1) The Company does
not expect to pay taxes
related to the sale of
Carbon because the base cost
of its investment exceeds
the
sales consideration received. The Company does not believe that it will be able to utilize the
loss generated because Net1 BV does not
generate taxable income.
Summarized below is the
movement in equity-accounted investments and
loans provided to equity-accounted
investments during
the six months ended December 31, 2023:
Finbond
Other
(1)
Total
Investment in equity
Balance as of June 30, 2023
$
$
$
Stock-based compensation
Comprehensive income:
(
956
)
(
873
)
Other comprehensive income
Equity accounted (loss) earnings
(
1,445
)
(
1,362
)
Share of net (loss) earnings
(
278
)
(
195
)
Impairment
(
1,167
)
(
1,167
)
Dividends received
(
54
)
(
54
)
Disposal of Finbond shares
(
2,096
)
(
2,096
)
Foreign currency adjustment
(2)
(
2
)
(
1
)
Balance as of December 31, 2023
$
$
$
(1) Includes Sandulela,
and SmartSwitch Namibia;
(2) The foreign currency
adjustment represents the effects
of the fluctuations
of the ZAR and Namibian
dollar, against the
U.S.
dollar on the carrying value.
19
5.
Equity-accounted investments and other long-term assets (continued)
Other long-term assets
Summarized below is the breakdown of other long-term assets as of December
31, 2023, and June 30, 2023:
December 31,
June 30,
2023
2023
Total equity investments
$
$
Investment in
% of Cell C (June 30, 2023:
%) at fair value (Note 4)
Investment in
% of MobiKwik (June 30, 2023:
%)
(1)
Investment in
% of CPS (June 30, 2023:
%) at fair value
(1)(2)
Policy holder assets under investment contracts (Note 7)
Reinsurance assets under insurance contracts (Note 7)
Total other long-term
assets
$
$
(1)
The Company
determined
that
MobiKwik
and CPS
do not
have
readily
determinable
fair
values and
therefore
elected to
record these investments
at cost minus impairment,
if any,
plus or minus changes
resulting from observable
price changes in orderly
transactions for the identical or a similar investment of the same issuer.
(2) On October 16, 2020,
the High Court of South
Africa, Gauteng Division, Pretoria ordered
that CPS be placed
into liquidation.
Summarized below
are the components
of the Company’s
equity securities without
readily determinable
fair value and
held to
maturity investments as of December 31, 2023:
Cost basis
Unrealized
holding
Unrealized
holding
Carrying
gains
losses
value
Equity securities:
Investment in MobiKwik
$
$
$
$
Investment in CPS
Held to maturity:
Investment in Cedar Cellular notes (Note 2)
Total
$
$
$
$
Summarized below are the components of the Company’s
equity securities without readily determinable fair value and held to
maturity investments as of June 30, 2023:
Cost basis
Unrealized
holding
Unrealized
holding
Carrying
gains
losses
value
Equity securities:
Investment in MobiKwik
$
$
$
$
Investment in CPS
Held to maturity:
Investment in Cedar Cellular notes
Total
$
$
$
$
20
6.
Goodwill and intangible assets, net
Goodwill
Summarized below is the movement in the carrying value of goodwill
for the six months ended December 31, 2023:
Gross value
Accumulated
impairment
Carrying
value
Balance as of June 30, 2023
$
$
(
18,876
)
$
Foreign currency adjustment
(1)
(
385
)
Balance as of December 31, 2023
$
$
(
19,261
)
$
(1) – The foreign currency adjustment represents the effects
of the fluctuations of the South African rand against the U.S.
dollar on the carrying value.
Goodwill has been allocated to the Company’s
reportable segments as follows:
Consumer
Merchant
Carrying value
Balance as of June 30, 2023
$
$
$
Foreign currency adjustment
(1)
Balance as of December 31, 2023
$
$
$
(1) The foreign
currency adjustment represents
the effects
of the fluctuations
of the South
African rand
against the U.S.
dollar
on the carrying value.
Intangible assets, net
Carrying value and amortization of intangible assets
Summarized below is
the carrying value
and accumulated amortization
of intangible assets as
of December 31,
2023, and June
30, 2023:
As of December 31, 2023
As of June 30, 2023
Gross
carrying
value
Accumulated
amortization
Net
carrying
value
Gross
carrying
value
Accumulated
amortization
Net
carrying
value
Finite-lived intangible assets:
Customer relationships
$
$
(
12,924
)
$
$
$
(
11,565
)
$
Software, integrated
platform and unpatented
technology
(
19,849
)
(
13,711
)
FTS patent
(
2,094
)
(
2,034
)
Brands and trademarks
(
3,609
)
(
2,863
)
Total finite-lived
intangible
assets
$
$
(
38,476
)
$
$
$
(
30,173
)
$
Aggregate amortization
expense on the
finite-lived intangible
assets for the
three months
ended December
31, 2023 and
2022,
was $
ended December
31, 2023 and
2022, was $
for the next
five fiscal years
and thereafter,
assuming exchange
rates that prevailed
on December
31, 2023, is
presented in
the table
below. Actual amortization expense in future periods could differ from this estimate
as a result of acquisitions, changes
in useful lives,
exchange rate fluctuations and other relevant factors.
Fiscal 2024 (six months ended December 31, 2023)
$
Fiscal 2025
Fiscal 2026
Fiscal 2027
Fiscal 2028
Thereafter
Total future
estimated annual amortization expense
$
21
7.
Assets and policyholder liabilities under insurance and investment
contracts
Reinsurance assets and policyholder liabilities under insurance contracts
Summarized below
is the
movement in
reinsurance assets
and policyholder
liabilities under
insurance contracts
during the
six
months ended December 31, 2023:
Reinsurance
Assets
(1)
Insurance
contracts
(2)
Balance as of June 30, 2023
$
$
(
1,600
)
Increase in policy holder benefits under insurance contracts
(
3,649
)
Claims and decrease in policyholders’ benefits under insurance
contracts
(
265
)
Foreign currency adjustment
(3)
(
59
)
Balance as of December 31, 2023
$
$
(
2,136
)
(1) Included in other long-term assets (refer to Note 5);
(2) Included in other long-term liabilities;
(3) Represents the effects of the fluctuations of the ZAR against the U.S. dollar.
The Company has agreements with reinsurance companies in order to limit its losses from various insurance contracts, however,
if the reinsurer is unable
to meet its obligations, the
Company retains the liability.
The value of insurance
contract liabilities is based
on the best estimate assumptions of future experience plus prescribed
margins, as required in the markets in which these
products are
offered,
namely South
Africa. The
process of
deriving the
best estimate
assumptions plus
prescribed margins
includes assumptions
related to claim reporting delays (based on average industry experience).
Assets and policyholder liabilities under investment contracts
Summarized below is the movement
in assets and policyholder
liabilities under investment contracts during
the six months ended
December 31, 2023:
Assets
(1)
Investment
contracts
(2)
Balance as of June 30, 2023
$
$
(
241
)
Increase in policy holder benefits under investment contracts
(
5
)
Claims and decrease in policyholders’ benefits under investment contracts
(
44
)
Foreign currency adjustment
(3)
(
2
)
(
14
)
Balance as of December 31, 2023
$
$
(
216
)
(1) Included in other long-term assets (refer to Note 5);
(2) Included in other long-term liabilities;
(3) Represents the effects of the fluctuations of the ZAR against the U.S. dollar.
The Company does not offer any investment products with guarantees
related to capital or returns.
8.
Borrowings
Refer to
Note 12
to the
Company’s
audited consolidated
financial statements
included in
its Annual
Report on
Form 10-K
for
the year ended June 30, 2023, for additional information regarding
its borrowings.
South Africa
The
amounts
below
have
been
translated
at
exchange
rates
applicable
as
of
the
dates
specified.
The
3-month
Johannesburg
Interbank
Agreed Rate
(“JIBAR”),
the
rate at
which
private sector
banks borrow
funds from
the
South
African Reserve
Bank,
on
December 31, 2023, was
%. The prime rate, the benchmark
rate at which private sector banks
lend to the public in South Africa,
on December 31, 2023, was
%.
22
8.
Borrowings (borrowings)
South Africa (continued)
RMB Facilities, as amended, comprising a short-term facility (Facility E) and long-term
borrowings
Long-term borrowings - Facility G and Facility H
As
of
December
31,
2023,
the
Company’s
had
utilized
ZAR
revolving credit facility.
The interest rate on this facility as of December 31, 2023, was JIBAR plus
%.
On November 24, 2023, the Company,
through its wholly owned subsidiary,
Lesaka Technologies
Proprietary Limited (“Lesaka
SA”), entered into an Amendment and Restatement Agreement (the “Amendment”), which includes an Amended and Restated Senior
Facility G Agreement (“Facility
G Agreement”) and an
Amended and Restated
Senior Facility H Agreement
(“Facility H Agreement”)
(collectively, the “Loan Documents”) with FirstRand Bank Limited (acting through its Rand Merchant Bank division) (“RMB” or the
“Lenders”).
The Loan Documents were amended to include a Look Through Leverage (“LTL”)
ratio, as defined in the Loan Documents, and
expressed as times (“x”), to calculate the margin used in the determination of the interest rate. The LTL ratio is calculated as the Total
Attributable Net Debt,
as defined in the
Loan Documents, to the
Total Attributable
EBITDA, as defined in
the Loan Documents,
for
the measurement period ending on a specified date.
Interest on Facility G and Facility H is based on the 3-month Johannesburg Interbank Agreed Rate (“JIBAR”) in effect from time
to time plus a margin,
which as a result of the
Amendment, from October 1,
2023, will be calculated as: (i)
% if the LTL
ratio is
greater than 3.50x; (ii)
% if the LTL
ratio is less than 3.50x but
greater than 2.75x; (iii)
% if the LTL
ratio is less than 2.75x
but greater than 1.75x; or (iv)
% if the LTL ratio
is less than 1.75x.
The Company used cash proceeds
of ZAR
to repay capitalized interest under Facility G and Facility H.
Available short-term facility -
Facility E
As of
December 31,
2023, the
aggregate amount
of the
Company’s
short-term South
African overdraft
facility with
RMB was
ZAR
facility. This
overdraft facility may only be used
to fund ATMs
and therefore the overdraft utilized
and converted to cash to
fund the
Company’s ATMs
is considered restricted cash. The interest rate on this facility is equal to the prime rate.
On January
22, 2024, the
Company,
through Lesaka SA,
and RMB, entered
into a Letter
of Amendment
to decrease the
Senior
Facility E from ZAR
Connect Facilities, comprising long-term borrowings and a short-term facility
As of December 31, 2023, the Connect Facilities include (i) an overdraft facility (general banking facility) of
ZAR
(of which ZAR
utilized); and (iv) an asset-backed facility of ZAR
CCC Revolving Credit Facility, comprising
long-term borrowings
As of
December
31,
2023,
the amount
of
the
CCC Revolving
Credit
Facility
was ZAR
million has been utilized).
Interest on the Revolving Credit Facility
is payable on the last business
day of each calendar month
and is
based on the South African prime rate in effect from time to time plus
a margin of
% per annum.
RMB facility, comprising indirect facilities
As of December
31, 2023, the
aggregate amount
of the Company’s
short-term South
African indirect credit
facility with RMB
was ZAR
December 31, 2023
and June
30, 2023, the
Company had utilized
ZAR
respectively,
of its indirect
and derivative facilities
of ZAR
issue guarantees, letters of credit and forward exchange contracts (refer
to Note 19).
23
8.
Borrowings (borrowings)
South Africa (continued)
Nedbank facility, comprising short-term facilities
As of December
31, 2023, the
aggregate amount of the
Company’s short-term South African credit
facility with Nedbank
Limited
was ZAR
million), which include guarantees, letters of credit and forward exchange
contracts.
As of
December 31,
2023 and
June 30,
2023, the
Company had
utilized ZAR
($
the bank to issue guarantees, letters of credit and forward exchange contracts
(refer to Note 19).
Movement in short-term credit facilities
Summarized below are the Company’s short-term facilities as
of December 31, 2023, and
the movement in the Company’s short-
term facilities from as of June 30, 2023 to as of December 31, 2023:
RMB
RMB
RMB
Nedbank
Facility E
Indirect
Connect
Facilities
Total
Short-term facilities available as of
December 31, 2023
$
$
$
$
$
Overdraft
Overdraft restricted as to use for
ATM
funding only
Indirect and derivative facilities
Movement in utilized overdraft
facilities:
Restricted as to use for ATM
funding only
No restrictions as to use
Balance as of June 30, 2023
Utilized
Repaid
(
128,839
)
(
2
)
(
128,841
)
Foreign currency
adjustment
(1)
Balance as of December 31, 2023
Restricted as to use for ATM
funding only
No restrictions as to use
$
$
$
$
$
Interest rate as of December 31,
2023 (%)
(2)
-
-
Movement in utilized indirect and
derivative facilities:
Balance as of June 30, 2023
$
$
$
$
$
Foreign currency adjustment
(1)
Balance as of December 31, 2023
$
$
$
$
$
(1) Represents the effects of the fluctuations between the
ZAR and the U.S. dollar.
(2) Facility E interest set at prime and the Connect facility at prime less
%.
24
8.
Borrowings (continued)
Movement in long-term borrowings
Summarized below is
the movement in
the Company’s
long-term borrowing from
as of as of
June 30, 2023
to as of December
31, 2023:
Facilities
G & H
A&B
CCC
Asset backed
Total
Included in current
$
$
$
$
$
Included in long-term
Opening balance as of June 30, 2023
Facilities utilized
Facilities repaid
(
1,847
)
(
1,968
)
(
1,998
)
(
5,813
)
Non-refundable fees paid
Non-refundable fees amortized
Capitalized interest
Capitalized interest repaid
(
3,508
)
(
3,508
)
Foreign currency adjustment
(1)
Closing balance as of December 31,
2023
Included in current
Included in long-term
Unamortized fees
(
344
)
(
204
)
(
43
)
(
591
)
Due within 2 years
Due within 3 years
Due within 4 years
Due within 5 years
$
$
$
$
$
Interest rates as of December 31, 2023
(%):
Base rate (%)
Margin (%)
Footnote number
(2)
(3)
(4)
(5)
(1) Represents the effects of the fluctuations between the ZAR and the
U.S. dollar.
(2) Interest on
Facility G and
Facility H was
calculated based on
the 3-month JIBAR
in effect
from time to
time plus a margin
of, from
January 1,
2023 to
September 30,
2023: (i)
% for
as long
as the
aggregate balance
under the
Facilities is
greater than
ZAR
% if the
aggregate balance
under the
Facilities is equal
to or
less than ZAR
ZAR
% if
the aggregate
balance under
the Facilities
is less
than ZAR
interest
is calculated as described above.
(3) Interest on Facility A and Facility B is calculated based on JIBAR plus a margin,
of
%, in effect from time to time.
(4) Interest is charged at prime plus
% per annum on the utilized balance.
(5) Interest is charged at prime plus
% per annum on the utilized balance.
Interest expense incurred under the Company’s South African long-term borrowings and included in the
caption interest expense
on the condensed consolidated statement of operations during the three months ended December 31, 2023 and 2022, was $
and $
31, 2023
and 2022,
respectively,
were $
K2020 and
CCC facilities
relates to
borrowings utilized
to fund
a portion
of the
Company’s
merchant finance
loans receivable
and
this
interest
expense
of
$
servicing and support on the
condensed consolidated statement of operations
for the three months
ended December 31, 2023 and
2022.
25
9.
Other payables
Summarized below is the breakdown of other payables as of December
31, 2023, and June 30, 2023:
December 31,
June 30,
2023
2023
Clearing accounts
(1)
$
$
Vendor
wallet balances
(1)
Accruals
Provisions
Value
-added tax payable
Payroll-related payables
Participating merchants' settlement obligation
Other
$
$
(1) Clearing
accounts and
vendor wallet
balances (previously
defined as
transactions-switching funds
payables) as
of June
30,
2023, were previously included in Other and have been reclassified to separate captions to conform with presentation as of December
31, 2023.
Other includes deferred income, client deposits and other payables.
10.
Capital structure
Impact of non-vested equity shares on number of shares,
net of treasury
The following table presents a
reconciliation between the number of
shares, net of treasury, presented in the
unaudited condensed
consolidated statement of changes in
equity during the six months ended
December 31, 2023 and 2022, respectively,
and the number
of shares, net of treasury,
excluding non-vested equity shares that have not vested as of December
31, 2023 and 2022, respectively:
December 31,
December 31,
2023
2022
Number of shares, net of treasury:
Statement of changes in equity
Non-vested equity shares that have not vested as of end of period
Number of shares, net of treasury,
excluding non-vested equity shares that have not
vested
11.
Accumulated other comprehensive loss
The table
below presents
the change
in accumulated
other comprehensive
loss per
component
during the
three months
ended
December 31, 2023:
Three months ended
December 31, 2023
Accumulated
foreign
currency
translation
reserve
Total
Balance as of October 1, 2023
$
(
196,081
)
$
(
196,081
)
Release of foreign currency translation reserve related to the disposal of Finbond
equity securities (Note 5)
Release of foreign currency translation reserve related to liquidation of subsidiaries
(
952
)
(
952
)
Movement in foreign currency translation reserve
Balance as of December 31, 2023
$
(
189,378
)
$
(
189,378
)
26
11.
Accumulated other comprehensive loss (continued)
The table
below presents
the change
in accumulated
other comprehensive
loss per
component during
the three
months ended
December 31, 2022:
Three months ended
December 31, 2022
Accumulated
foreign
currency
translation
reserve
Total
Balance as of October 1, 2022
$
(
188,490
)
$
(
188,490
)
Release of foreign currency translation reserve related to disposal of Finbond
equity
securities
Movement in foreign currency translation reserve
Balance as of December 31, 2022
$
(
176,238
)
$
(
176,238
)
The
table
below
presents
the
change
in
accumulated
other
comprehensive
loss
per
component
during
the
six
months
ended
December 31, 2023:
Six months ended
December 31, 2023
Accumulated
foreign
currency
translation
reserve
Total
Balance as of July 1, 2023
$
(
195,726
)
$
(
195,726
)
Release of foreign currency translation reserve related to disposal of Finbond
equity securities (Note 5)
Release of foreign currency translation reserve related to liquidation of subsidiaries
(
952
)
(
952
)
Movement in foreign currency translation reserve related to equity-accounted
investment
Movement in foreign currency translation reserve
Balance as of December 31, 2023
$
(
189,378
)
$
(
189,378
)
The
table
below
presents
the
change
in
accumulated
other
comprehensive
loss
per
component
during
the
six
months
ended
December 31, 2022:
a
Six months ended
December 31, 2022
Accumulated
foreign
currency
translation
reserve
Total
Balance as of July 1, 2022
$
(
168,840
)
$
(
168,840
)
Release of foreign currency translation reserve related to disposal of Finbond
equity
securities
Movement in foreign currency translation reserve related to equity
-accounted
investment
Movement in foreign currency translation reserve
(
9,938
)
(
9,938
)
Balance as of December 31, 2022
$
(
176,238
)
$
(
176,238
)
During the three
and six months
ended December 31,
2023, and the
three and six
months ended December
31, 2022, the
Company
reclassified
losses
of
$
comprehensive loss (accumulated foreign currency translation reserve) to net loss related to the disposal of shares in Finbond (refer to
Note
5).
The
Company
also
reclassified
a
gain
of
$
currency translation reserve) to net loss related to the liquidation of subsidiaries.
27
12.
Stock-based compensation
The Company’s
Amended and Restated
2022 Stock
Incentive Plan (“20
22 Plan”)
and the vesting
terms of certain
stock-based
awards granted are described in Note 17 to the Company’s audited consolidated financial statements included in its Annual Report on
Form 10-K for the year ended June 30, 2023.
Stock option and restricted stock activity
Options
The following table summarizes stock option activity for the six months
ended December 31, 2023 and 2022:
Number of
shares
Weighted
average
exercise
price
($)
Weighted
average
remaining
contractual
term
(in years)
Aggregate
intrinsic
value
($'000)
Weighted
average
grant date
fair value
($)
Outstanding - June 30, 2023
Granted - December 2023
Exercised
(
7,385
)
-
-
Forfeited
(
186,846
)
-
-
Outstanding - December 31, 2023
Outstanding - June 30, 2022
Exercised
(
109,826
)
-
-
Forfeited
-
-
Outstanding - December 31, 2022
The Company
awarded
months ended December
31, 2023.
These options
will vest on
the first anniversary
of the grant
date, provided that
Mr. Mazandarani
continues to provide services as Executive
Chair through the vesting date.
These options will vest immediately
if Mr. Mazanderani’s
employment is
terminated by
the Company
without cause
on or
before the
first anniversary
of the
grant date.
These
options may only
be exercised during
a period
commencing from January
31, 2028 to
January 31,
2029.
during the three and six months ended December 31, 2022.
During the
three and
six months ended
December 31,
2023, the
Company received
$
exercise
of
received $
employee director
forfeited an
aggregate of
2023.
The
fair
value
of
each
option
is
estimated
on
the
date
of
grant
using the
Cox
Ross
Rubinstein
binomial
model
that
uses the
assumptions noted in the
following table. The estimated
expected volatility is calculated
based on the Company’s
750-day volatility.
The estimated
expected life
of the
option was
determined based
on the
historical behavior
of employees
who were
granted options
with similar terms.
The table below
presents the range
of assumptions used
to value stock
options granted during
the six months
ended December
31, 2023 and 2022:
Six months ended
December 31,
2023
2022
Expected volatility
%
%
Expected dividends
%
%
Expected life (in years)
0
Risk-free rate
2.1
%
%
28
12.
Stock-based compensation (continued)
Stock option and restricted stock activity
Options
The following table presents stock options vested and expected to vest as of
December 31, 2023:
Number of
shares
Weighted
average
exercise
price
($)
Weighted
average
remaining
contractual
term
(in years)
Aggregate
intrinsic
value
($’000)
Vested
and expecting to vest - December 31, 2023
These options have an exercise price range of $
.
The following table presents stock options that are exercisable as of December
31, 2023:
Number of
shares
Weighted
average
exercise
price
($)
Weighted
average
remaining
contractual
term
(in years)
Aggregate
intrinsic
value
($’000)
Exercisable - December 31, 2023
During the three
months ended December
31, 2023 and
2022, respectively,
During the six months
ended December 31, 2023 and
2022, respectively,
Company issues new shares to satisfy stock option exercises.
29
12.
Stock-based compensation (continued)
The Company’s
Amended and Restated
2022 Stock
Incentive Plan (“2022
Plan”) and the
vesting terms
of certain
stock-based
awards granted are described in Note 17 to the Company’s audited consolidated financial statements included in its Annual Report on
Form 10-K for the year ended June 30, 2023.
Stock option and restricted stock activity (continued)
Restricted stock
The following table summarizes restricted stock activity for the six
months ended December 31, 2023 and 2022:
Number of
shares of
restricted stock
Weighted
average grant
date fair value
($’000)
Non-vested – June 30, 2023
Total granted
Granted – October 2023
Granted – October 2023
Granted – October 2023
Total vested
(
255,706
)
Vested
– July 2023
(
78,800
)
Vested
– November 2023
(
109,833
)
Vested
– December 2023
(
67,073
)
Forfeitures
(
22,129
)
Non-vested – December 31, 2023
Non-vested – June 30, 2022
Total Granted
Granted – July 2022
Granted – August 2022
Granted – November 2022
Granted – December 2022
Granted – December 2022 - performance awards
Total vested
(
145,694
)
Vested
– July 2022
(
78,801
)
Vested
– November 2022
(
59,833
)
Vested
– December 2022
(
7,060
)
Total granted and vested
- December 2022
-
-
Granted - December 2022
Vested
- December 2022
(
300,000
)
Non-vested – December 31, 2022
30
12.
Stock-based compensation (continued)
Stock option and restricted stock activity (continued)
Restricted stock (continued)
Grants
In October 2023, the Company
awarded
The Company also awarded
except if the executive officer is terminated for cause, in
which case the award will be forfeited.
In October 2023, the Company
awarded
a
time-based
vesting
condition
and
a
market
condition
and
vest
in
full
only
on
the
date,
if
any,
that
the
following
conditions
are
satisfied: (1)
a compounded
annual
% appreciation
in the
Company’s
stock price
off a
base price
of $
period commencing on September 30, 2023 through November 17, 2026, and (2) the recipient is employed by the Company on a full-
time basis when the condition in (1) is met. If either of these conditions is not satisfied, then none of the shares of restricted stock will
vest and they will be forfeited. The Company’s
closing price on September 30, 2023, was $
.
The appreciation levels (times and price) and vesting percentages as of each
period ended are as follows:
●
Prior to the first anniversary of the grant date:
%;
●
Fiscal
2025,
the
Company’s
30-day
volume
weighted-average
stock
price
(“VWAP”)
before
November
17,
2024
is
approximately
:
%;
●
Fiscal 2026, the Company’s
VWAP before
November 17, 2025 is
:
%;
●
Fiscal 2027, the Company’s
VWAP before
November 1, 2026 is
) than $
:
%.
The fair value
of these shares
of restricted
stock was calculated
using a Monte
Carlo simulation. In
scenarios where
the shares
do not vest, the final vested value at maturity is zero. In scenarios where vesting occurs, the final vested value on maturity is the share
price on
vesting date.
In its calculation
of the
fair value
of the
restricted stock,
the Company
used an
equally weighted
volatility of
% for
the closing
price (of
$
), a
discounting based
on U.S.
dollar overnight
indexed swap
rates for
the grant
date, and
no
future dividends. The equally weighted volatility was extracted from the time series for closing prices as the standard deviation of log
prices for the
In
July
2022
and
December
2022,
the
Company
awarded
employees and
an executive
officer which
have time
-based vesting
conditions. In
December 2022,
the Company
awarded
shares of restricted stock to executive
officers which contained time and
performance-based (market conditions related to
share price
performance) vesting conditions. The Company also agreed
to match, on a
-for-one basis, (1) an employee’s purchase of up to
$
million worth of
the Company’s shares of common
stock in open
market purchases, and
in August 2022,
the Company granted
shares of restricted
stock to the
employee, and (2)
another employee’s
purchase of up
to
stock, and
in November
2022, the
Company granted
stock contain
time-based vesting
conditions. The
Company awarded
which vested on the date of the award.
The
condition and vest
in full only
on the date,
if any, that the
following conditions are
satisfied: (1) a
compounded annual
% appreciation
in
the
Company’s
stock
price
off
a
base
price
of
$
December 1, 2025, and (2) the recipient is employed by the Company on a full-time basis when the condition in (1) is
met. If either of
these conditions is not satisfied, then none of the shares of
restricted stock will vest and they will be
forfeited. The Company’s closing
price on December 1, 2022, was $
.
The appreciation levels (times and price) and vesting percentages as of each
period ended are as follows:
●
Prior to the first anniversary of the grant date:
%;
●
Fiscal 2024, stock price as of December 1, 2023 is
:
%;
●
Fiscal 2025, stock price as of December 1, 2024 is
:
%;
●
Fiscal 2026, stock price as of December 1, 2025 is
) than $
:
%.
The fair value
of these shares
of restricted
stock was calculated
using a Monte
Carlo simulation. In
scenarios where
the shares
do not vest, the final vested value at maturity is zero. In scenarios where vesting occurs, the final vested value on maturity is the share
price on
vesting date.
In its calculation
of the
fair value
of the
restricted stock,
the Company
used an
equally weighted
volatility of
% for
the closing
price (of
$
), a
discounting based
on U.S.
dollar overnight
indexed swap
rates for
the grant
date, and
no
future dividends. The equally weighted volatility was extracted from the time series for closing prices as the standard deviation of log
prices for the three years preceding the grant date.
31
12.
Stock-based compensation (continued)
Stock option and restricted stock activity (continued)
Restricted stock (continued)
As fully described in Note 17 to
the Company’s audited consolidated financial statements included in its Annual Report on Form
10-K for the year ended June 30, 2023, the Company granted a further
months
ended
December
31,
2022,
respectively,
which
were
ineligible
for
transfer
until
the
earlier
of
December
31,
2022,
or
the
occurrence of the agreed event.
Vesting
In July 2023,
the withholding tax liability on the vesting of their shares. These
In July
2022,
satisfy the withholding tax liability on the vesting of these shares. In November and December 2022, an aggregate of
restricted stock granted
to employees vested
and they elected for
on the vesting of these shares. These
) shares have been included in our treasury shares.
Forfeitures
During
the
three
and
six
months
ended
December
31,
2023,
respectively,
employees
forfeited
22,129
restricted stock following their termination of employment with
the Company.
three and six months ended December 31, 2022.
Stock-based compensation charge and unrecognized compensation
cost
The Company recorded a stock-based compensation charge, net during the three months ended December 31, 2023 and 2022, of
$
Total
charge
Allocated to cost
of goods sold, IT
processing,
servicing and
support
Allocated to
selling, general
and
administration
Three months ended December 31, 2023
Stock-based compensation charge
$
$
-
$
Reversal of stock compensation charge related to stock
options and restricted stock forfeited
(
8
)
-
(
8
)
Total - three months
ended December 31, 2023
$
$
-
$
Three months ended December 31, 2022
Stock-based compensation charge
$
$
-
$
Total - three months
ended December 31, 2022
$
$
-
$
32
12.
Stock-based compensation (continued)
Stock-based compensation charge and unrecognized compensation
cost (continued)
The Company
recorded a stock-based
compensation charge,
net during
the six months
ended December 31,
2023 and 2022,
of
$
a
Total
charge
Allocated to cost
of goods sold, IT
processing,
servicing and
support
Allocated to
selling, general
and
administration
Six months ended December 31, 2023
Stock-based compensation charge
$
$
-
$
Reversal of stock compensation charge related to stock
options forfeited
(
17
)
-
(
17
)
Total - six months ended
December 31, 2023
$
$
-
$
Six months ended December 31, 2022
Stock-based compensation charge
$
$
-
$
Total - six months ended
December 31, 2022
$
$
-
$
The stock-based compensation charges
have been allocated to selling,
general and administration based
on the allocation of the
cash compensation paid to the relevant employees.
As
of
December
31,
2023,
the
total
unrecognized
compensation
cost
related
to
stock
options
was
$
Company expects to
recognize over
. As of
December 31, 2023,
the total unrecognized
compensation cost related
to restricted
stock awards was $
.
As of December 31, 2023,
and June 30, 2023, respectively,
the Company recorded a
deferred tax asset of $
million, related
to the
stock-based compensation
charge recognized
related to
employees of
Lesaka. As
of December
31, 2023,
and
June 30, 2023, respectively,
the Company recorded a valuation allowance of $
asset because
it does
not believe
that the
stock-based compensation
deduction would
be utilized as
it does
not anticipate
generating
sufficient taxable income in the United States. The Company
deducts the difference between the market
value on the date of exercise
by the option recipient and the exercise price from income subject to taxation in
the United States.
13.
(Loss) Earnings per share
The Company
has issued redeemable
common stock
which is redeemable
at an amount
other than
fair value.
Redemption of
a
class of
common stock
at other
than fair
value increases
or decreases
the carrying
amount of
the redeemable
common stock
and is
reflected in basic earnings
per share using the two-class
method. There were
carrying value
of the redeemable
common stock
during the three
and six months
ended December 31,
2023 and 2022.
Accordingly,
the two-class method
presented below does
not include the impact
of any redemption.
The Company’s
redeemable common stock
is
described in Note 14 to the Company’s
audited consolidated financial statements included in its Annual Report on Form 10-K
for the
year ended June 30, 2023.
Basic (loss) earnings per share
includes shares of restricted stock that
meet the definition of a
participating security because these
shares are eligible
to receive non
-forfeitable dividend
equivalents at the
same rate as
common stock.
Basic (loss) earnings
per share
has been calculated using
the two-class method and
basic (loss) earnings per
share for the three
and six months ended
December 31,
2023 and
2022, reflects
only undistributed
earnings. The
computation below
of basic
(loss) earnings
per share
excludes the
net loss
attributable
to
shares
of
unvested
restricted
stock
(participating
non-vested
restricted
stock)
from
the
numerator
and
excludes
the
dilutive impact of these unvested shares of restricted stock from the denominator.
Diluted (loss)
earnings
per share
has been
calculated
to give
effect
to the
number
of shares
of additional
common
stock that
would have
been outstanding
if the
potential dilutive
instruments had
been issued
in each
period. Stock
options are
included in
the
calculation of diluted (loss) earnings per share utilizing the treasury
stock method and are not considered to be
participating securities,
as the
stock options
do not
contain non-forfeitable
dividend rights.
The Company
has excluded
employee stock
options to
purchase
2023 and 2022, because the effect would be antidilutive.
The
calculation
of diluted
(loss) earnings
per
share
includes the
dilutive
effect
of
a portion
of the
restricted
stock granted
to
employees
as
these
shares
of
restricted
stock
are
considered
contingently
returnable
shares
for
the
purposes
of
the
diluted
(loss)
earnings per share calculation and
the vesting conditions in respect of a portion
of the restricted stock had been satisfied.
The vesting
conditions for
all awards
made are
discussed in
Note 17
to the
Company’s
audited consolidated
financial statements
included in
its
Annual Report on Form 10-K for the year ended June 30, 2023.
33
13.
(Loss) Earnings per share (continued)
The
following
table
presents
net
loss
attributable
to
Lesaka
and
the
share
data
used
in
the
basic
and
diluted
loss
per
share
computations using the two-class method:
Three months ended
Six months ended
December 31,
December 31,
2023
2022
2023
2022
(in thousands except
(in thousands except
percent and
percent and
per share data)
per share data)
Numerator:
Net loss attributable to Lesaka
$
(
2,707
)
$
(
6,649
)
$
(
8,358
)
$
(
17,345
)
Undistributed loss
(
2,707
)
(
6,649
)
(
8,358
)
(
17,345
)
Percent allocated to common shareholders
(Calculation 1)
Numerator for loss per share: basic and diluted
$
(
2,588
)
$
(
6,377
)
$
(
7,961
)
$
(
16,668
)
Denominator
Denominator for basic (loss) earnings per share:
weighted-average common shares outstanding
Effect of dilutive securities:
Denominator for diluted (loss) earnings
per share: adjusted weighted average
common shares outstanding and assuming
conversion
Loss per share:
Basic
$
(
0.04
)
$
(
0.11
)
$
(
0.13
)
$
(
0.28
)
Diluted
$
(
0.04
)
$
(
0.11
)
$
(
0.13
)
$
(
0.28
)
(Calculation 1)
Basic weighted-average common shares
outstanding (A)
Basic weighted-average common shares
outstanding and unvested restricted shares
expected to vest (B)
Percent allocated to common shareholders
Options
to purchase
outstanding during
the three
months ended
December 31,
2023, but
were not
included in
the computation
of diluted
(loss) earnings
per share because the
options’ exercise price was
greater than the average
market price of the Company’s
common stock. Options to
purchase
the three months ended December 31, 2022, respectively, but were not included in
the computation of diluted (loss) earnings per share
because the
options’ exercise
price was greater
than the average
market price of
the Company’s
common stock.
The options, which
expire at various dates through February 3, 2032, were still outstanding
as of December 31, 2023.
14.
Supplemental cash flow information
The following
table presents
supplemental
cash flow
disclosures
for the
three and
six months
ended December
31, 2023
and
2022:
Three months ended
Six months ended
December 31,
December 31,
2023
2022
2023
2022
Cash received from interest
$
$
$
$
Cash paid for interest
$
$
$
$
Cash paid for income taxes
$
$
$
$
34
14.
Supplemental cash flow information (continued)
Disaggregation of cash, cash equivalents and restricted
cash
Cash, cash equivalents and restricted
cash included on the Company’s unaudited condensed consolidated statement of
cash flows
includes restricted cash
related to cash
withdrawn from the
Company’s
debt facilities to
fund ATMs.
This cash may
only be used
to
fund ATMs
and is
considered restricted
as to
use and
therefore is
classified as
restricted cash.
Cash, cash
equivalents and
restricted
cash also includes cash in certain bank accounts that has
been ceded to Nedbank. As this cash has been pledged
and ceded it may not
be drawn
and is
considered
restricted as
to use
and therefore
is classified
as restricted
cash as
well. Refer
to Note
8 for
additional
information regarding the
Company’s facilities. The following
table presents the
disaggregation of cash,
cash equivalents and
restricted
cash as of December 31, 2023 and 2022, and June 30, 2023:
December 31,
2023
December 31,
2022
June 30, 2023
Cash and cash equivalents
$
$
$
Restricted cash
Cash, cash equivalents and restricted cash
$
$
$
Leases
The following
table presents supplemental
cash flow disclosure
related to leases
for the
three and
six months ended
December
31, 2023 and 2022:
Three months ended
Six months ended
December 31,
December 31,
2023
2022
2023
2022
Cash paid for amounts included in the measurement of
lease liabilities
Operating cash flows from operating leases
$
$
$
$
Right-of-use assets obtained in exchange for lease
obligations
Operating leases
$
$
$
$
15.
Revenue recognition
Disaggregation of revenue
The
following
table
presents
the
Company’s
revenue
disaggregated
by
major
revenue
streams,
including
a
reconciliation
to
reportable segments for the three months ended December 31, 2023:
Merchant
Consumer
Total
Processing fees
$
$
$
South Africa
Rest of world
Technology
products
South Africa
Rest of world
Telecom products
and services
South Africa
Rest of world
Lending revenue
Interest from customers
Insurance revenue
Account holder fees
Other
South Africa
Rest of world
Total revenue, derived
from the following geographic locations
South Africa
Rest of world
$
$
$
35
15.
Revenue recognition (continued)
Disaggregation of revenue (continued)
The
following
table
presents
the
Company’s
revenue
disaggregated
by
major
revenue
streams,
including
a
reconciliation
to
reportable segments for the three months ended December 31, 2022:
Merchant
Consumer
Total
Processing fees
$
$
$
South Africa
Rest of world
Technology
products
South Africa
Rest of world
Telecom products
and services
South Africa
Rest of world
Lending revenue
Interest from customers
Insurance revenue
Account holder fees
Other
South Africa
Rest of world
Total revenue, derived
from the following geographic locations
South Africa
Rest of world
$
$
$
The
following
table
presents
the
Company’s
revenue
disaggregated
by
major
revenue
streams,
including
a
reconciliation
to
reportable segments for the six months ended December 31, 2023:
Merchant
Consumer
Total
Processing fees
$
$
$
South Africa
Rest of world
Technology
products
South Africa
Rest of world
Telecom products
and services
South Africa
Rest of world
Lending revenue
Interest from customers
Insurance revenue
Account holder fees
Other
South Africa
Rest of world
Total revenue, derived
from the following geographic locations
South Africa
Rest of world
$
$
$
36
15.
Revenue recognition (continued)
Disaggregation of revenue (continued)
The
following
table
presents
the
Company’s
revenue
disaggregated
by
major
revenue
streams,
including
a
reconciliation
to
reportable segments for the six months ended December 31, 2022:
Merchant
Consumer
Total
Processing fees
$
$
$
South Africa
Rest of world
Technology
products
South Africa
Rest of world
Telecom products
and services
South Africa
Rest of world
Lending revenue
Interest from customers
Insurance revenue
Account holder fees
Other
South Africa
Rest of world
Total revenue, derived
from the following geographic locations
South Africa
Rest of world
$
$
$
16.
Leases
The
Company
has
entered
into leasing
arrangements
classified
as operating
leases under
accounting
guidance.
These leasing
arrangements relate primarily
to the lease of
its corporate head office,
administration offices and
branch locations through
which the
Company operates
its consumer
business in
South Africa.
The Company’s
operating leases
have remaining
lease terms
of between
one and
. The Company also operates parts
of its consumer business from
locations which it leases for a period
of less than
. The Company’s operating lease expense during the three months ended
December 31, 2023 and 2022 was $
$
The
Company
has
also
entered
into
short-term
leasing
arrangements,
primarily
for
the
lease
of
branch
locations
and
other
locations,
to operate its consumer
business in South Africa.
The Company’s
short-term lease expense during
the three months ended
December 31, 2023
and 2022, was $
six months ended December 31, 2023 and 2022, was $
The following table presents supplemental balance
sheet disclosure related to the
Company’s right-of-use assets and its operating
lease liabilities as of December 31, 2023 and June 30, 2023:
December 31,
June 30,
2023
2023
Right of use assets obtained in exchange for lease obligations:
Weighted average
remaining lease term (years)
Weighted average
discount rate (percent)
37
16.
Leases (continued)
The maturities of the Company’s
operating lease liabilities as of December 31, 2023, are presented below:
Maturities of operating lease liabilities
Year
ended June 30,
2024 (excluding six months to December 31, 2023)
$
2025
2026
2027
2028
Thereafter
Total undiscounted
operating lease liabilities
Less imputed interest
Total operating lease liabilities,
included in
Operating lease liability - current
Operating lease liability - long-term
$
17.
Operating segments
Operating segments
The Company discloses segment information as reflected in the management
information systems reports that its chief operating
decision maker uses in making decisions and to report certain entity-wide disclosures about products and services, and the countries in
which the entity holds material assets or reports material revenues. A description of the Company’s operating segments is contained in
Note 21 to
the Company’s
audited consolidated
financial statements
included in
its Annual Report
on Form 10-K
for the year
ended
June 30, 2023.
The
Company
analyzes
its
business
and
operations
in
terms
of
two
inter-related
but
independent
operating
segments:
(1) Consumer Division (“Consumer”) and (2) Merchant Division (“Merchant”).
The reconciliation of the reportable segment’s revenue to revenue from external customers for the three months ended December
31, 2023 and 2022, is as follows:
Revenue
Reportable
Segment
Inter-
segment
From
external
customers
Merchant
$
$
$
Consumer
Total for the three
months ended December 31, 2023
$
$
$
Merchant
$
$
$
Consumer
Total for the three
months ended December 31, 2022
$
$
$
38
17.
Operating segments (continued)
Operating segments (continued)
The reconciliation of
the reportable segment’s
revenue to revenue from
external customers for the
six months ended December
31, 2023 and 2022, is as follows:
Revenue
Reportable
Segment
Inter-
segment
From
external
customers
Merchant
$
$
$
Consumer
Total for the six months ended
December 31, 2023
$
$
$
Merchant
$
$
$
Consumer
Total for the six months ended
December 31, 2022
$
$
$
The
Company
evaluates
segment
performance
based
on
segment
earnings
before
interest,
tax,
depreciation
and
amortization
(“EBITDA”), adjusted for items mentioned in the next sentence (“Segment Adjusted EBITDA”), the Company’s reportable segments’
measure
of profit
or loss.
The Company
does not
allocate once
-off
items, stock-based
compensation
charges,
certain lease
charges
(“Lease adjustments”), depreciation
and amortization, impairment of
goodwill or other intangible
assets, other items (including
gains
or losses on disposal of investments, fair value adjustments to equity securities), interest income, interest expense, income tax expense
or loss from equity-accounted investments to its reportable segments. Group costs
generally include: employee related costs in relation
to employees specifically hired
for group roles
and related directly
to managing the
US-listed entity; expenditures related
to compliance
with the Sarbanes
-Oxley Act
of 2002; non
-employee directors’
fees; legal fees;
group and
US-listed related audit
fees; and
directors
and officer’s
insurance premiums. Once-off
items represents non-recurring
expense items, including
costs related to
acquisitions and
transactions consummated
or ultimately not
pursued. Unrealized loss
FV for currency
adjustments represents foreign
currency mark-
to-market
adjustments
on
certain
intercompany
accounts.
The
Lease
adjustments
reflect
lease
charges
and
the
Stock-based
compensation adjustments reflect stock-based compensation expense and are both excluded from the calculation of Segment Adjusted
EBITDA
and
are
therefore
reported
as
reconciling
items
to
reconcile
the
reportable
segments’
Segment
Adjusted
EBITDA
to
the
Company’s loss before income
tax expense.
The reconciliation of the reportable
segments’ measure of profit or
loss to loss before income taxes
for the three and six months
ended December 31, 2023 and 2022, is as follows:
Three months ended
Six months ended
December 31,
December 31,
2023
2022
2023
2022
Reportable segments' measure of profit or loss
$
$
$
$
Operating loss: Group costs
(
2,011
)
(
2,256
)
(
3,833
)
(
4,556
)
Once-off costs
(
119
)
(
717
)
Unrealized Loss FV for currency adjustments
Lease adjustments
(
678
)
(
747
)
(
1,374
)
(
1,559
)
Stock-based compensation charge adjustments
(
1,804
)
(
2,849
)
(
3,563
)
(
4,311
)
Depreciation and amortization
(
5,813
)
(
5,919
)
(
11,669
)
(
11,917
)
Reversal of allowance of EMI doubtful debt
Gain on disposal of equity-accounted investments
(
112
)
Interest income
Interest expense
(
4,822
)
(
4,388
)
(
9,731
)
(
8,424
)
Loss before income tax expense
$
(
2,064
)
$
(
6,303
)
$
(
6,046
)
$
(
14,351
)
39
17.
Operating segments (continued)
Operating segments (continued)
The following tables summarize
supplemental segment information
for the three and six months
ended December 31, 2023 and
2022:
Three months ended
Six months ended
December 31,
December 31,
2023
2022
2023
2022
Revenues
Merchant
$
$
$
$
Consumer
Total reportable segment
revenue
Segment Adjusted EBITDA
Merchant
(1)
Consumer
(1)
(
816
)
Total Segment Adjusted
EBITDA
Depreciation and amortization
Merchant
Consumer
Subtotal: Operating segments
Group costs
Total
Expenditures for long-lived assets
Merchant
Consumer
Subtotal: Operating segments
Group costs
Total
$
$
$
$
(1) Segment
Adjusted EBITDA
for Merchant
includes retrenchment
costs of
$
includes
retrenchment
costs of
$
EBITDA for Merchant
includes retrenchment costs
of $
$
The segment
information as
reviewed by
the chief operating
decision maker
does not include
a measure of
segment assets per
segment as all of
the significant assets are
used in the operations
of all, rather than
any one, of the segments.
The Company does
not
have dedicated assets
assigned to a
particular operating segment.
Accordingly,
it is not meaningful
to attempt an arbitrary
allocation
and segment asset allocation is therefore not presented.
18.
Income tax
Income tax in interim periods
For the purposes of interim
financial reporting, the Company
determines the appropriate income
tax provision by first
applying
the effective
tax rate
expected to
be applicable
for the
full fiscal
year to
ordinary income.
This amount
is then
adjusted for
the tax
effect
of
significant
unusual
items,
for
instance,
changes
in
tax
law,
valuation
allowances
and
non-deductible
transaction-related
expenses that
are reported
separately,
and have an
impact on the
tax charge.
The cumulative effect
of any change
in the enacted
tax
rate, if and when applicable, on the opening balance of deferred tax assets and liabilities
is also included in the tax charge as a discrete
event in the interim period in which the enactment date occurs.
For
the
three
and
six
months
ended
December
31,
2023,
the
Company’s
effective
tax
rate
was
impacted
by
the
tax expense
recorded by the Company’s
profitable South African operations,
non-deductible expenses, the
on-going losses incurred
by certain of
the Company’s South African businesses and the associated valuation allowances created related to the deferred tax assets recognized
regarding net operating losses incurred by these entities.
For
the
three
and
six
months
ended
December
31,
2022,
the
Company’s
effective
tax
rate
was
impacted
by
the
tax expense
recorded by the Company’s
profitable South African operations,
non-deductible expenses, the
on-going losses incurred by
certain of
the Company’s South African businesses and the associated valuation allowances created related to the deferred tax assets recognized
regarding net operating losses incurred by these entities.
40
18.
Income tax (continued)
Uncertain tax positions
The Company
had
Company had
t expect changes related
to its unrecognized tax benefits will have a significant impact on its results of operations
or financial position in the next 12 months.
The Company
has
in the U.S. federal jurisdiction. As of December 31,
2023, the Company’s South
African subsidiaries are no longer subject to income
tax examination
by the
South African
Revenue Service
for periods
before June 30, 2019.
The Company
is subject
to income
tax in
other jurisdictions outside
South Africa, none
of which are
individually material to
its financial position,
statement of cash
flows, or
results of operations.
19.
Commitments and contingencies
Guarantees
The South African
Revenue Service and
certain of the
Company’s customers,
suppliers and other
business partners have
asked
the Company
to provide
them with
guarantees, including
standby letters
of credit,
issued by
South African
banks. The
Company is
required to procure these guarantees for these third parties to operate
its business.
RMB has
issued
guarantees
to
these
third
parties
amounting
to
ZAR
applicable as of December 31, 2023) thereby utilizing part of the Company’s
short-term facilities. The Company pays commission of
between
% per annum to
% per annum of the face
value of these guarantees and does
not recover any of the commission
from
third parties.
Nedbank has
issued guarantees
to these
third parties
amounting to
ZAR
applicable as of December 31, 2023) thereby utilizing part of the Company’s
short-term facilities. The Company pays commission of
between
% per annum to
% per annum of the face
value of these guarantees and does
not recover any of the commission
from
third parties.
The Company has not recognized any obligation related to these guarantees in its consolidated balance sheet as of December 31,
2023. The maximum
potential amount that
the Company could
pay under these
guarantees is ZAR
at exchange
rates applicable
as of
December 31,
2023). As
discussed in
Note 8,
the Company
has ceded
and pledged
certain bank
accounts to Nedbank as
security for the guarantees
issued by them
with an aggregate value
of ZAR
at
exchange
rates
applicable
as
of
December
31,
2023).
The
guarantees
have
reduced
the
amount
available
under
its indirect
and
derivative facilities in the Company’s
short-term credit facilities described in Note 8.
Contingencies
The
Company
is
subject
to
a
variety
of
insignificant
claims
and
suits
that
arise
from
time
to
time
in
the
ordinary
course
of
business. Management
currently believes
that the
resolution of
these other
matters, individually
or in
the aggregate,
will not
have a
material adverse impact on the Company’s
financial position, results of operations or cash flows.
41
Item 2. Management’s Discussion and Analysis of Financial
Condition and Results of Operations
The following discussion should be read in conjunction with our Annual Report on Form 10-K for the year
ended June 30, 2023,
and the unaudited condensed consolidated financial statements and
the accompanying notes included in this Form 10-Q.
U.S. securities laws
require that when
we publish any
non-GAAP measures, we
disclose the reason
for using these
non-GAAP
measures
and
provide
reconciliations
to
the
most
directly
comparable
GAAP
measures.
We
discuss
why
we
consider
it
useful
to
present these non
-GAAP measures and
the material risks
and limitations of
these measures, as
well as a
reconciliation of these
non-
GAAP measures
to the
most directly
comparable GAAP
financial measure
below at
“—Results of
Operations—Use of
Non-GAAP
Measures” below.
Forward-looking statements
Some of the statements in this Form 10-Q constitute forward-looking
statements. These statements relate to future events or our
future financial performance
and involve known
and unknown
risks, uncertainties and
other factors that
may cause
our or our
industry’s
actual results,
levels of
activity,
performance
or achievements
to be
materially
different
from
any future
results, levels
of
activity,
performance or achievements expressed,
implied or inferred by these
forward-looking statements. Such factors
include, among other
things, those
listed under Item
1A.—“Risk Factors” in
our Annual
Report on Form
10-K for
the year ended
June 30, 2023.
In some
cases,
you
can
identify forward-looking
statements
by terminology
such as
“may,”
“will,” “should,”
“could,”
“would,”
“expects,”
“plans,” “intends,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of such terms
and other
comparable terminology.
Although we believe
that the expectations
reflected in the
forward-looking statements are
reasonable, we do
not know whether
we can
achieve positive
future results,
levels of
activity,
performance, or
goals. Actual
events or
results may
differ
materially.
We
undertake no obligation to update any of the forward-looking statements after the date of this Form 10-Q to conform those statements
to reflect the occurrence of unanticipated events, except as required by applicable
law.
You
should read this Form 10-Q and the documents that we reference herein and the documents we have filed as exhibits hereto
and
thereto
and
which
we
have
filed
with
the
United
States
Securities
and
Exchange
Commission
completely
and
with
the
understanding that our
actual future results,
levels of activity,
performance and achievements
may be materially
different from
what
we expect. We
qualify all of our forward-looking statements by these cautionary
statements.
Recent Developments
We
experienced
continued
improvement
in
our
financial
performance
in
the
second
quarter
of
fiscal
2024
with
revenue
and
profitability improving in both Consumer and Merchant divisions.
Revenue of $143.9 million (ZAR 2.7 billion) was within our revenue guidance of ZAR 2.7 billion to ZAR 2.8 billion for second
quarter of fiscal 2024, despite prevailing negative macroeconomic
and socio-political conditions in South Africa.
Operating income of $2.3 million (ZAR 42.5 million) improved
211% in ZAR, compared with an operating loss of
$2.2
million
(ZAR 38.4 million) during the second quarter of fiscal 2023.
We exceeded the upper end of guidance of ZAR 170.0 million to
ZAR 180.0 million for second quarter of
fiscal 2024, delivering
Group Adjusted EBITDA, a non-GAAP measure, of $9.6 million (ZAR180.5 million) this quarter, a 38% increase in ZAR, compared
to
$7.4
million
(ZAR
130.4
million)
in
the
second
quarter
of
fiscal
2023.
The
continued
resilience
of
our
business
model
in
a
challenging environment for our merchant and consumer customers demonstrates
the value they place on our services.
Our mission at Lesaka is
to enable merchants to compete and
grow, and to improve the lives of
South Africa’s grant beneficiaries
by providing access
to innovative financial
technology and value
creating solutions. We
achieve this through our
vision to build
and
operate the
leading full-service
fintech platform
in Southern
Africa, offering
cash management,
payment processing,
Value
Added
Services (“VAS”),
capital and financial services to merchants and underserved consumers.
Merchant Division
The year-on-year growth achieved by our Merchant Division
is supported by the robust secular trends underpinning financial
inclusion, cash management and digitalization for micro, small and medium
enterprises (“MSMEs”), especially in the informal
markets of South Africa, where we have a leading market position.
42
Performance in our Merchant division has been driven by:
●
Kazang, our VAS
and supplier payments business,
continues to see adoption
by MSMEs in the informal
sector, with a
23%
year-on-year and 3% quarter-on-quarter growth
in the number of devices deployed.
o
We
had
approximately
79,000
devices
deployed
as
of
December
31,
2023,
compared
to
approximately
64,500
devices one year ago, and approximately 77,000 devices at the end
of the first quarter. Core to our device placement
strategy is the decision to focus on quality business and optimizing our existing fleet, which is reflected in a healthy
throughput and margin per device.
o
VAS
throughput increased
21% year-on-year
and 17% quarter-on-quarter.
The second quarter
of our fiscal
year is
traditionally our strongest quarter due to higher activity over the year-end
festive season benefitting certain product
lines.
o
As communicated
since the
fourth quarter
of fiscal
2023, our
product
mix for
VAS
sales has
changed
with low-
margin money transfers reducing significantly due to a change in the regulatory environment impacting the
industry
as a whole. Money transfers currently comprise approximately 5% of VAS
throughput, compared to approximately
25%
a
year
ago.
This
change
has
had
limited
impact
on
profitability
as
money
transfers
are
a
very
low
margin
product.
o
VAS
throughput,
excluding
the
low-margin
money
transfers,
increased
51%
year-on-year
and
16%
quarter-on-
quarter.
●
We provide card acquiring solutions in the
informal sector via Kazang
Pay and in the
formal sector we through
Card Connect.
Card-enabled POS devices
increased to approximately
48,200 as of December
31, 2023, a year-on-year
growth of 40% and
quarter-on-quarter growth of 4%. Throughput
on deployed devices increased 31%
year-on-year and 15% quarter-on-quarter
to R4.1 billion.
●
Our current
Merchant Credit
offering
is Capital
Connect in
the formal
SME market.
Kazang Pay
Advance in
the informal
sector remains
suspended
as we
reported
in the
previous
quarter.
Capital Connect
disbursed ZAR
170 million
during this
quarter, compared to approximately ZAR 205 million in the comparable period last year, representing a 17% decrease. In the
formal
market
we
continue
to
see
demand
for
our
merchant
credit
offering
however
the
deteriorating
performance
and
financial
strength
of
many
of
our
merchants
means
they
do
not
meet
our
credit
criteria,
resulting
in
fewer
and
smaller
extensions.
Whilst
strict application
of
our
credit criteria
has
led
to
negative
growth,
it has
protected
and
maintained
the
quality of our book through this cycle. Our loan book as of December 31, 2023 was R253 million compared to R290 million
as of December 31, 2022.
●
Our
automated
cash management
offering,
Cash Connect,
effectively
“puts
the bank”
in approximately
4,480
merchants’
stores, compared
to approximately
4,320 merchants’
stores a year
ago. Cash
Connect is
a provider
of robust
cash vaults
in
the formal
sector and
is building
a presence
in the
informal sector.
Cash Connect
enables our
merchant
customer base
to
significantly mitigate their
operational risks pertaining
to cash
management and security. Our
new ATM recycler is generating
strong interest,
and this business
has been
transferred to
our Merchant
Division, where
it has been
fully integrated
into our
Cash Connect proposition as an alternative to vaults for our merchant
customers.
Acquisition of Touchsides
In February
2024 we
announced the
acquisition of
Touchsides
(Pty) Ltd
(“Touchsides”),
a leading
data analytics
and insights
company,
from Heineken
International B.V.
The Touchsides
and Kazang
businesses are
highly complementary,
and the acquisition
significantly expands
Kazang’s
footprint in
the informal
market by
adding an
established solution
that has
a strong
presence in
the
informal licensed tavern market. Touchsides has an installed base of over 10,000 active POS terminals across South Africa’s informal
licensed taverns,
and processes
more than
1.5 million
transactions per
day.
The business
provides platform-as-a-service
(PaaS) and
software-as-a-service (SaaS) solutions to licensed tavern outlets, enabling the measurement of sales activity in real-time, management
of stock levels and informing commercial decisions, such as pricing
and promotional offers.
The data and insights gathered from these terminals carries significant value and potential to be monetized through relationships
with
a
range
of
clients
including
fast-moving
consumer
goods
companies,
retailers,
wholesalers,
route-to-market
suppliers,
and
financiers.
We anticipate the
acquisition to close in March 2024 and it is subject to satisfaction of customary
closing conditions.
Consumer Division
Over the past six quarters we have
consistently referenced the three levers underpinning
our strategy of returning the Consumer
Division to profitability – (i) growing active EasyPay Everywhere (“EPE”) account numbers, (ii) increasing average revenue per
user
(“ARPU”) through cross-selling and (iii) cost optimization. With
the progress made on these levers and the improved performance of
the Consumer division we are now focusing on enhancing our product and
service offering.
43
The progress on our three key initiatives is as follows:
●
Driving customer acquisition
o
Gross EPE account activations, for the permanent base, during our current quarter showed significant improvement
due
to
various
strategic
initiatives.
We
achieved
approximately
122,000
gross
account
activations
in
the
second
quarter,
compared
to approximately
43,000
in
the second
quarter
of fiscal
2023.
After accounting
for
churn,
net
active account
growth for
the quarter
was approximately
92,000 accounts,
compared
to approximately
10,000 in
second quarter of fiscal 2023.
o
Our total active EPE transactional account base stood at approximately 1.4 million at the end of December 2023, of
which more than
1.2 million (or
more than 85%)
are permanent grant
recipients. The balance
comprises Social Relief
of Distress (“SRD”) grant
recipients, which was introduced
during the COVID pandemic and
extended in calendar
2023.
o
Our priority
is to grow
our permanent
grant recipient
customers base,
where we
can build
deeper relationships
by
offering other products such as insurance and lending. We do not offer the same breadth of service to the SRD grant
base due to the temporary nature of the grant.
o
The
South
African
Post
Office,
which
is
the
largest
service
provider
to
South
African
grant
beneficiaries,
experienced
increasing grant
distribution
and financial
challenges during
the last
two quarters,
resulting
in many
grant beneficiaries migrating to alternative financial service providers. The measures taken by EasyPay
Everywhere
over the
past 18
months to
enhance our
products, sales,
onboarding and
customer service
capabilities put
us in
a
good position to benefit from this migration.
●
Progress on cross
selling
EasyPay Loans
o
We
originated
approximately 278,000
loans during
the quarter
with our
consumer loan
book, before
allowances,
increasing 26%
to ZAR
503 million
as at
December 31,
2023, compared
to ZAR
398 million
as of
December 31,
2022.
o
We have not
amended our credit scoring or other lending criteria and the growth is reflective of the demand
for our
tailored loan product for this market and growth in EPE bank account customer
base
o
The
loan
conversion
rate
continues
to
improve
following
the
implementation
of
a
number
of
targeted
consumer
lending campaigns during the current quarter.
o
The portfolio loss ratio,
calculated as the loans
written off during the
period as a percentage
of the total loan book,
remained at approximately 6% on an annualized basis, in line with the first quarter
of fiscal 2024.
EasyPay Insurance
o
Our funeral
insurance product continued
its strong growth
and is a
material contributor
to the improvement
in our
overall ARPU. We have been able to improve customer penetration to more than 30% of
our active permanent grant
account base as of December
31, 2023, compared to
approximately 25% as of December
31, 2022. Approximately
42,000
new
policies were
written in
the quarter,
compared to
approximately
29,000
in the
comparable
period
in
fiscal 2023. The
total number
of active policies
has grown by
31% to approximately
384,000 policies as
of December
31, 2023, compared to December 31, 2022.
ARPU
o
ARPU
for
our
permanent
client
base
has
increased
to
over
ZAR
85
for
the
second
quarter
of
fiscal
2024,
from
approximately ZAR 74 in the second quarter of fiscal 2023.
Economic Environment and Impact of loadshedding
Overall, we have
seen no significant change
in the operating environment
during the quarter.
The trading environment
remains
challenging in South Africa
with interest rates
and unemployment remaining at elevated
levels. These factors
are compounded by daily
power cuts
(known as
load-shedding in
South Africa),
although we have
seen a marginal
reduction in
load shedding
during the
last
two quarters. Power disruptions
adversely impact our customers,
especially in our Merchant
Division, where they lose
valuable trading
hours if they
do not have
access to alternative power
supplies and back-up
facilities to process electronic
payments and value-added
services.
The
negative
impact
is,
however,
to
some
extent
mitigated
as
our
customer
base
is
geographically
diversified,
and
the
rotational nature
of load-shedding
results in
localized power
cuts over
shorter time
periods, allowing
merchants to
make up
for lost
trading hours.
44
Notwithstanding
the
challenging
operating
environment,
our
Merchant
and
Consumer
Divisions
continue
to
demonstrate
the
resilience of our business model, which is firmly underpinned by the relevance
and value of our offering to our target market.
Management changes
The Board has appointed Ali Mazanderani as Executive Chairman and Kuben Pillay as Lead Independent Director. Chris Meyer
will conclude his
tenure as Group
CEO on February
29, 2024. During
his nearly three
years as Group
CEO, Chris has
led the successful
turnaround
and building
of
the Lesaka
fintech
platform.
Chris will
remain
a
director
of Lesaka.
Ali Mazanderani
will assume
the
Executive Chairman
role on
February 1,
2024. Ali
has been
a member
of the
Lesaka board
since 2020
and he
played a
lead role
in
setting the vision to build
the leading fintech platform in
Southern Africa that set Lesaka
on its journey.
He presented this strategy to
the market at
Lesaka’s Q4 2020 earnings call
and has played
a key role
in Lesaka’s evolution, serving as
a board director and
a member
of the Capital Allocation Committee.
Ali
brings
deep
experience
to
the
Lesaka
executive
team
and
is
a
well-known
and
respected
global
fintech
leader
and
entrepreneur.
Ali
is
co-founder
and
Chairman
of
Teya,
a
leading
European
fintech
and
has
served
as
a
director
of
global
fintech
companies, including StoneCo in Brazil and Network International
in the UAE.
Improvement in our Broad Based Black Economic
Empowerment (“B-BBEE”) rating to level 4
B-BBEE is
a key
strategic priority
for us.
Achievement of
B-BBEE objectives
is measured
by a
scorecard which
establishes a
weighting
for
various
elements.
Scorecards
are
independently
reviewed
by
accredited
BEE
verification
agencies
which
issue
a
certificate that presents
an entity’s
BEE Contributor Status
Level, with level 1
being the highest and
“no rating” (a level
below level
8)
as
the
lowest.
During
fiscal
2023,
we
made
significant
progress
in
terms
of
improving
our
empowerment
credentials
and
in
September
2023
we
reported
that
our
independently
verified
B-BBEE
rating
improved
to
a
level
5
rating
from
a
level
8
rating,
simultaneously setting out our aim to achieve a level 4
rating by the end of fiscal year 2024.
We achieved this target during the second
quarter of fiscal 2024 and have received an independently verified B-BBEE rating
of level 4.
Critical Accounting Policies
Our unaudited condensed consolidated
financial statements have been
prepared in accordance with U.S.
GAAP,
which requires
management
to
make
estimates
and
assumptions
about
future
events
that
affect
the
reported
amount
of
assets
and
liabilities
and
disclosure
of
contingent
assets and
liabilities.
As future
events
and
their
effects
cannot be
determined
with
absolute
certainty,
the
determination
of
estimates
requires
management’s
judgment
based
on
a
variety
of
assumptions
and
other
determinants
such
as
historical experience, current and expected market conditions and certain scientific evaluation techniques. Critical accounting policies
are those
that reflect
significant judgments
or uncertainties
and may
potentially result
in materially
different
results under
different
assumptions
and
conditions.
We
have
identified
the
following
critical
accounting
policies that
are
described
in
more
detail
in
our
Annual Report on Form 10-K for the year ended June 30, 2023:
●
Business Combinations and the Recoverability of Goodwill;
●
Intangible Assets Acquired Through Acquisitions;
●
Revenue recognition – principal versus agent considerations;
●
Valuation
of investment in Cell C;
●
Recoverability of equity securities and equity-accounted investments;
●
Deferred Taxation;
●
Stock-based Compensation;
●
Accounts Receivable and Allowance for Doubtful Accounts Receivable;
and
●
Lending.
45
Recent accounting pronouncements adopted
Refer to Note
1 to
our unaudited condensed
consolidated financial statements
for a full
description of accounting
pronouncements
adopted, including the dates of adoption and the effects on
our unaudited condensed consolidated financial statements.
Recent accounting pronouncements not yet adopted
as of December 31, 2023
Refer
to
Note
1
to
our
unaudited
condensed
consolidated
financial
statements
for
a
full
description
of
recent
accounting
pronouncements
not
yet
adopted
as
of
December
31,
2023,
including
the
expected
dates
of
adoption
and
effects
on
our
financial
condition, results of operations and cash flows.
Currency Exchange Rate Information
Actual exchange rates
The actual exchange rates for and at the end of the periods presented were
as follows:
Table 1
Three months ended
Six months ended
Year
ended
December 31,
December 31,
June 30,
2023
2022
2023
2022
2023
ZAR : $ average exchange rate
18.7313
17.6279
18.6885
17.3240
17.7641
Highest ZAR : $ rate during period
19.4568
18.3617
19.4568
18.3617
19.7558
Lowest ZAR : $ rate during period
18.2076
16.9840
17.6278
16.2035
16.2034
Rate at end of period
18.2982
17.0212
18.2982
17.0212
18.8376
46
Translation exchange
rates for financial reporting purposes
We are required
to translate our results of operations from ZAR to U.S. dollars on a monthly
basis. Thus, the average rates used
to translate this
data for
the three and
six months ended
December 31, 2023
and 2022, vary
slightly from the
averages shown
in the
table above. Except as
described below,
the translation rates we
use in presenting our
results of operations are
the rates shown in
the
following table:
Three months ended
Six months ended
Year
ended
Table 2
December 31,
December 31,
June 30,
2023
2022
2023
2022
2023
Income and expense items: $1 = ZAR
18.7108
17.5160
18.7124
17.2482
17.9400
Balance sheet items: $1 = ZAR
18.2982
17.0212
18.2982
17.0212
18.8376
We
have translated
the results
of operations
and operating
segment information
for the
three and
six months
ended December
31, 2023, provided
in the tables
below using
the actual average
exchange rates
per month (i.e.
for each of
October 2023, November
2023, and December
2023 for the
second quarter of
fiscal 2024)
between the
USD and ZAR
in order
to reduce the
reconciliation of
information presented to our chief operating
decision maker. The impact of
using this method compared with the average rate for
the
quarter and year to date is not significant, however, it does result in minor differences.
We believe that presentation using the average
exchange
rates
per
month
compared
with
the
average
exchange
rate
per
quarter
and
year
to
date
improves
the
accuracy
of
the
information presented in our
external financial reporting and
leads to fewer
differences between our external reporting
measures which
are supplementally presented in ZAR, and our internal management
information, which is also presented in ZAR.
Results of Operations
The discussion
of our
consolidated overall
results of
operations is
based on
amounts as
reflected
in our
unaudited condensed
consolidated financial
statements which
are prepared
in accordance
with U.S.
GAAP.
We
analyze our
results of
operations both
in
U.S. dollars, as presented in the unaudited condensed consolidated
financial statements, and supplementally in ZAR, because ZAR is
the functional
currency of
the entities
which contribute
the majority
of our
results and
is the
currency in
which the
majority of
our
transactions
are
initially
incurred
and
measured.
Presentation
of our
reported
results
in ZAR
is a
non-GAAP
measure.
Due
to
the
significant impact of currency
fluctuations between the U.S.
dollar and ZAR on
our reported results and because
we use the U.S.
dollar
as our reporting
currency,
we believe that
the supplemental presentation
of our results
of operations in
ZAR is useful
to investors to
understand the changes in the underlying trends of our business.
Our
operating
segment
revenue
presented
in
“—Results
of
operations
by
operating
segment”
represents
total
revenue
per
operating segment before intercompany
eliminations. A reconciliation between
total operating segment revenue and
revenue, as well
as
the
reconciliation
between
our
segment
performance
measure
and
net
loss
before
tax
(benefits)
expense,
is
presented
in
our
unaudited condensed consolidated financial
statements in Note
17 to those
statements. Our chief
operating decision maker
is our
Group
Chief
Executive
Officer
and
he
evaluates
segment
performance
based
on
segment
earnings
before
interest,
tax,
depreciation
and
amortization
(“EBITDA”),
adjusted
for
items
mentioned
in
the
next
sentence
(“Segment
Adjusted
EBITDA”)
for
each
operating
segment.
We
do not
allocate once
-off
items (as
defined below),
stock-based
compensation charges,
depreciation
and amortization,
impairment of goodwill or
other intangible assets, certain
lease charges (“Lease
adjustments”), other items (including
gains or losses
on disposal
of investments,
fair value
adjustments to
equity securities,
fair value
adjustments to
currency options),
interest income,
interest expense, income tax expense or loss
from equity-accounted investments to our reportable segments. Once-off items
represents
non-recurring
expense
items,
including
costs related
to
acquisitions
and
transactions
consummated
or ultimately
not pursued.
The
Lease adjustments reflect lease charges and the Stock-based compensation adjustments reflect stock-based compensation expense and
are both excluded from the calculation of Segment Adjusted EBITDA and
are therefore reported as reconciling items to reconcile the
reportable segments’ Segment Adjusted EBITDA to our loss before income
tax expense.
Group
Adjusted
EBITDA
represents
Segment
Adjusted
EBITDA
after
deducting
group
costs.
Refer
also
“Results
of
Operations—Use of Non-GAAP Measures” below.
Connect is included for the entire year to date of fiscal 2024 and 2023.
We analyze our business and operations in terms of two
inter-related but independent operating segments: (1) Merchant Division
and (2)
Consumer Division.
In addition,
corporate activities
that are
impracticable to
allocate directly
to the
operating segments,
as
well as any inter-segment eliminations, are included in Group costs. Inter-segment revenue eliminations are included
in Eliminations.
47
Second quarter of fiscal 2024 compared to second quarter
of fiscal 2023
The following factors had
a significant impact on
our results of operations
during the second quarter
of fiscal 2024 as compared
with the same period in the prior year:
●
Higher revenue:
Our revenues increased 13% in
ZAR, primarily due to an increase in
low margin prepaid airtime sales and
other value-added services, as well
as higher transaction, insurance and lending revenues,
which was partially offset by lower
hardware sales revenue in our POS hardware distribution business given the
lumpy nature of bulk sales;
●
Operating
income
generated:
Operating
profitability
was
achieved
following
years
of
operating
losses
as
a
result
of the
various cost reduction initiatives in Consumer implemented in prior periods as well as the
contribution from Connect;
●
Higher net
interest charge:
70.0 million) primarily due to higher interest rates; and
●
Foreign exchange
movements:
compared to the prior period, which adversely impacted our U.S. dollar
reported results.
Consolidated overall results of operations
This discussion is based on the amounts prepared in accordance with U.S. GAAP.
The following tables show the changes in the items comprising our statements of
operations, both in U.S. dollars and in ZAR:
Table 3
In United States Dollars
Three months ended December 31,
2023
2022
%
$ ’000
$ ’000
change
Revenue
143,893
136,068
6%
Cost of goods sold, IT processing, servicing and support
114,266
108,824
5%
Selling, general and administration
21,541
23,517
(8%)
Depreciation and amortization
5,813
5,919
(2%)
Operating income (loss)
2,273
(2,192)
nm
Loss on disposal of equity-accounted investments
-
112
nm
Interest income
485
389
25%
Interest expense
4,822
4,388
10%
Loss before income tax expense
(2,064)
(6,303)
(67%)
Income tax expense
686
364
88%
Net loss before earnings from equity-accounted investments
(2,750)
(6,667)
(59%)
Earnings from equity-accounted investments
43
18
139%
Net loss attributable to us
(2,707)
(6,649)
(59%)
Table 4
In South African Rand
Three months ended December 31,
2023
2022
%
ZAR ’000
ZAR ’000
change
Revenue
2,694,506
2,383,367
13%
Cost of goods sold, IT processing, servicing and support
2,139,730
1,906,161
12%
Selling, general and administration
403,443
411,923
(2%)
Depreciation and amortization
108,863
103,677
5%
Operating income (loss)
42,470
(38,394)
nm
Loss on disposal of equity-accounted investments
-
1,962
nm
Interest income
9,080
6,814
33%
Interest expense
90,329
76,860
18%
Loss before income tax expense
(38,779)
(110,402)
(65%)
Income tax expense
12,845
6,376
101%
Net loss before earnings from equity-accounted investments
(51,624)
(116,778)
(56%)
Earnings from equity-accounted investments
805
315
156%
Net loss attributable to us
(50,819)
(116,463)
(56%)
48
Revenue increased
by $7.8
million (ZAR
0.3 billion),
or 5.8%
(in ZAR,
13.1%),
primarily due
to the
increase in
low margin
prepaid airtime sales
and other value-added
services, as well
as higher transaction, insurance
and lending revenues, which
was partially
offset by lower hardware sales revenue in our POS hardware distribution
business given the lumpy nature of bulk sales.
Cost of goods sold, IT processing, servicing and support increased by $5.4 million
(ZAR 0.2 billion), or 5.0% (in ZAR, 12.3%),
primarily due to the increase in low margin prepaid airtime sales, which were partially offset by
the benefits of various cost reduction
initiatives in Consumer and lower insurance-related claims.
Selling, general and administration expenses decreased by $2.0
million (ZAR 8.5 million), or 8.4%
(in ZAR 2.1%). The decrease
was primarily due to
the benefits of
various cost reduction initiatives
in Consumer and lower
stock-based compensation charges, which
were partially offset by higher employee-related expenses and the year-over-year impact of inflationary increases on certain expenses.
Depreciation and amortization expense
decreased by $0.1 million, or 1.8%
,
and in ZAR increased by
ZAR 5.2 million or 5.0%.
In the ZAR, the increase was due to an increase in depreciation expense related
to additional POS devices deployed.
Our operating income (loss)
margin for the second
quarter of fiscal
2024 and 2023 was
1.6% and(1.6)%, respectively. We discuss
the components of operating loss margin under “—Results of operations
by operating segment.”
We
did not record
any changes in
the fair value
of equity interests
in MobiKwik and
Cell C during
the second quarter
of fiscal
2024 or 2023, respectively. We continue to carry our investment in Cell C
at $0 (zero). Refer to
Note 4 for the methodology and
inputs
used in the fair value calculation for Cell C.
Interest on surplus cash increased
to $0.5 million (ZAR 9.1
million) from $0.4 million (ZAR
6.8 million), primarily due to
higher
interest rates.
Interest
expense increased
to $4.8
million (ZAR
90.3 million)
from $4.4
million (ZAR
76.9 million),
primarily
as a
result of
higher overall interest rates and higher overall borrowings during the second quarter of fiscal 2024 compared with comparable period
in the prior quarter, which was partially offset
by lower interest expense incurred on certain of our borrowing for which we were able
to negotiate lower rates of interest during the latter half of fiscal 2023.
Fiscal 2024 tax expense was $(0.7) million
(ZAR (12.8) million) compared to $0.4 million
(ZAR 6.4 million) in fiscal 2023. Our
effective tax rate for fiscal 2024 was impacted
by the tax expense recorded by our profitable South
African operations, a deferred tax
benefit related
to acquisition-related
intangible asset
amortization, non-deductible
expenses, the
on-going losses
incurred by
certain
of our South African businesses
and the associated valuation allowances
created related to the deferred
tax assets recognized regarding
net operating losses incurred by these entities.
Our effective
tax rate
for fiscal
2023 was
impacted by
the tax
expense recorded
by our
profitable South
African operations,
a
deferred tax benefit related to acquisition-related intangible asset amortization, non-deductible expenses, the on-going losses incurred
by certain of our
South African businesses and
the associated valuation allowances
created related to the
deferred tax assets recognized
regarding net operating losses incurred by these entities.
Finbond is
listed on
the Johannesburg
Stock Exchange
and reports
its six-month
results during
our first
quarter and
its annual
results during our fourth quarter.
We sold our
entire remaining interest in Finbond during the second quarter of fiscal 2024.
The table
below presents the relative (loss) earnings from our equity-accounted investments:
Table 5
Three months ended December 31,
2023
2022
$ %
$ ’000
$ ’000
change
Other
43
18
139%
Total
loss from equity-accounted investments
43
18
139%
49
Results of operations by operating segment
The composition of revenue and the contributions of our business activities to operating
loss are illustrated below:
Table 6
In United States Dollars
Three months ended December 31,
2023
% of
2022
% of
% change
Operating Segment
$ ’000
total
$ ’000
total
Consolidated revenue:
Merchant
127,870
89%
120,634
89%
6%
Consumer
16,707
12%
15,434
11%
8%
Subtotal: Operating segments
144,577
101%
136,068
100%
6%
Eliminations
(684)
(1%)
-
-
nm
Total
consolidated revenue
143,893
100%
136,068
100%
6%
Segment Adjusted EBITDA:
Merchant
(1)
8,693
90%
9,120
123%
(5%)
Consumer
(1)
2,948
31%
578
8%
410%
Group costs
(2,011)
(21%)
(2,256)
(30%)
(11%)
Group Adjusted EBITDA (non-GAAP)
(2)
9,630
100%
7,442
100%
29%
(1) Segment Adjusted
EBITDA for Merchant includes
retrenchments costs of
$0.01 million and Consumer
includes retrenchment
costs of $0.1 million for the second quarter of fiscal 2024.
(2) Group Adjusted EBITDA
is a non-GAAP measure, refer
to reconciliation below at
“—Results of Operations—Use of
Non-
GAAP Measures”.
Table 7
In South African Rand
Three months ended December 31,
2023
% of
2022
% of
% change
Operating Segment
ZAR ’000
total
ZAR ’000
total
Consolidated revenue:
Merchant
2,394,515
89%
2,113,025
89%
13%
Consumer
312,767
12%
270,342
11%
16%
Subtotal: Operating segments
2,707,282
101%
2,383,367
100%
14%
Eliminations
(12,776)
(1%)
-
-
nm
Total
consolidated revenue
2,694,506
100%
2,383,367
100%
13%
Segment Adjusted EBITDA:
Merchant
(1)
162,935
90%
159,746
123%
2%
Consumer
(1)
55,225
31%
10,124
8%
445%
Group costs
(37,663)
(21%)
(39,516)
(30%)
(5%)
Group Adjusted EBITDA (non-GAAP)
(2)
180,497
100%
130,354
100%
38%
(1)
Segment
Adjusted
EBITDA
for
Merchant
includes
retrenchments
costs
of
ZAR
0.1
million
and
Consumer
includes
retrenchment costs of ZAR 1.3 million for the second quarter of fiscal 2024.
(2) Group Adjusted EBITDA
is a non-GAAP measure, refer
to reconciliation below at
“—Results of Operations—Use of
Non-
GAAP Measures”.
Merchant
Segment revenue
increased due
to the increase
in low margin
prepaid airtime
sales and other
value-added services,
which was
partially offset
by lower hardware
sales revenue
given the lumpy
nature of bulk
sales as well
as lower revenue
from certain valued-
added services transactions
(such as international money
transfers). In ZAR, the
increase in Segment Adjusted
EBITDA is primarily
due to
the higher
sales activity,
which was
partially offset
by lower
hardware sales.
Connect records
a significant
proportion of
its
airtime
sales
in
revenue
and
cost
of
sales,
while
only
earning
a
relatively
small
margin.
This
significantly
depresses
the
Segment
Adjusted EBITDA margins shown by the business.
Our Segment Adjusted
EBITDA margin
(calculated as Segment
Adjusted EBITDA divided
by revenue) for
the second quarter
of fiscal 2024 and 2023 was 6.8% and 7.6%, respectively.
50
Consumer
Segment revenue increased
primarily due to
more transaction fees
generated from the
higher EPE account
holders base, higher
insurance revenues, and an increase
in lending revenue as
a result of an
increase in loan originations.
This increase in revenue,
together
with the cost reduction
initiatives initiated in fiscal
2022 and through
fiscal 2023, have
translated into a turnaround
in the Consumer
Division and the realization of sustained positive Segment Adjusted EBITDA.
Our Segment Adjusted EBITDA margin for the
second quarter of fiscal 2024 and 2023 was 17.6%
and 3.7%, respectively.
Group costs
Our group
costs primarily
include employee
related costs
in relation
to employees
specifically hired
for group
roles and
costs
related
directly
to
managing
the
US-listed
entity;
expenditures
related
to
compliance
with
the
Sarbanes-Oxley
Act
of
2002;
non-
employee directors’ fees; legal fees; group and US-listed related audit
fees; and directors’ and officers’ insurance premiums.
Our group costs for
fiscal 2024 decreased compared
with the prior period
due to lower external
audit, legal and consulting
fees
and lower provision for executive bonuses, which was partially offset
by higher employee costs.
First half of fiscal 2024 compared to first half of fiscal 2023
The following
factors had a
significant impact on
our results of
operations during
the first half
of fiscal 2024
as compared with
the same period in the prior year:
●
Higher revenue:
Our revenues increased 16% in
ZAR, primarily due to an increase
in low margin prepaid airtime
sales and
other value added services, as well as
higher transaction, insurance and lending revenues, which was partially offset by lower
hardware sales revenue in our POS hardware distribution business given the
lumpy nature of bulk sales;
●
Operating
income
generated:
Operating
profitability
was
achieved
following
years
of
operating
losses
as
a
result
of the
various cost reduction initiatives in Consumer implemented in prior periods as well as the contribution
from Connect;
●
Higher net interest charge:
131.5 million) primarily due to higher interest rates; and
●
Foreign exchange movements:
to the prior period, which adversely impacted our U.S. dollar reported
results.
Consolidated overall results of operations
This discussion is based on the amounts prepared in accordance with U.S. GAAP.
The following tables show the changes in the items comprising our statements of operations,
both in U.S. dollars and in ZAR:
Table 8
In United States Dollars
Six months ended December 31,
2023
2022
%
$ ’000
$ ’000
change
Revenue
279,982
260,854
7%
Cost of goods sold, IT processing, servicing and support
221,756
209,352
6%
Selling, general and administration
44,056
46,448
(5%)
Depreciation and amortization
11,669
11,917
(2%)
Operating income (loss)
2,501
(6,863)
nm
Reversal of allowance for EMI doubtful debt receivable
250
-
nm
Net gain on disposal of equity-accounted investments
-
136
nm
Interest income
934
800
17%
Interest expense
9,731
8,424
16%
Loss before income tax expense
(6,046)
(14,351)
(58%)
Income tax expense
950
395
141%
Net loss before loss from equity-accounted investments
(6,996)
(14,746)
(53%)
Loss from equity-accounted investments
1,362
2,599
(48%)
Net loss attributable to us
(8,358)
(17,345)
(52%)
51
Table 9
In South African Rand
Six months ended December 31,
2023
2022
%
ZAR ’000
ZAR ’000
change
Revenue
5,232,165
4,499,262
16%
Cost of goods sold, IT processing, servicing and support
4,144,195
3,610,946
15%
Selling, general and administration
823,304
801,144
3%
Depreciation and amortization
218,029
205,547
6%
Operating income (loss)
46,637
(118,375)
nm
Reversal of allowance for EMI doubtful debt receivable
4,741
-
nm
Net gain on disposal of equity-accounted investments
-
2,346
nm
Interest income
17,448
13,799
26%
Interest expense
181,758
145,298
25%
Loss before income tax expense
(112,932)
(247,528)
(54%)
Income tax expense
17,670
6,813
159%
Net loss before loss from equity-accounted investments
(130,602)
(254,341)
(49%)
Loss from equity-accounted investments
25,852
44,828
(42%)
Net loss attributable to us
(156,454)
(299,169)
(48%)
Revenue increased
by $19.1
million (ZAR
0.7 billion),
or 7.3%
(in ZAR,
16.3%), primarily
due to
the increase
in low
margin
prepaid airtime sales
and other value-added
services, as well
as higher transaction, insurance
and lending revenues, which
was partially
offset by lower hardware sales revenue in our POS hardware distribution
business given the lumpy nature of bulk sales.
Cost of goods sold, IT processing, servicing and
support increased by $12.4 million (ZAR
0.5 billion), or 5.9% (in ZAR,
14.8%),
primarily due to the increase in low margin prepaid airtime sales, which were partially offset by the benefits of various
cost reduction
initiatives in Consumer and lower insurance-related claims.
Selling, general and administration expenses decreased by $2.4 million, or 5.1%, and in ZAR increased by ZAR 22.2 million, or
2.8%. In ZAR, the increase was
primarily due to higher employee-related expenses related to the
expansion of our senior management
team and the year-over-year impact of inflationary increases
on employee-related expenses, which were partially
offset by the benefits
of various cost reduction initiatives in Consumer and lower stock-based
compensation charges.
Depreciation and amortization expense decreased by $0.2 million, or 2.1%, and in ZAR increased by ZAR 12.5 million or 6.1%.
In the ZAR, the increase was due to an increase in depreciation expense related to
additional POS devices deployed.
Our operating income (loss) margin for the first half of fiscal 2024 and 2023 was 0.9% and (2.6)%, respectively.
We discuss the
components of operating loss margin under “—Results of operations
by operating segment.”
We did not record any changes in the fair value of equity interests in MobiKwik and Cell C during the first half of fiscal 2024 or
2023, respectively.
During the first half of fiscal 2024,
we received an outstanding amount of
$0.3 million related to the sale Carbon
in fiscal 2023,
which resulted
in the
reversal of
an allowance
for doubtful
loans receivable
of $0.3
million recorded
in fiscal
2023.
We
recorded a
gain of $0.3
million related to the
disposal of our
entire interest in Carbon
during the first half
of fiscal 2023.
Refer to Note
5 to our
unaudited condensed consolidated financial statements for additional
information regarding this disposal.
Interest on
surplus cash
increased to
$0.9 million
(ZAR 17.4
million) from
$0.8 million
(ZAR 13.8
million), primarily
due to
higher interest rates.
Interest expense increased
to $9.7 million (ZAR
181.8 million) from
$8.4 million (ZAR
145.3 million), primarily
as a result of
higher overall interest rates and higher overall borrowings during the first half of fiscal 2024 compared with comparable period in the
prior year to
date, which was
partially offset
by lower interest
expense incurred
on certain of our
borrowing for which
we were able
to negotiate lower rates of interest during the latter half of fiscal 2023.
Fiscal 2024 tax expense was $(1.0) million
(ZAR (17.7) million) compared to $0.4 million
(ZAR 6.8 million) in fiscal 2023. Our
effective tax rate for fiscal 2024 was impacted
by the tax expense recorded by our profitable South
African operations, a deferred tax
benefit related
to acquisition-related
intangible asset
amortization, non-deductible
expenses, the
on-going losses
incurred by
certain
of our South African businesses
and the associated valuation allowances
created related to the deferred
tax assets recognized regarding
net operating losses incurred by these entities.
52
Our effective
tax rate
for fiscal
2023 was
impacted by
the tax
expense recorded
by our
profitable South
African operations,
a
deferred tax benefit related to acquisition-related intangible asset amortization, non-deductible expenses, the on-going losses incurred
by certain of our
South African businesses and
the associated valuation allowances
created related to the
deferred tax assets
recognized
regarding net operating losses incurred by these entities.
Finbond is listed on the Johannesburg Stock
Exchange and reports its six-month results during
our first half and its
annual results
during our fourth quarter. The table
below presents the relative (loss) earnings from our equity-accounted
investments:
Table 10
Six months ended December 31,
2023
2022
$ %
$ ’000
$ ’000
change
Finbond
(1,445)
(2,631)
(45%)
Share of net loss
(278)
(1,521)
(82%)
Impairment
(1,167)
(1,110)
5%
Other
83
32
159%
(1,362)
(2,599)
(48%)
Results of operations by operating segment
The composition of revenue and the contributions of our business activities to operating
loss are illustrated below:
Table 11
In United States Dollars
Six months ended December 31,
2023
% of
2022
% of
% change
Operating Segment
$ ’000
total
$ ’000
total
Consolidated revenue:
Merchant
249,231
89%
230,416
88%
8%
Consumer
32,287
12%
30,438
12%
6%
Subtotal: Operating segments
281,518
101%
260,854
100%
8%
Eliminations
(1,536)
(1%)
-
-
nm
Total
consolidated revenue
279,982
100%
260,854
100%
7%
Segment Adjusted EBITDA:
Merchant
(1)
16,754
91%
17,013
146%
(2%)
Consumer
(1)
5,428
30%
(816)
(7%)
nm
Group costs
(3,833)
(21%)
(4,556)
(39%)
(16%)
Group Adjusted EBITDA (non-GAAP)
(2)
18,349
100%
11,641
100%
58%
(1) Segment Adjusted
EBITDA for Merchant includes
retrenchments costs of
$0.01 million and
Consumer includes retrenchment
costs of $0.1 million for first half of fiscal 2024.
(2) Group Adjusted EBITDA
is a non-GAAP measure, refer
to reconciliation below at
“—Results of Operations—Use of
Non-
GAAP Measures”.
53
Table 12
In South African Rand
Six months ended December 31,
2023
% of
2022
% of
% change
Operating Segment
ZAR ’000
total
ZAR ’000
total
Consolidated revenue:
Merchant
4,657,516
89%
3,974,261
88%
17%
Consumer
603,396
12%
525,001
12%
15%
Subtotal: Operating segments
5,260,912
101%
4,499,262
100%
17%
Eliminations
(28,747)
(1%)
-
-
nm
Total
consolidated revenue
5,232,165
100%
4,499,262
100%
16%
Segment Adjusted EBITDA:
Merchant
(1)
313,116
91%
293,444
146%
7%
Consumer
(1)
101,527
30%
(14,075)
(7%)
nm
Group costs
(71,643)
(21%)
(78,583)
(39%)
(9%)
Group Adjusted EBITDA (non-GAAP)
(2)
343,000
100%
200,786
100%
71%
(1)
Segment
Adjusted
EBITDA
for
Merchant
includes
retrenchments
costs
of
ZAR
0.1
million
and
Consumer
includes
retrenchment costs of ZAR 1.3 million for first half of fiscal 2024.
(2) Group Adjusted EBITDA
is a non-GAAP measure, refer
to reconciliation below at
“—Results of Operations—Use of
Non-
GAAP Measures”.
Merchant
Segment revenue
increased due
to the increase
in low margin
prepaid airtime
sales and other
value-added services,
which was
partially offset by lower
hardware sales revenue given
the lumpy nature of bulk sales.
The increase in Segment Adjusted
EBITDA is
primarily due to the higher sales activity,
which was partially offset by lower hardware sales.
Our Segment Adjusted EBITDA margin for the first half
of fiscal 2024 and 2023 was 6.7% and 7.4%, respectively.
Consumer
Segment revenue increased
primarily due to
more transaction fees
generated from the
higher EPE account
holders base, higher
insurance revenues, and an increase
in lending revenue as
a result of an
increase in loan originations.
This increase in revenue,
together
with the cost reduction
initiatives initiated in fiscal
2022 and through
fiscal 2023, have
translated into a turnaround
in the Consumer
Division and the
realization of sustained
positive Segment Adjusted
EBITDA in year
to date fiscal 2024
compared with year to
date
fiscal 2023.
Our Segment Adjusted EBITDA margin for the first half of fiscal 2024
and 2023 was 16.8% and (2.7)%, respectively.
Group costs
Our group costs for
fiscal 2024 decreased compared
with the prior period
due to lower external
audit, legal and consulting
fees
and lower provision for executive bonuses, which was partially offset
by higher employee costs.
Use of Non-GAAP Measures
U.S. securities laws
require that when
we publish any
non-GAAP measures, we
disclose the reason
for using these
non-GAAP
measures and provide reconciliations to the most directly comparable GAAP measures. The presentation of Group Adjusted EBITDA
is
a
non-GAAP
measure.
We
provide
this
non-GAAP
measure
to
enhance
our
evaluation
and
understanding
of
our
financial
performance.
Non-GAAP Measures
Group
Adjusted
EBITDA
is
earnings
before
interest,
tax,
depreciation
and
amortization
(“EBITDA”),
adjusted
for
non-
operational transactions (including loss on disposal
of equity-accounted investments, gain related to
fair value adjustments to currency
options), (earnings)
loss from equity-accounted investments,
stock-based compensation charges, lease adjustments
and once-off items.
Lease
adjustments
reflect
lease
charges
and
once-off
items
represents
non-recurring
expense
items,
including
costs
related
to
acquisitions and transactions consummated or ultimately not pursued.
54
The table below presents the reconciliation between GAAP net loss attributable
to Lesaka to Group Adjusted EBITDA:
Table 13
Three months ended
December 31,
Six months ended
December 31,
2023
2022
2023
2022
$ ’000
$ ’000
$ ’000
$ ’000
Loss attributable to Lesaka - GAAP
(2,707)
(6,649)
(8,358)
(17,345)
(Earnings) loss from equity accounted investments
(43)
(18)
1,362
2,599
Net loss before (earnings) loss from equity-accounted investments
(2,750)
(6,667)
(6,996)
(14,746)
Income tax (benefit) expense
686
364
950
395
Loss before income tax expense
(2,064)
(6,303)
(6,046)
(14,351)
Interest expense
4,822
4,388
9,731
8,424
Interest income
(485)
(389)
(934)
(800)
Reversal of allowance for doubtful EMI loan receivable
-
-
(250)
-
Net gain on disposal of equity-accounted investment
-
112
-
(136)
Operating income (loss)
2,273
(2,192)
2,501
(6,863)
PPA amortization
(amortization of acquired intangible assets)
3,592
3,842
7,200
7,770
Depreciation and amortization
2,221
2,077
4,469
4,147
Stock-based compensation charges
1,804
2,849
3,563
4,311
Lease adjustments
678
747
1,374
1,559
Once-off items
(1)
(816)
119
(738)
717
Unrealized gain FV for currency adjustments
(122)
-
(20)
-
Group Adjusted EBITDA - Non-GAAP
9,630
7,442
18,349
11,641
(1) The table below presents the components of once-off
items for the periods presented:
Table 14
Three months ended
December 31,
Six months ended
December 31,
2023
2022
2023
2022
$ ’000
$ ’000
$ ’000
$ ’000
Transaction costs
136
119
214
322
(Income recognized) Expenses incurred related to closure of legacy
businesses
(952)
-
(952)
395
Total once-off
items
(816)
119
(738)
717
Once-off items are non-recurring in nature, however, certain
items may be reported in
multiple quarters. For instance, transaction
costs include costs incurred related to acquisitions and
transactions consummated or ultimately not pursued. The transactions can span
multiple
quarters,
for
instance in
fiscal
2022 we
incurred
significant
transaction
costs related
to
the acquisition
of Connect
over
a
number of quarters, and the transactions are generally non-recurring.
(Income
recognized)
Expenses
incurred
related
to
closure
of
legacy
businesses
represents
(i)
gains
recognized
related
to
the
release of
the foreign
currency translation
reserve on
deconsolidation of
a subsidiaries
and (ii)
costs incurred
related to
subsidiaries
which we are in the process of deregistering/ liquidation and therefore
we consider these costs non-operational and ad hoc in nature.
Liquidity and Capital Resources
As of December 31, 2023, our cash and cash
equivalents were $44.3 million and comprised of U.S. dollar-denominated balances
of $4.5 million,
ZAR-denominated balances of
ZAR 688.5 million
($37.6 million), and
other currency deposits,
primarily Botswana
pula, of
$2.2 million,
all amounts
translated at
exchange rates
applicable as
of December
31, 2023.
The increase
in our unrestricted
cash
balances
from
June 30,
2023,
was primarily
due
to a
positive
contribution
from
our Merchant
and
Consumer
operations
and
utilization of
our borrowings
facilities to
fund certain
components of
our operations,
which was
partially offset
by the utilization
of
cash reserves to
fund certain scheduled
and other
repayments of our
borrowings, purchase ATMs and vaults,
and to make
an investment
in working capital.
55
We generally
invest any surplus cash held by our
South African operations in overnight
call accounts that we maintain at
South
African banking institutions,
and any surplus
cash held by
our non-South African
companies in
U.S. dollar-denominated money market
accounts.
Historically,
we have financed
most of our
operations, research and
development, working capital,
and capital expenditures,
as
well
as
acquisitions
and
strategic
investments,
through
internally
generated
cash
and
our
financing
facilities.
When
considering
whether to borrow under our financing
facilities, we consider the cost
of capital, cost of financing, opportunity cost
of utilizing surplus
cash and
availability of
tax efficient
structures to
moderate financing
costs. For
instance, in
fiscal 2022,
we obtained
loan facilities
from RMB
to fund
a portion
of our
acquisition of
Connect. Following
the acquisition
of Connect,
we now
utilize a
combination of
short
and
long-term
facilities to
fund our
operating
activities and
a long-term
asset-backed
facility to
fund
the acquisition
of POS
devices
and
vaults.
Refer
to
Note
12
to
our
consolidated
financial
statements
for
the
year
ended
June
30,
2023,
for
additional
information related to our borrowings.
Available short-term
borrowings
Summarized below are our short-term facilities available and utilized as of
December 31, 2023:
Table 15
RMB Facility E
RMB Indirect
RMB Connect
Nedbank
$ ’000
ZAR ’000
$ ’000
ZAR ’000
$ ’000
ZAR ’000
$ ’000
ZAR ’000
Total
short-term facilities
available, comprising:
Overdraft
-
-
-
-
11,203
205,000
-
-
Overdraft restricted as to
use
(1)
76,510
1,400,000
-
-
-
-
-
-
Total overdraft
76,510
1,400,000
-
-
11,203
205,000
-
-
Indirect and derivative
facilities
(2)
-
-
7,378
135,000
-
-
8,556
156,556
Total
short-term
facilities available
76,510
1,400,000
7,378
135,000
11,203
205,000
8,556
156,556
Utilized short-term
facilities:
Overdraft
-
-
-
-
9,291
170,000
-
-
Overdraft restricted as to
use
(1)
23,407
428,301
-
-
-
-
-
-
Indirect and derivative
facilities
(2)
-
-
1,809
33,100
-
-
115
2,110
Total
short-term
facilities available
23,407
428,301
1,809
33,100
9,291
170,000
115
2,110
Interest
rate,
based
on
South African prime rate
11.75%
11.65%
(1) Overdraft may only be used to fund ATMs
and upon utilization is considered restricted cash.
(2) Indirect and derivative facilities may only be used for guarantees, letters of credit and forward
exchange contracts to support
guarantees issued by RMB and Nedbank to various third parties on our behalf.
Long-term borrowings
We
have
aggregate
long-term
borrowing
outstanding
of
ZAR
2.6
billion
($142.8
million
translated
at
exchange
rates
as
of
December 31, 2023)
as described in Note
8. These borrowings
include outstanding
long-term borrowings obtained
by Lesaka SA of
ZAR 1.0 billion,
including accrued
interest, which
was used to
partially fund
the acquisition of
Connect. The Lesaka
SA borrowing
arrangements
were amended
in March
2023 to
include
a ZAR
200
million
revolving
credit facility.
We
used this
revolving
credit
facility
during
the
six
months
ended
December
31,
2023,
and
ZAR
115.0
million
was
drawn
as
of
December
31,
2023,
with
the
remaining balance available for utilization in the future. In contemplation of the Connect transaction, Connect obtained total facilities
of ZAR
1.3 billion,
which were
utilized to
repay its
existing borrowings,
to fund
a portion
of its
capital expenditures
and
to settle
obligations
under the
transaction documents,
and which
has subsequently
been upsized
for its
operational requirements
and has
an
outstanding
balance as
of December
31, 2023,
of ZAR
1.2 billion,
We
also have
a revolving
credit facility,
of ZAR
300.0
million
which is utilized to fund a portion of our merchant finance loans receivable
book.
56
Restricted cash
We
have credit
facilities with RMB
in order
to access cash
to fund
our ATMs
in South Africa.
Our cash, cash
equivalents and
restricted cash presented in
our consolidated statement
of cash flows
as of December
31, 2023, includes
restricted cash of
$23.5 million
related to cash withdrawn from our debt facility to
fund ATMs. This cash may only be used to fund ATMs and is considered restricted
as to use and therefore is classified as restricted cash on our consolidated
balance sheet.
We have
also entered into cession and pledge
agreements with Nedbank related to
our Nedbank indirect credit facilities
and we
have ceded and pledged
certain bank accounts to
Nedbank. The funds included
in these bank accounts
are restricted as they
may not
be withdrawn without the express
permission of Nedbank. Our cash,
cash equivalents and restricted
cash presented in our consolidated
statement of cash flows as of December 31, 2023, includes restricted cash of
$0.1 million that has been ceded and pledged.
Cash flows from operating activities
Second quarter
Net cash provided by operating
activities during the second quarter of
fiscal 2024 was $0.6
million (ZAR 10.9 million) compared
to $3.4 million (ZAR 59.9 million) during the second quarter of fiscal 2023.
Excluding the impact of income taxes, our cash provided
by
operating
activities
during
the
second
quarter
of
fiscal
2024
was
positively
impacted
by
the
contribution
from
Merchant
and
Consumer, which was partially offset by growth in
our consumer and merchant finance loans
receivable books and temporary working
capital movements within
our merchant business
as a result
of quarter-end
transaction processing activities
closing on a
Sunday and
settled in the following week.
During the second quarter of fiscal 2024, we
paid first provisional South African tax payments
of $0.1 million (ZAR 1.3 million)
related to our 2023
tax year and
South African tax payments
related to prior years
of $0.1 million
(ZAR 1.3 million).
During the second
quarter of
fiscal 2023,
we paid
first provisional
South African
tax payments
of $2.5 million
(ZAR 42.6
million) related
to our 2023
tax year,
and additional
second provisional
South African
tax payments
of $0.01
million (ZAR
0.2 million)
related to
our 2022
tax
year.
Taxes paid during
the second quarter of fiscal 2024 and 2023 were as follows:
Table 16
Three months ended December 31,
2023
2022
2023
2022
$
$
ZAR
ZAR
‘000
‘000
‘000
‘000
First provisional payments
2,662
2,463
49,516
42,582
Taxation paid related
to prior years
69
10
1,328
180
Tax refund received
-
(141)
-
(2,570)
Total South African
taxes paid
2,731
2,332
50,844
40,192
Foreign taxes paid
75
50
1,409
889
Total
tax paid
2,806
2,382
52,253
41,081
First half
Net cash provided
by operating activities
during the
first half of
fiscal 2024
was $4.0 million
(ZAR 74.0
million) compared
to
net cash used
in operating
activities of $4.2
million (ZAR 73.1
million) during
the first half
of fiscal
2023. Excluding
the impact of
income taxes, our cash provided by operating activities during the first half of fiscal 2024 was positively impacted by the contribution
from Merchant
and Consumer,
which was
partially offset
by growth
in our
consumer and
merchant finance
loans receivable
books
and temporary
working capital
movements within
our merchant
business as
a result
of quarter-end
transaction processing
activities
closing on a Sunday and settled in the following week.
During the
first half
of fiscal
2024, we
paid first
provisional South
African tax
payments of
$0.6 million
(ZAR 12.2
million)
related to our 2023 tax year and South African tax payments related to prior years
of $0.6 million (ZAR 12.2 million). During the first
half of fiscal
2023, we paid
first provisional South
African tax payments
of $3.0 million
(ZAR 50.8 million)
related to our
2023 tax
year, and additional second provisional South
African tax payments of $0.2 million (ZAR 3.4 million) related to our 2022 tax
year.
57
Taxes paid during
the first half of fiscal 2024 and 2023 were as follows:
Table 17
Six months ended December 31,
2023
2022
2023
2022
$
$
ZAR
ZAR
‘000
‘000
‘000
‘000
First provisional payments
2,662
2,955
49,516
50,798
Second provisional payments
-
191
-
3,371
Taxation paid related
to prior years
641
10
12,187
180
Tax refund received
(31)
(198)
(640)
(3,540)
Total South African
taxes paid
3,272
2,958
61,063
50,809
Foreign taxes paid
138
101
2,605
1,775
Total
tax paid
3,410
3,059
63,668
52,584
Cash flows from investing activities
Second quarter
Cash used in
investing activities
for the
second quarter
of fiscal 2024
included
capital expenditures of
$5.0 million
(ZAR 93.7
million), primarily due
to the acquisition of
vaults and POS devices
.
During the second
quarter of fiscal
2024, we received proceeds
of $3.5 million related to the sale of remaining interest in Finbond and $0.25 million related to the second (and final) tranche from the
disposal of our entire equity interest in Carbon.
Cash used in
investing activities
for the
second quarter
of fiscal 2023
included
capital expenditures
of $4.0
million (ZAR 69.9
million), due to the acquisition of vaults and POS devices.
First half
Cash used in investing activities for the
first half of fiscal 2024 included capital
expenditures of $5.0 million (ZAR 93.7 million),
primarily due to
the acquisition of vaults
and POS devices. During
the first half of fiscal
2024, we received proceeds
of $3.5 million
related to the sale of remaining interest in Finbond and $0.25 million related to the second (and final) tranche from the disposal of our
entire equity interest in Carbon.
Cash used in
investing activities for
the first half
of fiscal
2023 included capital
expenditures of $8.5
million (ZAR 146.5 million),
primarily
due to
the acquisition
of vaults,
POS devices
and
computer
equipment.
During the
first half
of fiscal
2023,
we received
proceeds of $0.25 million related to the first tranche from the disposal of our
entire equity interest in Carbon.
Cash flows from financing activities
Second quarter
During the second quarter of fiscal 2024, we utilized $69.0 million from our South
African overdraft facilities to fund our ATMs
and our cash management business through Connect, and repaid
$66.0 million of those facilities. We utilized $8.6 million of our long-
term borrowings to fund
the acquisition of certain
capital expenditures and for
working capital requirements.
We repaid
$3.2 million
of
long-term
borrowings
in
accordance
with
our
repayment
schedule
as
well
as
to
settle
a
portion
of
our
revolving
credit
facility
utilized. We
also paid $0.2
million to repurchase
shares from employees
in order for
the employees to
settle taxes due
related to the
vesting of shares of restricted stock.
During the second quarter
of fiscal 2023,
we utilized $167.2
million from our South
African overdraft facilities
to fund our
ATMs
and our
cash management
business through
Connect, and
repaid $175.4
million of
those facilities.
We
utilized $9.1
million of
our
long-term
borrowings
to
fund
our
merchant
finance
loans
receivable
business
and
to
fund
the
acquisition
of
certain
capital
expenditures. We
repaid $1.7 million of long-term borrowings in accordance
with our repayment schedule. We
received $0.3 million
from the exercise of stock options. We also paid $0.1 million to repurchase shares from employees in order for the
employees to settle
taxes due related to the vesting of shares of restricted stock.
58
First half
During the first half of fiscal 2024, we utilized $128.6 million from our South African overdraft facilities to fund our ATMs
and
our cash management business through
Connect, and repaid $128.8 million
of those facilities. We
utilized $11.0 million
of our long-
term borrowings to fund
the acquisition of certain
capital expenditures and for
working capital requirements. We
repaid $5.8 million
of
long-term
borrowings
in
accordance
with
our
repayment
schedule
as
well
as
to
settle
a
portion
of
our
revolving
credit
facility
utilized. We
also paid $0.2
million to repurchase
shares from employees
in order for
the employees to
settle taxes due
related to the
vesting of shares of restricted stock.
During the first half of fiscal 2023, we utilized $313.3 million from our South African overdraft facilities to fund our ATMs
and
our cash management business through
Connect, and repaid $312.3 million
of those facilities. We
utilized $10.1 million of our
long-
term borrowings
to fund
our merchant
finance loans
receivable business
and to
fund the
acquisition of
certain capital
expenditures.
We
repaid
$3.3
million
of
long-term
borrowings
in
accordance
with
our
repayment
schedule.
We
received
$0.3
million
from
the
exercise of
stock options.
We
also paid
$0.3 million
to repurchase
shares from
employees in
order for
the employees
to settle taxes
due related to the vesting of shares of restricted stock.
Off-Balance Sheet Arrangements
We have no off
-balance sheet arrangements.
Capital Expenditures
We
expect
capital spending
for the
third quarter
of fiscal
2024 to
primarily
include spending
for acquisition
of POS
devices,
vaults,
computer software, computer and office equipment, as well as for
our ATM infrastructure and branch network in South Africa.
Our capital
expenditures for
the second
quarter of
fiscal 2024
and 2023
are discussed
under “—Liquidity
and Capital
Resources—
Cash flows
from investing
activities.” All
of our
capital expenditures
for the
past three
fiscal years
were funded
through internally
generated
funds,
or,
following
the
Connect
acquisition,
our
asset-backed
borrowing
arrangement.
We
had
outstanding
capital
commitments as of December 31, 2023, of $0.1 million. We expect
to fund these expenditures through internally generated funds and
available facilities.
59
Item 3. Quantitative and Qualitative Disclosures About
Market Risk
In addition to the tables below, see
Note 4 to the unaudited condensed consolidated financial statements for
a discussion of
market risk.
We
have
short and
long-term borrowings
in South
Africa which
attract interest
at rates
that fluctuate
based on
changes in
the
South African prime
and 3-month JIBAR
interest rates. The
following table illustrates
the effect on
our annual expected
interest charge,
translated at exchange rates applicable
as of December 31, 2023,
as a result of
changes in the South
African prime and 3-month JIBAR
interest rates,
using our
outstanding short
and long-term
borrowings as
of December
31, 2023. The
effect of
a hypothetical
1% (i.e.
100 basis points)
increase and a
1% decrease in
the interest rates
applicable to the
borrowings as of
December 31, 2023,
are shown.
The selected 1% hypothetical change does not reflect what could be considered
the best- or worst-case scenarios.
Table 18
As of December 31, 2023
Annual expected
interest charge
($ ’000)
Hypothetical
change in
interest rates
Estimated annual
expected interest
charge after
hypothetical change
in interest rates
($ ’000)
Interest on South African borrowings
22,345
1%
24,105
(1%)
20,585
60
Item 4. Controls and Procedures
Under the supervision and
with the participation of our
management, including our
group chief executive officer
and our group
chief financial officer, we conducted an evaluation
of our disclosure controls and procedures, as such term is defined under Rule 13a-
15(e) promulgated
under the Securities
Exchange Act
of 1934,
as amended,
as of December
31, 2023.
Management recognizes
that
any
controls and
procedures, no
matter how
well designed
and operated,
can provide
only reasonable
assurance of
achieving
their
objectives
and
management
necessarily
applies
its
judgment
in
evaluating
the
cost-benefit
relationship
of
possible
controls
and
procedures.
Based
on
this
evaluation,
the
group
chief
executive
officer
and
the
group
chief
financial
officer
concluded
that
our
disclosure controls and procedures were effective as of
December 31, 2023.
Changes in Internal Control over Financial Reporting
There have
not been
any changes
in our
internal control
over financial
reporting during
the fiscal quarter
ended December
31,
2023,
that have materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting.
61
Part II. Other Information
Item 1A. Risk Factors
See “Item
1A RISK
FACTORS”
in Part
I of
our Annual
Report on
Form 10-K
for the
fiscal year
ended June
30, 2023,
for a
discussion
of
risk
factors
relating
to
(i)
our
business,
(ii)
operating
in
South
Africa
and
other
foreign
markets,
(iii) government
regulation, and (iv) our common stock. There have been no material changes from the risk factors previously disclosed in our Annual
Report on Form 10-K for the fiscal year ended June 30, 2023.
Item 2. Unregistered Sales of Equity Securities and
Use of Proceeds
The table below presents information relating to purchases of shares of our
common stock during the second quarter of fiscal
2024:
Table 19
(a)
(b)
(c)
(d)
Period
Total
number
of shares
purchased
Average price
paid per share
(US dollars)
Total
number of shares
purchased as part of publicly
announced plans or
programs
Maximum dollar value of
shares that may yet be
purchased under the plans
or programs
Oct-23
-
-
100,000,000
Nov-23
(1)
26,925
4.55
-
100,000,000
Dec-23
(1)
24,050
3.14
-
100,000,000
Total
50,975
-
(1) Relates to the delivery of shares of our
common stock to us by certain of our employees to settle their
income tax liabilities.
These shares do not reduce the repurchase authority under the share repurchase
program.
Item 5. Other Information
Our Section 16 officers and directors, as defined in Rule 16a-1(f) of the Securities
Exchange Act of 1934 (the “Exchange Act”),
may from time to time
enter into plans for the
purchase or sale of our
common stock that are
intended to satisfy the affirmative defense
conditions of Rule 10b5-1(c)
of the Exchange
Act. During the quarter
ended December 31, 2023,
no officers or
directors, as defined
in Rule 16a-1(f),
, modified, or
as defined in Item 408 of Regulation S-K.
62
Item 6. Exhibits
The following exhibits are filed as part of this Form 10-Q:
Incorporated by Reference Herein
Exhibit
No.
Description of Exhibit
Included
Herewith
Form
Exhibit
Filing Date
10.44
8-K
10.1
December 1,
2023
10.45
8-K
10.1
December 4,
2023
X
X
X
101.INS
XBRL Instance Document
X
101.SCH
XBRL Taxonomy
Extension Schema
X
101.CAL
XBRL Taxonomy
Extension Calculation Linkbase
X
101.DEF
XBRL Taxonomy
Extension Definition Linkbase
X
101.LAB
XBRL Taxonomy
Extension Label Linkbase
X
101.PRE
XBRL Taxonomy
Extension Presentation Linkbase
X
104
Cover
page
formatted
as
Inline
XBRL
and
contained
in
Exhibit 101
63
SIGNATURES
Pursuant to
the requirements
of the
Securities Exchange
Act of
1934, the
registrant has
caused this
report to
be signed
on its
behalf by the undersigned, thereunto duly authorized, on February
6, 2024.
LESAKA TECHNOLOGIES, INC.
By: /s/ Chris G.B. Meyer
Chris G.B. Meyer
Group Chief Executive Officer
By: /s/ Naeem E. Kola
Naeem E. Kola
Group Chief Financial Officer,
Treasurer and Secretary
TABLE OF CONTENTS
Part I. Financial InformationItem 1. Financial StatementsNote 5). The Company Also Reclassified A Gain Of $Note 21 To The Company S Audited Consolidated Financial Statements Included in Its Annual Report on Form 10-k For The Year EndedItem 2. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsItem 3. Quantitative and Qualitative Disclosures About Market RiskItem 4. Controls and ProceduresPart II. Other InformationItem 1A. Risk FactorsItem 2. Unregistered Sales Of Equity Securities and Use Of ProceedsItem 5. Other InformationItem 6. Exhibits