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1
Form 10-Q
LESAKA TECHNOLOGIES, INC.
Table of Contents
Page No.
PART I. FINANCIAL INFORMATION
Item 5.
Other Information
56
2
Part I. Financial information
Item 1. Financial Statements
LESAKA TECHNOLOGIES, INC.
Unaudited Condensed Consolidated Balance Sheets
September 30,
June 30,
2024
2024
(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 - September: $
$
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 equity securities (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 - September:
PREFERRED STOCK
Authorized shares:
Issued and outstanding shares, net of treasury: September:
-
-
ADDITIONAL PAID-IN-CAPITAL
TREASURY SHARES, AT COST: September:
(289,733 )
(289,733 )
ACCUMULATED OTHER COMPREHENSIVE LOSS (Note 11)
(177,830 )
(188,355 )
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
September 30,
2024
2023
(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
Transaction costs related to Adumo acquisition (Note 20)
OPERATING (LOSS) INCOME
(45 )
REVERSAL OF (ALLOWANCE) OF EMI DOUBTFUL DEBT (Note 2 and 5)
INTEREST INCOME
INTEREST EXPENSE
LOSS BEFORE INCOME TAX EXPENSE
(4,491 )
(3,982 )
INCOME TAX EXPENSE (Note 18)
NET LOSS BEFORE EARNINGS (LOSS) FROM EQUITY-ACCOUNTED INVESTMENTS
(4,569 )
(4,246 )
EARNINGS (LOSS) FROM EQUITY-ACCOUNTED INVESTMENTS (Note 5)
(1,405 )
NET LOSS
$
(4,542 )
$
(5,651 )
Net loss per share, in United States dollars
(Note 13):
Basic loss attributable to Lesaka shareholders
$
(0.07 )
$
(0.09 )
Diluted loss attributable to Lesaka shareholders
$
(0.07 )
$
(0.09 )
See Notes to Unaudited Condensed Consolidated Financial Statements
LESAKA TECHNOLOGIES, INC.
Unaudited Condensed Consolidated Statements of Comprehensive (Loss) Income
4
Three months ended
September 30,
2024
2023
(In thousands)
Net loss
$
(4,542 )
$
(5,651 )
Other comprehensive income (loss), net of taxes
Movement in foreign currency translation reserve
(844 )
Movement in foreign currency translation reserve related to equity-accounted
investments
Total other comprehensive income (loss), net of taxes
(355 )
Comprehensive income (loss)
(6,006 )
Add comprehensive loss attributable to non-controlling interest
Comprehensive income (loss) attributable to Lesaka
$
$
(6,006 )
See Notes to Unaudited Condensed Consolidated Financial Statements
LESAKA TECHNOLOGIES, INC.
Unaudited Condensed Consolidated Statements of Changes in Equity
5
Lesaka Technologies, Inc. Shareholders
Number of
Shares
Amount
Number of
Treasury
Shares
Treasury
Shares
Number of
shares, net of
treasury
Additional
Paid-In
Capital
Retained
Earnings
Accumulated
other
comprehensive
loss
Total
Lesaka
Equity
Non-
controlling
Interest
Total
Redeemable
common
stock
For the three months ended September 30, 2023 (dollar amounts in thousands)
Balance – July 1, 2023
$
(25,244,286 )
$
(288,238 )
$
$
$
(195,726 )
$
$
$
$
Exercise of stock options
Stock-based compensation charge
(Note 12)
-
Reversal of stock-based compensation
charge (Note 12)
(8,127 )
(8,127 )
(9 )
(9 )
(9 )
Stock-based compensation charge
related to equity-accounted investment
(Note 5)
-
Net loss
-
(5,651 )
(5,651 )
(5,651 )
Other comprehensive loss (Note 11)
(355 )
(355 )
(355 )
Balance – September 30, 2023
$
(25,244,286 )
$
(288,238 )
$
$
$
(196,081 )
$
$
$
$
LESAKA TECHNOLOGIES, INC.
Unaudited Condensed Consolidated Statements of Changes in Equity
6
Lesaka Technologies, Inc. Shareholders
Number of
Shares
Amount
Number of
Treasury
Shares
Treasury
Shares
Number of
shares, net of
treasury
Additional
Paid-In
Capital
Retained
Earnings
Accumulated
other
comprehensive
loss
Total
Lesaka
Equity
Non-
controlling
Interest
Total
Redeemable
common
stock
For the three months ended September 30, 2024 (dollar amounts in thousands)
Balance – July 1, 2024
$
(25,563,808 )
$
(289,733 )
$
$
$
(188,355 )
$
$
$
$
Restricted stock granted (Note 12)
Stock-based compensation charge
(Note 12)
-
-
Reversal of stock-based compensation
charge (Note 12)
(3,100 )
(3,100 )
Net loss
(4,542 )
(4,542 )
(4,542 )
Other comprehensive income (Note
11)
Balance – September 30, 2024
$
(25,563,808 )
$
(289,733 )
$
$
$
(177,830 )
$
$
$
$
LESAKA TECHNOLOGIES, INC.
Unaudited Condensed Consolidated Statements of Cash Flows
7
Three months ended
September 30,
2024
2023
(In thousands)
Cash flows from operating activities
Net loss
$
(4,542 )
$
(5,651 )
Depreciation and amortization
Movement in allowance for doubtful accounts receivable and finance loans receivable
(Earnings) Loss from equity-accounted investments (Note 5)
(27 )
Movement in allowance for doubtful loans to equity-accounted investments
(250 )
Fair value adjustment related to financial liabilities
(34 )
Interest payable
Facility fee amortized
Profit on disposal of property, plant and equipment
(27 )
(36 )
Stock-based compensation charge (Note 12)
Decrease (Increase) in accounts receivable and other receivables
(2,345 )
Increase in finance loans receivable
(1,590 )
(488 )
Increase in inventory
(889 )
(479 )
(Decrease) Increase in accounts payable and other payables
(17,177 )
Increase in taxes payable
Decrease in deferred taxes
(446 )
(562 )
Net cash (used in) provided by operating activities
(4,137 )
Cash flows from investing activities
Capital expenditures
(3,965 )
(2,809 )
Proceeds from disposal of property, plant and equipment
Acquisition of intangible assets
(173 )
(135 )
Net change in settlement assets
(11,237 )
Net cash provided by (used in) investing activities
(13,897 )
Cash flows from financing activities
Proceeds from bank overdraft (Note 8)
Repayment of bank overdraft (Note 8)
(31,028 )
(62,793 )
Long-term borrowings utilized (Note 8)
Repayment of long-term borrowings (Note 8)
(5,472 )
(2,629 )
Proceeds from exercise of stock options
Net change in settlement obligations
(3,648 )
Net cash (used in) provided by financing activities
(15,481 )
Effect of exchange rate changes on cash
(443 )
Net decrease in cash, cash equivalents and restricted cash
(16,110 )
(3,626 )
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 months ended September 30, 2024 and 2023
(All amounts in tables stated in thousands or thousands of U.S. dollars, unless otherwise stated)
1. Basis of Presentation and Summary of Significant Accounting Policies
Unaudited Interim Financial Information
The accompanying unaudited condensed consolidated financial statements include all majority-owned subsidiaries over which
the Company exercises control and have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”)
and
the rules and regulations of the United States Securities and Exchange Commission for Quarterly Reports on Form 10-Q and
include all of the information and disclosures required for interim financial reporting. The results of operations for the three months
ended September 30, 2024 and 2023, 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, 2024. 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 November 2023, the Financial Accounting Standards Board (“FASB”) issued guidance regarding
Segment Reporting (Topic
280)
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).
Recent accounting pronouncements not yet adopted as of September 30, 2024
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.
9
2.
Accounts receivable, net and other receivables and finance loans receivable, net
Accounts receivable, net and other receivables
The Company’s accounts receivable, net, and other receivables as of September 30, 2024, and June 30, 2024, are presented in
the table below:
September 30,
June 30,
2024
2024
Accounts receivable, trade, net
$
$
Accounts receivable, trade, gross
Allowance for doubtful accounts receivable, end of period
Beginning of period
Reversed to statement of operations
(50 )
(511 )
Charged to statement of operations
Utilized
(87 )
(67 )
Foreign currency adjustment
Current portion of amount outstanding related to sale of interest in Carbon, net of
allowance: September 2024: $
; June 2024: $
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.
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.
Once balances in distress are identified, specific allowances are immediately created. Subsequent recovery from distressed accounts
is not significant.
Current portion of amount outstanding related to sale of interest in Carbon represents an amount due related to the sale of the
loan in Carbon Tech Limited (“Carbon”), with a face value of $
of an allowance for doubtful loans receivable of $
to the sale of the $
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 September 30, 2024, and
June 30, 2024, respectively was $
Other receivables include prepayments, deposits, income taxes receivable and other receivables.
10
2.
Accounts receivable, net and other receivables and finance loans receivable, net (continued)
Finance loans receivable, net
The Company’s finance loans receivable, net, as of September 30, 2024, and June 30, 2024, is presented in the table below:
September 30,
June 30,
2024
2024
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
(210 )
Charged to statement of operations
Utilized
(552 )
(1,795 )
Foreign currency adjustment
Merchant finance loans receivable, net
Merchant finance loans receivable, gross
Allowance for doubtful finance loans receivable, end of period
Beginning of period
Reversed to statement of operations
(359 )
Charged to statement of operations
Utilized
(397 )
(1,672 )
Foreign currency adjustment
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 is 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 June 30, 2024 and September 30, 2024, was
%. The performing component (that is, outstanding loan payments
not in arrears) of the book exceeds more than
%, of the outstanding lending book as of each of June 30, 2024 and September 30,
2024.
Merchant finance loans receivable
Merchant finance loans receivable is 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.
11
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 June 30, 2024 and
September 30, 2024, 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 June 30, 2024. The performing component, under-performing component and non-performing
component of the book represents approximately
%,
% and
%, respectively, of the outstanding lending book as of September
30, 2024.
3. Inventory
The Company’s inventory comprised the following categories as of September 30, 2024, and June 30, 2024:
September 30,
June 30,
2024
2024
Raw materials
$
$
Work-in-progress
Finished goods
$
$
Finished goods as of June 30, 2024, includes $
goods subject to sale restrictions. The Company sold all of this inventory during the three months ended September 30, 2024.
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.
12
4. Fair value of financial instruments (continued)
Risk management (continued)
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 remained unchanged in recent quarters
and in September 2024, the South African Reserve Bank announced a 25-basis point reduction in the South African repurchase rate,
with further reductions expected in the short-term. Therefore, ignoring the impact of changes to the margin on its borrowings (refer to
Note 8), the Company expects its cost of borrowing to decline moderately in the foreseeable future, however, the Company would
expect a higher cost of borrowing if interest rates were to increase in the future. 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. 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.
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.
13
4. Fair value of financial instruments (continued)
Financial instruments (continued)
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 September 30, 2024 and June 30, 2024, respectively, and valued Cell C at $
of September 30, 2024, and June 30, 2024, 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
assumed a marketability discount of
% and a minority discount from of
%. The Company utilized the latest business plan provided
by Cell C management for the period ending December 31, 2027, for the September 30, 2024, and June 30, 2024, valuations.
Adjustments have been made to the WACC rate to reflect the Company’s assessment of risk to Cell C achieving its business plan.
The following key valuation inputs were used as of September 30, 2024 and June 30, 2024:
Weighted Average Cost of Capital ("WACC"):
Between
% and
% over the period of the forecast
Long term growth rate:
% (
% as of June 30, 2024)
Marketability discount:
% (
% as of June 30, 2024)
Minority discount:
% (
% as of June 30, 2024)
Net adjusted external debt - September 30, 2024:
(1)
ZAR
Net adjusted external debt - June 30, 2024:
(2)
ZAR
(1) translated from ZAR to U.S. dollars at exchange rates applicable as of September 30, 2024.
(2) translated from ZAR to U.S. dollars at exchange rates applicable as of June 30, 2024.
The following table presents the impact on the carrying value of the Company’s Cell C investment of a
% decrease and
%
increase in the WACC rate and the EBITDA margins respectively used in the Cell C valuation on September 30, 2024, all amounts
translated at exchange rates applicable as of September 30, 2024:
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 September 30, 2024, 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.
The following table presents the Company’s assets measured at fair value on a recurring basis as of September 30, 2024,
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
$
$
$
$
14
4. Fair value of financial instruments
The following table presents the Company’s assets measured at fair value on a recurring basis as of June 30, 2024, 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
There was
3, during the three months ended September 30, 2024 and 2023.
Summarized below is the movement in the carrying value of assets and liabilities measured at fair value on a recurring basis, and
categorized within Level 3, during the three months ended September 30, 2024:
Carrying value
Assets
Balance as of June 30, 2024
$
Foreign currency adjustment
(1)
Balance as of September 30, 2024
$
(1) The foreign currency adjustment represents the effects of the fluctuations of the South African rand against the U.S. dollar on
the carrying value.
Summarized below is the movement in the carrying value of assets and liabilities measured at fair value on a recurring basis, and
categorized within Level 3, during the three months ended September 30, 2023:
Carrying value
Assets
Balance as of June 30, 2023
$
Foreign currency adjustment
(1)
Balance as of September 30, 2023
$
(1) The foreign currency adjustment represents the effects of the fluctuations of the South African rand against the U.S. dollar
on the carrying value.
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.
15
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, 2024, for additional information regarding its equity-accounted investments and other long-term assets.
Equity-accounted investments
The Company’s ownership percentage in its equity-accounted investments as of September 30, 2024, and June 30, 2024, was as
follows:
September 30,
June 30,
2024
2024
Sandulela Technology (Pty) Ltd ("Sandulela")
%
%
SmartSwitch Namibia (Pty) Ltd (“SmartSwitch Namibia”)
%
%
Finbond impairments recorded during the three months ended September 30, 2023
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
exchange rates applicable as of September 30, 2023), or ZAR
Company considered the August 10, 2023, agreement to be 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 $
the quarter ended September 30, 2023, which represented the difference between the determined fair value of the Company’s interest
in Finbond and the Company’s carrying value, including the foreign currency translation reserve (before the impairment). The
Company used the price of ZAR
value for Finbond.
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 $
shares purchased as security for the amounts outstanding under the binding term sheet. The Company received $
and the outstanding balance due by Etobicoke was expected to be paid as follows: (i) $
was received in October 2023), and (ii) the remaining amount, of $
of September 30, 2024 (refer to Note 2)).
Summarized below is the movement in equity-accounted investments and loans provided to equity-accounted investments during
the three months ended September 30, 2024:
Total
(1)
Investment in equity
Balance as of June 30, 2024
$
Stock-based compensation
Comprehensive income:
Other comprehensive income
Equity accounted (loss) earnings
Share of net (loss) earnings
Impairment
Foreign currency adjustment
(2)
Balance as of September 30, 2024
$
(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.
16
5. Equity-accounted investments and other long-term assets (continued)
Other long-term assets
Summarized below is the breakdown of other long-term assets as of September 30, 2024, and June 30, 2024:
September 30,
June 30,
2024
2024
Total equity investments
$
$
Investment in
% of Cell C (June 30, 2024:
%) at fair value (Note 4)
Investment in
% of MobiKwik (June 30, 2024:
%)
(1)
Investment in
% of CPS (June 30, 2024:
%) 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 September 30, 2024:
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, 2024:
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
$
$
$
$
6. Goodwill and intangible assets, net
Goodwill
Summarized below is the movement in the carrying value of goodwill for the three months ended September 30, 2024:
Gross value
Accumulated
impairment
Carrying
value
Balance as of June 30, 2024
$
$
(19,348 )
$
Foreign currency adjustment
(1)
(790 )
Balance as of September 30, 2024
$
$
(20,138 )
$
(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.
17
6. Goodwill and intangible assets, net (continued)
Goodwill (continued)
Goodwill has been allocated to the Company’s reportable segments as follows:
Consumer
Merchant
Carrying value
Balance as of June 30, 2024
$
$
$
Foreign currency adjustment
(1)
Balance as of September 30, 2024
$
$
$
(1) The foreign currency adjustment represents the effects of the fluctuations of the South African rand against the U.S. dollar
on the carrying value.
Intangible assets, net
Carrying value and amortization of intangible assets
Summarized below is the carrying value and accumulated amortization of intangible assets as of September 30, 2024, and June
30, 2024:
As of September 30, 2024
As of June 30, 2024
Gross
carrying
value
Accumulated
amortization
Net
carrying
value
Gross
carrying
value
Accumulated
amortization
Net
carrying
value
Finite-lived intangible assets:
Customer relationships
$
$
(15,390 )
$
$
$
(14,030 )
$
Software, integrated
platform and unpatented
technology
(30,331 )
(25,763 )
FTS patent
(2,230 )
(2,107 )
Brands and trademarks
(4,902 )
(4,300 )
Total finite-lived intangible
assets
$
$
(52,853 )
$
$
$
(46,200 )
$
Aggregate amortization expense on the finite-lived intangible assets for the three months ended September 30, 2024 and 2023,
was $
thereafter, assuming exchange rates that prevailed on September 30, 2024, 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 2025 (excluding three months ended September 30, 2024)
$
Fiscal 2026
Fiscal 2027
Fiscal 2028
Fiscal 2029
Thereafter
Total future estimated annual amortization expense
$
7. Assets and policyholder liabilities under insurance and investment contracts
Reinsurance assets and policyholder liabilities under insurance contracts
Summarized below is the movement in reinsurance assets and policyholder liabilities under insurance contracts during the three
months ended September 30, 2024:
Reinsurance
Assets
(1)
Insurance
contracts
(2)
Balance as of June 30, 2024
$
$
(2,241 )
Increase in policy holder benefits under insurance contracts
(2,500 )
Claims and decrease in policyholders’ benefits under insurance contracts
(190 )
Foreign currency adjustment
(3)
(131 )
Balance as of September 30, 2024
$
$
(2,409 )
(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.
18
7. Assets and policyholder liabilities under insurance and investment contracts (continued)
Reinsurance assets and policyholder liabilities under insurance contracts (continued)
The Company has agreements with reinsurance companies in order to limit its losses from various insurance contracts, however,
if the reinsurer is unable to meet its obligations, the Company retains the liability. The value of insurance contract liabilities is based
on the best estimate assumptions of future experience plus prescribed margins, as required in the markets in which these products are
offered, namely South Africa. The process of deriving the best estimate assumptions plus prescribed margins includes assumptions
related to claim reporting delays (based on average industry experience).
Assets and policyholder liabilities under investment contracts
Summarized below is the movement in assets and policyholder liabilities under investment contracts during the three months
ended September 30, 2024:
Assets
(1)
Investment
contracts
(2)
Balance as of June 30, 2024
$
$
(216 )
Increase in policy holder benefits under investment contracts
(6 )
Foreign currency adjustment
(3)
(13 )
Balance as of September 30, 2024
$
$
(235 )
(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, 2024, 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
September 30, 2024, was
%. The prime rate, the benchmark rate at which private sector banks lend to the public in South Africa,
on September 30, 2024, was
%.
RMB Facilities, as amended, comprising a short-term facility (Facility E) and long-term borrowings
Long-term borrowings - Facility G and Facility H
As of September 30, 2024, the Company had not utilized any of its ZAR
interest rate on this facility as of September 30, 2024, was JIBAR plus
%.
Available short-term facility - Facility E
As of September 30, 2024, the aggregate amount of the Company’s short-term South African overdraft facility with RMB was
ZAR
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.
19
8. Borrowings (borrowings) (continued)
South Africa (continued)
RMB Bridge Facilities, comprising a short-term facility obtained in October 2024
On September 30, 2024, Lesaka SA entered into a Facility Letter (the "F2024 Facility Letter") with RMB to provided Lesaka SA
a ZAR
due under the Adumo transaction (refer to Note 20); (ii) pay Crossfin Holdings (RF) Proprietary Limited (“Crossfin”) ZAR
million under a share purchase agreement concluded between Lesaka SA and Crossfin Holdings ((refer also to Note 20)); (iii) pay an
amount of ZAR
Note 20, and (iv) pay an origination fee of ZAR
transaction -related expenses. Interest on the Facility is calculated at the prime rate plus
%. The Facility is unsecured and required
to be repaid in full on or before December 13, 2024.
Connect Facilities, comprising long-term borrowings and a short-term facility
As of September 30, 2024, the Connect Facilities include (i) an overdraft facility (general banking facility) of ZAR
(of which ZAR
ZAR
which ZAR
On October 29, 2024, the Company, through its wholly owned subsidiary Cash Connect Management Solutions (Pty) Ltd, entered
into an addendum to a facility letter with RMB, to obtain a ZAR
of approximately four months to specifically fund the purchase of prepaid airtime vouchers. This temporary increase is repayable in
equal daily instalments which commenced at the end of October 2024 and end of February 15, 2025.
CCC Revolving Credit Facility, comprising long-term borrowings
As of September 30, 2024, 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 September 30, 2024, the aggregate amount of the Company’s short-term South African indirect credit facility with RMB
was ZAR
September 30, 2024 and June 30, 2024, the Company had utilized ZAR
million), respectively, of its indirect and derivative facilities of ZAR
bank to issue guarantees, letters of credit and forward exchange contracts (refer to Note 19).
Nedbank facility, comprising short-term facilities
As of September 30, 2024, 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 September 30, 2024 and June 30, 2024, the Company had utilized ZAR
($
the bank to issue guarantees, letters of credit and forward exchange contracts (refer to Note 19).
20
8. Borrowings (borrowings) (continued)
South Africa (continued)
Movement in short-term credit facilities (continued)
Summarized below are the Company’s short-term facilities as of September 30, 2024, and the movement in the Company’s short-
term facilities from as of June 30, 2024 to as of September 30, 2024:
RMB
RMB
RMB
Nedbank
Facility E
Indirect
Connect
Facilities
Total
Short-term facilities available as of
September 30, 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, 2024
Utilized
Repaid
(31,028 )
(31,028 )
Foreign currency
adjustment
(1)
Balance as of September 30, 2024
Restricted as to use for ATM
funding only
No restrictions as to use
$
$
$
$
$
Interest rate as of September 30,
2024 (%)
(2)
-
-
Movement in utilized indirect and
derivative facilities:
Balance as of June 30, 2024
$
$
$
$
$
Foreign currency adjustment
(1)
Balance as of September 30, 2024
$
$
$
$
$
(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
%.
21
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, 2024 to as of September
30, 2024:
Facilities
G & H
A&B
CCC
Asset backed
Total
Included in current
$
$
$
$
$
Included in long-term
Opening balance as of June 30, 2024
Facilities utilized
Facilities repaid
(3,911 )
(554 )
(1,007 )
(5,472 )
Non-refundable fees paid
Non-refundable fees amortized
Capitalized interest
Capitalized interest repaid
(95 )
(95 )
Foreign currency adjustment
(1)
Closing balance as of September 30,
2024
Included in current
Included in long-term
Unamortized fees
(229 )
(176 )
(9 )
(414 )
Due within 2 years
Due within 3 years
Due within 4 years
Due within 5 years
$
$
$
$
$
Interest rates as of September 30, 2024
(%):
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 is based on the JIBAR in effect from time to time plus a margin, which margin is
calculated as: (i)
% if the Look Through Leverage (“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 LTL ratio is expressed as times (“x”), and was introduced to calculate the margin used in the determination of the
interest rate. The LTL ratio is calculated as the Total Attributable Net Debt to the Total Attributable EBITDA, as defined in the
Company’s borrowing arrangements with RMB, for the measurement period ending on a specified date.
(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 September 30, 2024 and 2023, was $
and $
30, 2024 and 2023, 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 September 30, 2024 and 2023.
22
9. Other payables
Summarized below is the breakdown of other payables as of September 30, 2024, and June 30, 2024:
September 30,
June 30,
2024
2024
Clearing accounts
$
$
Vendor wallet balances
Accruals
Provisions
Value -added tax payable
Payroll-related payables
Participating merchants' settlement obligation
Other
$
$
Other includes deferred income, client deposits and other payables.
10. Capital structure
The following table presents a reconciliation between the number of shares, net of treasury, presented in the unaudited condensed
consolidated statement of changes in equity as of September 30, 2024 and 2023, respectively:
September 30,
September 30,
2024
2023
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
September 30, 2024:
Three months ended
September 30, 2024
Accumulated
foreign
currency
translation
reserve
Total
Balance as of July 1, 2024
$
(188,355 )
$
(188,355 )
Movement in foreign currency translation reserve
Balance as of September 30, 2024
$
(177,830 )
$
(177,830 )
The table below presents the change in accumulated other comprehensive loss per component during the three months ended
September 30, 2023:
Three months ended
September 30, 2023
Accumulated foreign currency
translation reserve
Total
Balance as of July 1, 2023
$
(195,726 )
$
(195,726 )
Movement in foreign currency translation reserve related to equity-
accounted investment
Movement in foreign currency translation reserve
(844 )
(844 )
Balance as of September 30, 2023
$
(196,081 )
$
(196,081 )
There were
September 30, 2024 and 2023.
23
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, 2024.
Stock option and restricted stock activity
Options
The following table summarizes stock option activity for the three months ended September 30, 2024 and 2023:
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, 2024
Forfeited
(13,333 )
-
-
Outstanding - September 30, 2024
Outstanding - June 30, 2023
Exercised
(6,793 )
-
-
Forfeited
(175,776 )
-
-
Outstanding - September 30, 2023
exercised during the three months ended September 30, 2024. During the three months ended September 30, 2023, the Company
received approximately $
options during the three months ended September 30, 2024. Employees and a non-employee director forfeited an aggregate of
stock options during the three months ended September 30, 2023.
Options
The following table presents stock options vested and expected to vest as of September 30, 2024:
Number of
shares
Weighted
average
exercise
price
($)
Weighted
average
remaining
contractual
term
(in years)
Aggregate
intrinsic
value
($’000)
Vested and expecting to vest - September 30, 2024
These options have an exercise price range of $
.
The following table presents stock options that are exercisable as of September 30, 2024:
Number of
shares
Weighted
average
exercise
price
($)
Weighted
average
remaining
contractual
term
(in years)
Aggregate
intrinsic
value
($’000)
Exercisable - September 30, 2024
new shares to satisfy stock option exercises.
24
12. Stock-based compensation (continued)
Stock option and restricted stock activity (continued)
Restricted stock
The following table summarizes restricted stock activity for the three months ended September 30, 2024 and 2023:
Number of
shares of
restricted stock
Weighted
average grant
date fair value
($’000)
Non-vested – June 30, 2024
Total granted
Granted – August 2024
Total vested
(78,801 )
Vested – July 2024
(78,801 )
Forfeitures
(3,100 )
Non-vested – September 30, 2024
Non-vested – June 30, 2023
Total vested
(78,800 )
Vested – July 2023
(78,800 )
Forfeitures
(8,127 )
Non-vested – September 30, 2023
Grants
In August 2024, the Company granted
Vesting
In July 2024 and 2023, respectively,
Forfeitures
During the three months ended September 30, 2024 and 2023, respectively, employees forfeited
restricted stock following their termination of employment with the Company.
Stock-based compensation charge and unrecognized compensation cost
The Company recorded a stock-based compensation charge, net during the three months ended September 30, 2024 and 2023, of
$
Total charge
Allocated to cost
of goods sold, IT
processing,
servicing and
support
Allocated to
selling, general
and
administration
Three months ended September 30, 2024
Stock-based compensation charge
$
$
-
$
Total - three months ended September 30, 2024
$
$
-
$
Three months ended September 30, 2023
Stock-based compensation charge
$
$
-
$
Reversal of stock compensation charge related to stock
options and restricted stock forfeited
(9 )
-
(9 )
Total - three months ended September 30, 2023
$
$
-
$
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.
25
12. Stock-based compensation (continued)
Stock-based compensation charge and unrecognized compensation cost (continued)
As of September 30, 2024, the total unrecognized compensation cost related to stock options was $
Company expects to recognize over
. As of September 30, 2024, the total unrecognized compensation cost related to restricted
stock awards was $
.
During the three months ended September 30, 2024 and 2023, the Company recorded a deferred tax benefit of $
$
three months ended September 30, 2024 and 2023 the Company recorded a valuation allowance of $
respectively, related to the deferred tax benefit recognized 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 months ended September 30, 2024 and 2023. 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, 2024.
Basic (loss) earnings per share includes shares of restricted stock that meet the definition of a participating security because these
shares are eligible to receive non -forfeitable dividend equivalents at the same rate as common stock. Basic (loss) earnings per share
has been calculated using the two-class method and basic (loss) earnings per share for the three months ended September 30, 2024 and
2023, 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
30, 2024 and 2023, 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.
26
13. (Loss) Earnings per share (continued)
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, 2024.
The following table presents net loss attributable to Lesaka and the share data used in the basic and diluted loss per share
computations using the two-class method:
Three months ended
September 30,
2024
2023
(in thousands except
percent and
per share data)
Numerator:
Net loss attributable to Lesaka
$
(4,542 )
$
(5,651 )
Undistributed (loss) earnings
$
(4,542 )
$
(5,651 )
Percent allocated to common shareholders (Calculation 1)
Numerator for (loss) earnings per share: basic and diluted
(4,399 )
(5,402 )
Continuing
(4,399 )
(5,402 )
Denominator
Denominator for basic (loss) earnings per share:
Weighted-average common shares outstanding
Denominator for diluted (loss) earnings per share: adjusted weighted average
common shares outstanding and assuming conversion
(Loss) Earnings per share:
Basic
$
(0.07 )
$
(0.09 )
Diluted
$
(0.07 )
$
(0.09 )
(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 (A) / (B)
Options to purchase
outstanding during the three months ended September 30, 2024, 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 September 30, 2023, respectively, but were not included in the computation of diluted (loss) earnings per share
because the options’ exercise price was greater than the average market price of the Company’s common stock. The options, which
expire at various dates through February 3, 2032, were still outstanding as of September 30, 2024.
14. Supplemental cash flow information
The following table presents supplemental cash flow disclosures for the three months ended September 30, 2024 and 2023:
Three months ended
September 30,
2024
2023
Cash received from interest
$
$
Cash paid for interest
$
$
Cash (refund) paid for income taxes
$
(45 )
$
27
14. Supplemental cash flow information (continued)
Leases
The following table presents supplemental cash flow disclosure related to leases for the three months ended September 30, 2024
and 2023:
Three months ended
September 30,
2024
2023
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 September 30, 2024:
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
$
$
$
28
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 September 30, 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
$
$
$
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 September 30, 2024 and 2023 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
September 30, 2024 and 2023, 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 September 30, 2024 and June 30, 2024:
September 30,
June 30,
2024
2024
Right of use assets obtained in exchange for lease obligations:
Weighted average remaining lease term (years)
Weighted average discount rate (percent)
29
16. Leases (continued)
The maturities of the Company’s operating lease liabilities as of September 30, 2024, are presented below:
Maturities of operating lease liabilities
Year ended June 30,
2025 (excluding three months to September 30, 2024)
$
2026
2027
2028
2029
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, 2024.
The Company analyzes its business and operations in terms of
(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 September
30, 2024 and 2023, is as follows:
Revenue
Reportable
Segment
Inter-
segment
From
external
customers
Merchant
$
$
$
Consumer
Total for the three months ended September 30, 2024
$
$
$
Merchant
$
$
$
Consumer
Total for the three months ended September 30, 2023
$
$
$
30
17. Operating segments (continued)
Operating segments (continued)
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 intends to obtain a separate lending facility to fund a portion of its Consumer lending during
the twelve months ended June 30, 2025. The Company expected to have this facility in place on July 1, 2024, however, the Company
has been unable to finalize terms as the separate lending facility will form part of a broader financing package. Therefore, the Company
has included an intercompany interest expense in its Consumer Segment Adjusted EBITDA for the three months ended September 30,
2024. The Company does not allocate once-off items, stock-based compensation charges, 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, certain 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. Interest adjustment represents the intercompany interest expense included in the Consumer Segment Adjusted EBITDA. The
Stock-based compensation adjustments reflect stock-based compensation expense and are 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. Effective from fiscal 2025, all lease charges are allocated to the Company’s operating
segments, whereas in fiscal 2024 the Company presented certain lease charges on a separate line outside of its operating segments.
Prior period information has been re-presented to include the lease charges which were previously reported on a separate line in the
Company’s Consumer and Merchant operating segments.
The reconciliation of the reportable segments’ measures of profit or loss to loss before income tax expense for the three months
ended September 30, 2024 and 2023, is as follows:
Three months ended
September 30,
2024
2023
Reportable segments measure of profit or loss
$
$
Operating loss: Group costs
(2,949 )
(1,822 )
Once-off costs
(1,805 )
(78 )
Unrealized Loss FV for currency adjustments
(102 )
Interest adjustment
831
-
Stock-based compensation charge adjustments
(2,377 )
(1,759 )
Depreciation and amortization
(6,276 )
(5,856 )
Reversal of allowance of EMI doubtful debt
Interest income
Interest expense
(5,032 )
(4,909 )
Loss before income tax expense
$
(4,491 )
$
(3,982 )
31
17. Operating segments (continued)
Operating segments (continued)
The following tables summarize segment information that is prepared in accordance with GAAP for the three months ended
September 30, 2024 and 2023:
Three months ended
September 30,
2024
2023
Revenues
Merchant
$
$
Consumer
Total reportable segment revenue
Segment Adjusted EBITDA
Merchant
(1)
Consumer
(1)
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 the three months ended September 30, 2024, includes retrenchments costs for Consumer of
$
months ended September 30, 2023, includes retrenchments costs for Merchant of $
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.
32
18. Income tax
Income tax in interim periods
For the purposes of interim financial reporting, the Company determines the appropriate income tax provision by first applying
the effective tax rate expected to be applicable for the full fiscal year to ordinary income. This amount is then adjusted for the tax
effect of significant unusual items, for instance, changes in tax law, valuation allowances and non-deductible transaction-related
expenses that are reported separately, and have an impact on the tax charge. The cumulative effect of any change in the enacted tax
rate, if and when applicable, on the opening balance of deferred tax assets and liabilities is also included in the tax charge as a discrete
event in the interim period in which the enactment date occurs.
For the three months ended September 30, 2024, the Company’s effective tax rate was impacted by the tax expense recorded by
the Company’s profitable South African operations, non-deductible expenses (including transaction-related expenditures), the on-
going losses incurred by certain of the Company’s South African businesses and the associated valuation allowances created related
to the deferred tax assets recognized regarding net operating losses incurred by these entities.
For the three months ended September 30, 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.
Uncertain tax positions
As of three months ended September 30, 2024 and June 30, 2023, the Company had
files income tax returns mainly in South Africa, Botswana, Namibia and in the U.S. federal jurisdiction. As of September 30, 2024,
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, 2020. 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 September 30, 2024) 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 September 30, 2024) 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 September 30,
2024. The maximum potential amount that the Company could pay under these guarantees is ZAR
at exchange rates applicable as of September 30, 2024). 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 September 30, 2024). 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.
33
20. Acquisitions
2025 Acquisitions
October 2024 acquisition of Adumo
On May 7, 2024, the Company entered into a Sale and Purchase Agreement (the “Purchase Agreement”) with Lesaka SA, and
Crossfin Apis Transactional Solutions (Pty) Ltd and Adumo ESS (Pty) Ltd (“the Sellers”). Pursuant to the Purchase Agreement and
subject to its terms and conditions, Lesaka, through its subsidiary, Lesaka SA, agreed to acquire, and the Sellers agreed to sell, all of
the outstanding equity interests and certain claims in the Adumo (RF) Proprietary Limited (“Adumo”). The transaction closed on
October 1, 2024.
Adumo is an independent payments and commerce enablement platform in Southern Africa, serving approximately
merchants with operations across South Africa, Namibia, Botswana and Kenya. For more than two decades, Adumo has facilitated
physical and online commerce between retail merchants and end-consumers by offering a unique combination of payment processing
and integrated software solutions, which currently include embedded payments, integrated payments, reconciliation services, merchant
lending, customer engagement tools, card issuing program management and data analytics.
Adumo operates across three businesses, which provide payment processing and integrated software solutions to different end
markets:
●
The Adumo Payments business offers payment processing, integrated payments and reconciliation solutions to small-and-
medium (“SME”) merchants in South Africa, Namibia and Botswana, and also provides card issuing program management to
corporate clients such as Anglo American and Coca-Cola;
●
The Adumo ISV business, also known as GAAP, has operations in South Africa, Botswana and Kenya, and clients in a further
21 countries, and is the leading provider of integrated point-of-sales software and hardware to the hospitality industry in
Southern Africa, serving clients such as KFC, McDonald’s, Pizza Hut, Nando’s and Krispy Kreme; and,
●
The Adumo Ventures business offers online commerce solutions (Adumo Online), cloud-based, multi-channel point-of-sales
solutions (Humble) and an aggregated payment and credit platform for in-store and online commerce (SwitchPay) to SME
merchants and corporate clients in South Africa and Namibia.
The acquisition continues the Company’s consolidation in the Southern African fintech sector. The Company’s ecosystem now
serves approximately
and VAS) per year. The acquisition of Adumo enhances the Company’s strength in both the consumer and merchant markets in which
it operates.
The purchase consideration was settled through the combination of an issuance of
stock (“Consideration Shares”) and a ZAR
October 1, 2024) payment in cash. The Company’s closing price on the Johannesburg Stock Exchange on October 1, 2024, was ZAR
million).
The closing of the transaction was subject to customary closing conditions, including (i) approval from the competition
authorities of South Africa and Namibia; (ii) exchange control approval from the financial surveillance department of the South African
Reserve Bank; (iii) approval from all necessary regulatory bodies and from shareholders to issue the Consideration Shares to the
Sellers; (iv) obtaining certain third-party consents; (v) the Company obtained confirmation from RMB that it has sufficient funds to
settle the cash portion of the purchase consideration; (vi) approval of Adumo shareholders (including preference shareholders) with
respect to entering into and implementation of the Purchase Agreement, and all other agreements and transactions contemplated in the
Purchase Agreement; (vii) obtained the consent of Adumo’s lender regarding Adumo entering into and implementing the Purchase
Agreement, and all other agreements and transactions contemplated in the Purchase Agreement; (viii) the release of certain Seller’s
shares held as security by such bank; (ix) consent of the lender of one of Adumo’s shareholders regarding Adumo entering into the
transaction; (x) the Company signing a written addendum to the Policy Agreement with International Finance Corporation that
provides for the inclusion of the Consideration Shares attributable to certain Seller shareholders in the definition of “Put Shares” under
the Policy Agreement, and related change; and (xi) a Seller (or their nominee), which ultimately was Crossfin, concluding share
purchase agreements to dispose of an amount of Consideration Shares (which ultimately was determined as
Shares).
The Company has agreed to file a resale registration statement with the United States Securities and Exchange Commission
(“SEC”) covering the resale of the Consideration Shares by the Sellers. The Company has undertaken to use its commercially
reasonable efforts to have the resale registration statement declared effective by the SEC following its filing.
The Company incurred transaction-related expenditures of $
related to acquisition of Adumo. The Company’s accruals presented in Note 9 of as September 30, 2024, includes an accrual of
transaction related expenditures of $
over the remainder of the 2025 fiscal year.
34
20. Acquisitions (continued)
2025 Acquisitions (continued)
October 2024 acquisition of Adumo (continued)
On October 1, 2024, Lesaka SA and Crossfin entered into a share purchase agreement under which Lesaka SA purchased
2024, and the shares of Company’s common stock repurchased will be included in the Company’s treasury shares.
The Company has commenced the purchase price allocation related to this transaction. However, the process had not been
completed as of the date of filing this Quarterly Report on Form 10-Q on November 6, 2024. The Company expects to include its
preliminary allocation of the purchase consideration related to this acquisition in its unaudited financial statements to be included in
its Quarterly Report on Form 10-Q for the quarterly period ended December 31, 2024.
35
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, 2024,
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, 2024. In some
cases, you can identify forward-looking statements by terminology such as “may”, “will”, “should ”, “could”, “would”, “expects”,
“plans”, “intends”, “anticipates”, “believes”, “estimates”, “predicts”, “potential” or “continue” or the negative of such terms and other
comparable terminology.
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we do not know whether
we can achieve positive future results, levels of activity, performance, or goals. Actual events or results may differ materially. We
undertake no obligation to update any of the forward-looking statements after the date of this Form 10-Q to conform those statements
to reflect the occurrence of unanticipated events, except as required by applicable law.
You should read this Form 10-Q and the documents that we reference herein and the documents we have filed as exhibits hereto
and thereto and which we have filed with the United States Securities and Exchange Commission (“SEC”) completely and with the
understanding that our actual future results, levels of activity, performance and achievements may be materially different from what
we expect. We qualify all of our forward-looking statements by these cautionary statements.
Recent Developments
Our mission at Lesaka is driven by a purpose to provide financial services and software to Southern Africa’s underserviced
consumers (B2C) and merchants (B2B), improving people’s lives and increasing financial inclusion in the markets in which we
operate. We offer a wide range of integrated payment solutions including transactional accounts (banking), lending, insurance, payouts,
cash management solutions, card acceptance, supplier payments, software services and bill payments. By providing a full-service
fintech platform in our connected ecosystem, we facilitate the digitization of commerce in our markets.
We experienced continued improvement in our financial and operational performance in the first quarter of fiscal 2025. Revenue
of $145.5 million (ZAR 2.6 billion) was at the mid-point of our revenue guidance and compares to $136.1 million (ZAR 2.5 billion)
in 2024.
Operating loss of $0.05 million (ZAR 0.3 million) includes the impact of $1.7 million (ZAR 30.0 million) one-off Adumo
transaction costs. We reported a net loss attributable to the company of $4.5 million (ZAR 81.0 million) during the first quarter of
fiscal 2025 compared with a net loss of $5.7 million (ZAR 105.6 million) during the first quarter of fiscal 2024.
Group Adjusted EBITDA of $9.4 million (ZAR 168.1 million) was at the mid-point of our guidance range, representing the ninth
successive quarter of Lesaka achieving or outperforming its Group Adjusted EBITDA guidance. Group Adjusted EBITDA is a non-
GAAP measure, refer to reconciliation below at “—Results of Operations —Use of Non-GAAP Measures”.
We continue to broaden our product proposition and solve for both consumer and merchant pain-points.
Merchant Division
The year-on-year performance in our Merchant Division (“Merchant”) is supported by the robust secular trends underpinning
financial inclusion, cash management and digitalization to empower micro-merchants, merchants and enterprise clients to transact
efficiently and fulfill their potential.
Performance in Merchant has been driven by:
36
Our VAS and supplier payments business continues to see adoption by micro -merchants.
Fiscal quarter ended September 30,
Q1
2025
Q1
2024
Q1
2023
2025
vs.
2024
2 year
CAGR
%
Approximate number of devices in deployment
1
89,040
77,000
57,000
16%
25%
Total Throughput for the quarter (ZAR billions)
9.9
7.2
5.9
38%
30%
Throughput for the quarter international money transfers
(“IMT”) (ZAR billions)
1.3
0.3
1.6
333%
(10%)
Throughput for the quarter supplier payments (ZAR billions)
3.2
2
0.6
60%
131%
Total throughput for the quarter excluding IMT and supplier
payments (ZAR billions)
5.4
4.9
3.7
10%
21%
1.
2025 includes approximately 5,430 devices attributable to the acquisition of Touchsides, effective May 1, 2024, which are
not enabled for VAS and supplier payments on the Kazang platform.
●
We had approximately 89,040 devices deployed at September 30, 2024, representing a 16% year-on-year growth
compared to approximately 77,000 devices as of September 30, 2023, and a 2-year CAGR of 25% compared to
September 30, 2022. This includes approximately 5,430 devices in Touchsides sites that are not yet enabled for VAS
and supplier payments on the Kazang platform.
●
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 growth and margin per device.
●
VAS and supplier payments throughput increased 38% to R9.9 billion. We have separately disclosed supplier payments
from traditional VAS as it is becoming a material contributor to our throughput and attracts a lower gross profit margin.
Supplier payments is an important part of the micro -merchant ecosystem we are developing as part of our strategy to
provide a holistic offering to micro-merchants in informal markets.
●
VAS throughput, excluding IMT and supplier payments increased 10% to R5.4 billion. Our supplier payments
throughput increased by 60% year on year to R3.2 billion as we added further suppliers onto our platform. The
international money transfer throughput recovered significantly and is approaching the levels from quarter one fiscal
2022.
Our card acceptance solutions to micro-merchants is through Kazang Pay and to merchants through Card Connect.
Fiscal quarter ended September 30,
Q1
2025
Q1
2024
Q1
2023
2025 vs.
2024
2 year
CAGR
%
Approximate number of devices in deployment
1
53,450
46,600
27,700
15%
39%
Total Throughput for the quarter (ZAR billions)
4.3
3.6
2.3
18%
36%
●
The trend towards digital payments continued year on year with a 15% increase in devices and a 18% increase in
throughput to R4.2 billion for the quarter
Our lending
solutions offered to merchants through Capital Connect in the merchant market.
Fiscal quarter ended September 30,
Q1
2025
Q1
2024
Q1
2023
2025
vs.
2024
2 year
CAGR
%
Total credit disbursed (ZAR millions)
166
196
226
(15%)
(14%)
Total net loan book size at period end
(ZAR millions)
273
285
274
(4%)
0%
Capital Connect credit disbursed
(ZAR millions)
166
173
190
(4%)
(7%)
Capital Connect loan book size at period end (ZAR
millions)
273
280
254
(3%)
4%
Kazang Pay Advance credit disbursed
(ZAR millions)
0
23
36
n/m
n/m
Kazang Pay Advance loan book size at period end (ZAR
millions)
0
5
20
n/m
n/m
37
●
Capital Connect disbursed ZAR 166 million during Q1 2025, compared to ZAR 173 million in the comparable period
last year, representing a 4% decrease, reflective of the deterioration in financial strength of our merchants compared to
a year ago. We have maintained our strict credit criteria during the high interest rate and inflationary cycle resulting in
less merchants qualifying for new or renewals of credit lines.
●
With a more positive political environment, the suspension of load-shedding and hopefully the start of an interest rate
down cycle, we are more optimistic this business can resume a growth trend reflective in the 8% increase in Capital
Connect disbursements this quarter compared to ZAR 154 million a quarter ago (quarter four fiscal 2024.)
●
Capital Connect’s lending proposition is an important component in enabling the merchants we serve to compete and
grow. Since inception, Capital Connect has distributed more than ZAR 3 billion of funding to merchants and can provide
funding of up to ZAR 5 million in under 24 hours. Quick access to affordable and flexible opportunity capital is vital in
every stage of a merchant’s lifecycle, enabling them to never miss an opportunity.
●
Kazang Pay Advance, our lending offering in the micro-merchant sector, was suspended in early fiscal 2024 following
the decision to discontinue the current product, especially in the high interest rate environment. We continued to explore
other options with respect to this offering with it now in live pilot phase. We are monitoring payment behavior on a
smaller loan book and applying stricter lending criteria before the official relaunch later in fiscal 2025.
Our cash management and digitalization
solutions effectively “puts the bank” in approximately 4,480 merchants’ stores.
Fiscal quarter ended September 30,
Q1 2025
Q1 2024
Q1 2023
2025 vs.
2024
2 year
CAGR %
Approximate number of devices in deployment
1
4,480
4,400
4,200
2%
3%
Cash settlements (throughput) for the quarter (ZAR
billions)
28.7
27.6
27.5
4%
2%
o
Our cash business remains a vital product in our merchant offering and is a key differentiator for us in the
digitalization of cash. We provide robust cash vaults in the SME sector (Cash Connect) and are building a presence
in the micro-merchant sector (Kazang Vaults), which enables our merchant customer base to significantly mitigate
their operational risks pertaining to cash management and security.
o
Whilst there is trend towards digital payments, cash remains as the most significant portion of retail transactions
especially in informal markets. This business is primarily exposed to the mid-market SMEs, a sector which has
experienced challenges such as power outages, high price inflation and a slowdown in consumer spending, over the
past 24 months. This impacted the merchants we serve in this sector and resulted in increased bankruptcies and vault
upliftments which affected the net growth in the vault estate.
Consumer Division
In our Consumer Division we offer transactional accounts (banking), insurance, lending and payments solutions designed to
improve the lives of historically underserviced consumers and continue to deliver against our strategic focus areas underpinning our
growth strategy. Progress made on these levers: (i) growing active EasyPay Everywhere (“EPE”) account numbers; (ii) increasing
average revenue per user (“ARPU”) through cross-selling; (iii) cost optimization; and (iv) enhancing our product and service offering,
resulted in revenue and profitability growth in the Consumer Division in the first quarter of fiscal 2025.
38
Consumer
Fiscal quarter ended September 30,
Q1 2025
Q1 2024
Q1 2023
2025 vs.
2024
Transactional accounts (banking) - EasyPay Everywhere ("EPE")
Total active EPE transactional account base at quarter
end (millions)
1.5
1.3
1.2
14%
Total active EPE transactional account base at quarter
end - Permanent grant recipients (millions)
1.3
1.1
1.1
18%
Approximate Gross EPE account activations for the
quarter -Permanent grant recipients (number)
62,000
76,000
45,000
(19%)
Approximate Net EPE account activations for the
quarter - Permanent grant recipients (number)
26,000
42,000
3,000
(39%)
Lending - EasyPay Loans
Approximate number of loans originated during the
quarter (number)
286,000
222,000
198,000
28%
Gross advances in the quarter (ZAR millions)
451
353
289
28%
Loan book size, before allowances, at quarter end
1
(ZAR millions)
564
423
351
34%
Insurance - EasyPay Insurance
Approximate number of insurance policies written in
the quarter (number)
49,000
38,000
25,000
29%
Total active insurance policies on book at quarter end
(number)
466,000
359,000
268,000
30%
Average revenue per customer per month, as of
September 30, (permanent grant beneficiaries)
(ZAR)
91
83
71
10%
1.
Gross loan book, before provisions.
●
Driving customer acquisition
o
Gross EPE account activations, continue to grow at the new levels for the permanent base, post our marketing and
distribution network enhancements in fiscal 2024. We achieved approximately 62,000 gross account activations in
the quarter which was pleasing in a traditionally quiet quarter for us. This compares to a higher than usual activation
rate in quarter one fiscal 2024 due to significant migration away from the South African Post Office in that quarter
driven by concerns around its going concern status and its failure to timeously distribute grants timeously. Net
activations of 26,000 in the quarter was negatively impacted by the closure of the SASSA (
South African Social
Security Agency)
digital portal for switching.
o
Our total active EPE transactional account base stood at approximately 1.5 million at the end of September 2024, of
which approximately 1.3 million (or approximately 88%) are permanent grant recipients. The balance comprises
Social Relief of Distress (“SRD”) grant recipients, which was introduced during the COVID pandemic and extended
in calendar year 2023.
o
Our priority is to grow our permanent grant recipient customers base, where we can build deeper relationships by
offering 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.
39
●
Progress on cross selling
EasyPay Loans
o
We originated approximately 286 000 loans during the quarter, with our consumer loan book, before allowances
(“gross book”), increasing 34% to ZAR 564 million as of September 30, 2024, compared to ZAR 423 million as of
September 30, 2023.
o
We have not amended our credit scoring or other lending criteria, and the growth is reflective of the demand for our
tailored loan product for this market, growth in EPE bank account customer base and improved cross-selling
capabilities.
o
The loan conversion rate continues to improve following the implementation of a number of targeted Consumer
lending campaigns and encouraging results from our digital channels.
o
The portfolio loss ratio of approximately 6%, calculated as the loans written off over the last 12 months as a
percentage of the total gross loan book at the end of the quarter, remained stable on an annualized basis, compared
to quarter one fiscal 2024.
EasyPay Insurance
o
Our insurance product sales continue to grow and is a material contributor to the improvement in our overall ARPU.
We have been able to improve customer penetration to 34% of our active permanent grant account base as of
September 30, 2024, compared to 31% as of September 30, 2023. Approximately 49,000 new policies were written
in the quarter, compared to approximately 38,000 in the comparable period in fiscal 2024. The total number of active
policies has grown 30% to approximately 466,000 policies as of September 30, 2024, compared to 359,000 policies
as of September 30, 2023.
o
In April 2024 we launched a new benefit where existing policyholders and new clients could elect to cover up to six
of their dependent family members with cover ranging from ZAR 5 000 to ZAR 30 000. Since the launch of this
benefit more than 25 00 clients have elected to cover their dependent family members.
ARPU
o
ARPU for our permanent client base has increased to approximately ZAR 91 for the first quarter of fiscal 2025, from
approximately ZAR 83 in the first quarter of fiscal 2024.
Adumo Payouts
o
On 1 October the Adumo Payouts business officially became part of the Consumer Division. We are looking forward
to working with them as we build out the Consumer offering beyond the grant recipient space. The Adumo
contribution will be reflected in our quarter two fiscal 2025 results.
Board and Leadership Changes in quarter one fiscal 2025
Leadership changes
On October, 1 2024 Dan Smith was appointed as Group Chief Financial Officer taking over these responsibilities from Naeem
Kola, who transitioned to Group Chief Operating Officer. Mr. Smith was also appointed to the Board. As Lesaka scales, we will
continue to augment our executive capability to accommodate the growing size of the business and deliver on the opportunity in front
of us.
Paul Kent, the CEO of Adumo, joined the Lesaka executive team on completion of the Adumo transaction to oversee the
Merchant pillar within Lesaka’s Merchant Division.
Board changes
Similarly, on completion of the Adumo acquisition Dean Sparrow, Group CEO of Crossfin Technology Holdings (RF) (Pty) Ltd,
was appointed to the Board as an independent non-executive director and joined Lesaka’s Capital Allocation Committee.
Chris Meyer and Monde Nkosi, non-executive directors, stepped down as directors of the Board in October 2024.
40
Acquisition of Adumo
On October 1, 2024, we announced the closing of the Adumo transaction which enhances our platform, adding customers and
products, as well as scale. The completion of this transaction marks the beginning of a new chapter in the Lesaka story. Adumo will
be included in our results for the full second quarter of fiscal 2025.
Going forward Lesaka will be run in four distinct pillars
The Adumo transaction is the catalyst to approach the market with a more customer -centric operating model. From a financial
reporting standpoint, we will continue to maintain the Consumer Division and Merchant Division split however we will present our
KPIs and performance with a more granular breakdown.
Our Consumer segment will remain substantially the same however the perimeter will be expanded to include the Adumo Payouts
business.
In our Merchant segment, the Adumo transaction provides the opportunity to segment the business into three component parts
organized around distinct customers. Micro-Merchant, Merchant and Enterprise.
Micro-merchants are typically sole proprietors, often operating in the informal economy. We address these customers through
the Kazang and Touchsides brands. In South Africa the focus will be to augment the product offering and cross-sell to existing
customers so that we can materially improve the unit economics, as we have been doing. Outside of South Africa, in neighboring
geographies, there are a substantial number of sole traders who have very limited offerings available to them to empower them on
their digital journey. Here we have an opportunity again to expand our total addressable market through wallet growth.
The Merchant pillar is made up of the existing Connect operations, as well as the bulk of Adumo, specifically its merchant
acquiring and processing business and its GAAP hospitality platform. The Connect business has cash and credit as key product
offerings, the Adumo business has merchant acquiring and software at point of sale. Combined the Lesaka offering will be amongst
most comprehensive in the market in meeting the needs of small and medium size businesses in the region.
Our Enterprise segment will focus on large corporates, mobile network operators, banks, governments and municipalities. Our
solutions include a new payment switch, Prism Switch, our Point Of Sale hardware business branded Prism POS (previously known
as NUETS), our bill payments platform EasyPay, as well as a third party vending and security business. As well as serving third party
corporates it will also service some of the technology needs of our other pillars, Consumer, Micro-Merchant and Merchant.
41
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, 2024:
●
Business Combinations and the Recoverability of Goodwill;
●
Intangible Assets Acquired Through Acquisitions;
●
Revenue recognition – principal versus agent considerations;
●
Valuation of investment in Cell C;
●
Recoverability of equity securities and equity-accounted investments;
●
Deferred Taxation;
●
Stock-based Compensation;
●
Accounts Receivable and Allowance for Doubtful Accounts Receivable; and
●
Lending.
Recent accounting pronouncements adopted
Refer to Note 1 to our unaudited condensed consolidated financial statements for a full description of accounting pronouncements
adopted, including the dates of adoption and the effects on our unaudited condensed consolidated financial statements.
Recent accounting pronouncements not yet adopted as of September 30, 2024
Refer to Note 1 to our unaudited condensed consolidated financial statements for a full description of recent accounting
pronouncements not yet adopted as of September 30, 2024, including the expected dates of adoption and effects on our financial
condition, results of operations and cash flows.
Currency Exchange Rate Information
Actual exchange rates
The actual exchange rates for and at the end of the periods presented were as follows:
Table 1
Three months ended
Year ended
September 30,
June 30,
2024
2023
2024
ZAR : $ average exchange rate
17.9601
18.6457
18.7070
Highest ZAR : $ rate during period
18.5100
19.2202
19.4568
Lowest ZAR : $ rate during period
17.1144
17.6278
17.6278
Rate at end of period
17.1808
18.9236
18.1808
42
Translation exchange rates for financial reporting purposes
We are required to translate our results of operations from ZAR to U.S. dollars on a monthly basis. Thus, the average rates used
to translate this data for the three months ended September 30, 2024 and 2023, vary slightly from the averages shown in the table
above. Except as described below, the translation rates we use in presenting our results of operations are the rates shown in the
following table:
Three months ended
Year ended
Table 2
September 30,
June 30,
2024
2023
2024
Income and expense items: $1 = ZAR
17.7176
18.7088
18.6844
Balance sheet items: $1 = ZAR
17.1808
18.9236
18.1808
We have translated the results of operations and operating segment information for the three months ended September 30, 2024
and 2023, provided in the tables below using the actual average exchange rates per month (i.e. for each of July 2024, August 2024,
and September 2024 for the first quarter of fiscal 2025) 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.
43
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
Executive Chairman 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, 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 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.
Effective from fiscal 2025, all lease charges are allocated to our operating segments, whereas in fiscal 2024 we presented certain lease
charges on a separate line outside of our operating segments. Prior period information has been re-presented to include the lease
charges which were previously reported on a separate line in our Consumer and Merchant operating segments.
Group Adjusted EBITDA represents Segment Adjusted EBITDA after deducting group costs. Refer also “Results of
Operations—Use of Non-GAAP Measures” below.
We analyze our business and operations in terms of two inter-related but independent operating segments: (1) Merchant Division
and (2) Consumer Division. In addition, corporate activities that are impracticable to allocate directly to the operating segments, as
well as any inter-segment eliminations, are included in Group costs. Inter-segment revenue eliminations are included in Eliminations.
First quarter of fiscal 2025 compared to first quarter of fiscal 2024
The following factors had a significant impact on our results of operations during the first quarter of fiscal 2025 as compared with
the same period in the prior year:
●
Higher revenue:
Our revenues increased 3% in ZAR, primarily due to an increase in value-added services activity and
processing fees in Merchant, as well as higher transaction, insurance and lending revenues in Consumer, which was partially
offset by fewer low margin prepaid airtime sales;
●
Operating income improvement, before transaction costs:
Operating income, before Adumo-related transaction costs,
increased due to an increase trading activity as noted above;
●
Lower net interest charge:
million) primarily due to lower interest rates on our borrowings, which was partially offset by higher over borrowings; and
●
Foreign exchange movements:
compared to the prior period, which adversely impacted our U.S. dollar reported results The ZAR was 5% stronger against
the U.S. dollar during first quarter of fiscal 2025 compared to the prior period, which positively impacted our U.S. dollar
reported results.
44
Consolidated overall results of operations
This discussion is based on the amounts prepared in accordance with U.S. GAAP.
The following tables show the changes in the items comprising our statements of operations, both in U.S. dollars and in ZAR:
Table 3
In United States Dollars
Three months ended September 30,
2024
2023
%
$ ’000
$ ’000
change
Revenue
145,546
136,089
7%
Cost of goods sold, IT processing, servicing and support
110,887
107,490
3%
Selling, general and administration
26,726
22,515
19%
Depreciation and amortization
6,276
5,856
7%
Transaction costs related to Adumo acquisition
1,702
-
nm
Operating (loss) income
(45)
228
nm
Reversal of allowance for EMI doubtful debt receivable
-
250
nm
Interest income
586
449
31%
Interest expense
5,032
4,909
3%
Loss before income tax expense
(4,491)
(3,982)
13%
Income tax expense
78
264
(70%)
Net loss before earnings (loss) from equity-accounted investments
(4,569)
(4,246)
8%
Earnings (Loss) from equity-accounted investments
27
(1,405)
nm
Net loss attributable to us
(4,542)
(5,651)
(20%)
Table 4
In South African Rand
Three months ended September 30,
2024
2023
%
ZAR ’000
ZAR ’000
change
Revenue
2,615,690
2,537,659
3%
Cost of goods sold, IT processing, servicing and support
1,993,641
2,004,465
(1%)
Selling, general and administration
479,677
419,861
14%
Depreciation and amortization
112,660
109,166
3%
Transaction costs related to Adumo acquisition
29,997
-
nm
Operating (loss) income
(285)
4,167
nm
Reversal of allowance for EMI doubtful debt receivable
-
4,741
nm
Interest income
10,517
8,368
26%
Interest expense
90,328
91,429
(1%)
Loss before income tax expense
(80,096)
(74,153)
8%
Income tax expense
1,402
4,825
(71%)
Net loss before earnings (loss) from equity-accounted investments
(81,498)
(78,978)
3%
Earnings (Loss) from equity-accounted investments
475
(26,657)
nm
Net loss attributable to us
(81,023)
(105,635)
(23%)
Revenue increased by $9.5 million (ZAR 78.0 million), or 6.9% (in ZAR, 3.1% ), primarily due to an increase in the volume of
value-added services provided (prepaid airtime and gaming), high transactions volumes from our vault and cash management
operations resulting in higher processing fees, an increase in certain issuing fee base prices and transaction activity in our issuing
business, and an increase in insurance premiums collected and lending revenues following higher loan originations, which was partially
offset by fewer low margin prepaid airtime sales. Refer to discussion above at “—Recent Developments” for a description of key
trends impacting our revenue this quarter.
Cost of goods sold, IT processing, servicing and support increased by $3.4 million (or 3.2%) and, in ZAR, decreased by ZAR
10.8 million (or 0.5%), primarily the decrease in low margin prepaid airtime sales, which was partially by higher insurance-related
claims and third-party transaction fees.
Selling, general and administration expenses increased by $4.2 million (ZAR 59.8 million), or 18.7% (in ZAR 14.2%). The
increase was primarily due to higher employee-related expenses (including annual bonuses and annual salary increases) and higher
stock-based compensation charges; higher consulting, legal and travel expenses, and the year-over-year impact of inflationary
increases on certain expenses.
45
Depreciation and amortization expense increased by $0.4 million (ZAR 3.5 million), or 7.2% (3.2%). The increase was due to an
increase in depreciation expense related to additional POS devices deployed .
Transaction costs related to Adumo acquisition includes fees paid to external service providers associated with legal and advisory
services procured to close the transaction on October 1, 2024.
Our operating (loss) income margin for the first quarter of fiscal 2025 and 2024 was (0.0)% and 0.2%, respectively. We discuss
the components of operating loss margin under “—Results of operations by operating segment.”
We did not record any changes in the fair value of equity interests in MobiKwik and Cell C during the first quarter of fiscal 2025
or 2024, 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 $0.6 million (ZAR 10.5 million) from $0.4 million (ZAR 8.4 million), primarily due to
higher overall average cash balances on deposit during the first quarter of fiscal 2025 compared with 2024.
Interest expense increased to $5.0 million from $4.9 million and, in ZAR, decreased to ZAR 90.3 million from ZAR 91.4 million.
In ZAR, the decrease was primarily as a result of lower interest expense incurred on certain of our borrowing for which we were able
to negotiate lower rates of interest towards the end of calendar 2024, which was partially offset by higher overall borrowings during
the first quarter of fiscal 2025 compared with comparable period in the prior quarter.
Fiscal 2025 tax expense was $0.1 million (ZAR 1.4 million) compared to $0.3 million (ZAR 4.8 million) in fiscal 2024. Our
effective tax rate for fiscal 2025 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 (in transaction-related 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 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.
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 first quarter of fiscal 2024. The table
below presents the relative (loss) earnings from our equity-accounted investments:
Table 5
Three months ended September 30,
2024
2023
$ %
$ ’000
$ ’000
change
Finbond
-
(1,445)
nm
Share of net loss
-
(278)
nm
Impairment
-
(1,167)
nm
Other
27
40
(33%)
Total income (loss) from equity-accounted investments
27
(1,405)
nm
46
Results of operations by operating segment
The composition of revenue and the contributions of our business activities to operating loss are illustrated below:
Table 6
In United States Dollars
Three months ended September 30,
2024
% of
2023
% of
% change
Operating Segment
$ ’000
total
$ ’000
total
Consolidated revenue:
Merchant
125,261
86%
121,361
89%
3%
Consumer
21,072
14%
15,580
11%
35%
Subtotal: Operating segments
146,333
100%
136,941
100%
7%
Eliminations
(787)
-
(852)
-
(8%)
Total consolidated revenue
145,546
100%
136,089
100%
7%
Group Adjusted EBITDA:
Merchant
(1)(2)
7,916
84%
7,725
96%
2%
Consumer
(1)(2)
4,396
47%
2,120
26%
107%
Group costs
(2,949)
(31%)
(1,822)
(22%)
62%
Group Adjusted EBITDA (non-GAAP)
9,363
100%
8,023
100%
17%
(1) Segment Adjusted EBITDA Merchant and Segment Adjusted EBITDA Consumer include retrenchment costs of $0.01
million and $0.06 million, respectively, for the first quarter of fiscal 2025.
(2) Lease expenses which were previously presented on a separately line in fiscal 2024 are now included in Merchant and
Consumer Segment Adjusted EBITDA. The prior period has been re-presented to conform with current period presentation. See also
“—Results of Operations— Presentation of Merchant and Consumer by segment for fiscal 2024 and 2023 including lease charges”.
(3) Group Adjusted EBITDA is a non-GAAP measure, refer to reconciliation below at “—Results of Operations—Use of Non-
GAAP Measures”.
Table 7
In South African Rand
Three months ended September 30,
2024
% of
2023
% of
% change
Operating Segment
ZAR ’000
total
ZAR ’000
total
Consolidated revenue:
Merchant
2,251,825
86%
2,263,001
89%
(0%)
Consumer
378,063
14%
290,629
11%
30%
Subtotal: Operating segments
2,629,888
100%
2,553,630
100%
3%
Eliminations
(14,198)
-
(15,971)
-
(11%)
Total consolidated revenue
2,615,690
100%
2,537,659
100%
3%
Group Adjusted EBITDA:
Merchant
(1)(2)
142,078
84%
143,910
96%
(1%)
Consumer
(1)(2)
78,681
47%
39,612
26%
99%
Group costs
(52,654)
(31%)
(33,980)
(22%)
55%
Group Adjusted EBITDA (non-GAAP)
168,105
100%
149,542
100%
12%
(1) Segment Adjusted EBITDA Merchant and Segment Adjusted EBITDA Consumer include retrenchment costs of ZAR 0.2
million and ZAR 1.1 million, respectively, for the first quarter of fiscal 2025.
(2) Lease expenses which were previously presented on a separately line in fiscal 2024 are now included in Merchant and
Consumer Segment Adjusted EBITDA. The prior period has been re-presented to conform with current period presentation.
(3) Group Adjusted EBITDA is a non-GAAP measure, refer to reconciliation below at “—Results of Operations—Use of Non-
GAAP Measures”.
Merchant
Segment revenue primarily increased due to a higher volume of value-added services provided (prepaid airtime and gaming),
and high transactions volumes from our vault and cash management operations resulting in higher processing fees, which was partially
offset by fewer low margin prepaid airtime sales. In ZAR, the modest decrease in Segment Adjusted EBITDA is primarily due higher
operating expenses incurred, especially employment-related expenditures, to expand our offering, which was partially offset by higher
gross margin (calculated as revenue less cost of goods sold, IT processing, servicing and support). Connect records a significant
proportion of its airtime sales in revenue (see further below) and cost of sales, while only earning a relatively small margin. This
significantly depresses the Segment Adjusted EBITDA margins shown by the business. During the first quarter of fiscal 2025, we
experience a shift in the mix between the sale of pinned prepaid airtime and distribution of pinless prepaid airtime, with the volume
of pinned airtime sales decreasing, which results in a lower revenue and related cost of sales, and an overall improved margin.
47
Our Segment Adjusted EBITDA margin (calculated as Segment Adjusted EBITDA divided by revenue) for the first quarter of
fiscal 2025 and 2024 was 6.3% and 6.4%, respectively.
Prepaid airtime sales
In South Africa and other countries, mobile network operators (“MNOs”) offer prepaid or contract (or postpaid) services to their
customers to telephony services using a mobile telephony network or networks. MNOs also offer similar products (prepaid or postpaid)
for mobile data which uses other wireless network protocols such as wireless fidelity (“wifi”). We use the term “prepaid airtime” to
include both of these prepaid products.
Generally speaking, the difference between the two models is that prepaid is paid for upfront by the customer and contract is paid
in arrears. MNOs sell prepaid products directly to their customers and also indirectly to their customers through distribution channels
(which include wholesalers, retailers and other parties, including ourselves).
We sell a variety of products through our distribution channels, including prepaid airtime, prepaid electricity, gaming vouchers.
We refer to these products collectively as VAS.
In order to “load” airtime onto a mobile device an MNOs customer requires a prepaid airtime voucher. A unique code is assigned
to each prepaid airtime voucher and is required to activate the prepaid airtime on a mobile device. Like certain tangible goods, once
sold, our customers cannot return prepaid airtime vouchers to us (except of course if there is a defect in the service provided by us,
which rarely occurs).
We can either purchase an agreed quantity of prepaid airtime vouchers upfront directly from wholesalers or other parties (so
called “Pinned airtime” - these electronic vouchers are stored on a server owned and maintained by us and we treat these vouchers as
inventory) or we can “interface” directly into a wholesaler and deliver the airtime voucher directly to our customers (typically
merchants) as the airtime is sold by the merchant to MNOs customers (so called Pinless airtime).
Consumer
Segment revenue increased primarily due to higher transaction fees generated from the higher EPE account holders base, an
increase in certain issuing fee base prices and transaction activity in our issuing business, insurance premiums collected and lending
revenues following an increase in loan originations. This increase in revenue has translated into improved profitability, which was
partially offset by higher insurance-related claims and interest expenses (of approximately ZAR 15.0 million) incurred to fund our
lending book and the year-over-year impact of inflationary increases on certain expenses.
We
intend to obtain a separate lending
facility to fund a portion of our lending during fiscal 2025.
We
expected to have this facility in place on July 1, 2024, however, we
have been unable to finalize terms as the separate lending facility will form part of a broader financing package. Therefore, we have
included an intercompany interest expense in our Consumer Segment Adjusted EBITDA for the first quarter of fiscal 2025.
Our Segment Adjusted EBITDA margin for the first quarter of fiscal 2025 and 2024 was 20.9% and 13.6%, 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 2025 increased compared with the prior period due to higher employee costs resulting from an increase
in the number of individuals allocated to group costs and base salary adjustments, higher bonus expense, travel, consulting and legal
fees.
48
Presentation of Merchant and Consumer by segment for fiscal 2024 and 2023 including lease charges
The tables below present Merchant and Consumer EBITDA for fiscal 2024 and 2023, including lease charges, as well as the
U.S. dollar/ ZAR exchange rates applicable per fiscal quarter and year:
Table 8
Fiscal 2024
In United States dollars
Quarter 1
Quarter 2
Quarter 3
Quarter 4
F2024
$ ’000
$ ’000
$ ’000
$ ’000
$ ’000
Group Adjusted EBITDA:
Merchant
7,725
8,388
8,145
7,843
32,101
Consumer
2,120
2,575
3,757
4,227
12,679
Group costs
(1,822)
(2,011)
(2,199)
(1,812)
(7,844)
Group Adjusted EBITDA (non-GAAP)
8,023
8,952
9,703
10,258
36,936
Income and expense items: $1 = ZAR
18.71
18.71
18.88
18.47
18.68
Table 9
Fiscal 2023
In United States dollars
Quarter 1
Quarter 2
Quarter 3
Quarter 4
F2023
$ ’000
$ ’000
$ ’000
$ ’000
$ ’000
Group Adjusted EBITDA:
Merchant
7,580
8,780
7,980
7,924
32,264
Consumer
(1,893)
171
1,263
2,134
1,675
Group costs
(2,300)
(2,256)
(2,293)
(2,260)
(9,109)
Group Adjusted EBITDA (non-GAAP)
3,387
6,695
6,950
7,798
24,830
Income and expense items: $1 = ZAR
17.13
17.52
17.93
18.74
17.94
Use of Non-GAAP Measures
U.S. securities laws require that when we publish any non-GAAP measures, we disclose the reason for using these non-GAAP
measures and provide reconciliations to the most directly comparable GAAP measures. The presentation of Group Adjusted EBITDA
is a non-GAAP measure. We provide this non-GAAP measure to enhance our evaluation and understanding of our financial
performance and trends. We believe that this measure is helpful to users of our financial information understand key operating
performance and trends in our business because it excludes certain non-cash expenses (including depreciation and amortization and
stock-based compensation charges) and income and expenses that we consider once-off in nature.
Non-GAAP Measures
Group Adjusted EBITDA is earnings before interest, tax, depreciation and amortization (“EBITDA”), adjusted for non-
operational transactions (including loss on disposal of equity-accounted investments, gain related to fair value adjustments to currency
options), (earnings) loss from equity-accounted investments, stock-based compensation charges and once-off items. Once-off items
represents non-recurring income and expense items, including costs related to acquisitions and transactions consummated or ultimately
not pursued.
49
The table below presents the reconciliation between GAAP net loss attributable to Lesaka to Group Adjusted EBITDA:
Table 10
Three months ended
September 30,
2024
2023
$ ’000
$ ’000
Loss attributable to Lesaka - GAAP
(4,542)
(5,651)
(Earnings) loss from equity accounted investments
(27)
1,405
Net loss before (earnings) loss from equity-accounted investments
(4,569)
(4,246)
Income tax expense
78
264
Loss before income tax expense
(4,491)
(3,982)
Interest expense
5,032
4,909
Interest income
(586)
(449)
Reversal of allowance for doubtful EMI loan receivable
-
(250)
Operating income (loss)
(45)
228
PPA amortization (amortization of acquired intangible assets)
3,747
3,608
Depreciation and amortization
2,529
2,248
Stock-based compensation charges
2,377
1,759
Interest adjustment
(831)
-
Once-off items
(1)
1,805
78
Unrealized (gain) loss FV for currency adjustments
(219)
102
Group Adjusted EBITDA - Non-GAAP
9,363
8,023
(1) The table below presents the components of once-off items for the periods presented:
Table 11
Three months ended
September 30,
2024
2023
$ ’000
$ ’000
Transaction costs
103
78
Transaction costs related to Adumo acquisition
1,702
-
Total once-off items
1,805
78
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 2025 we incurred significant transaction costs related to the acquisition of Adumo over a
number of quarters, and the transactions are generally non-recurring.
Liquidity and Capital Resources
As of September 30, 2024, our cash and cash equivalents were $49.7 million and comprised of U.S. dollar-denominated balances
of $2.0 million, ZAR-denominated balances of ZAR 791.0 million ($46.0 million), and other currency deposits, primarily Botswana
pula, of $1.7 million, all amounts translated at exchange rates applicable as of September 30, 2024. The decrease in our unrestricted
cash balances from June 30, 2024, was primarily due to the utilization of cash reserves to fund certain scheduled and other repayments
of our borrowings, purchase ATMs and vaults, pay annual bonuses, pay for expenses included in our group costs, and to make an
investment in working capital, which was partially offset by positive contribution from our Merchant and Consumer operations and
utilization.
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, 2024, for additional
information related to our borrowings.
50
Available short-term borrowings
Summarized below are our short-term facilities available and utilized as of September 30, 2024:
Table 12
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
-
-
-
-
9,895
170,000
-
-
Overdraft restricted as to
use
(1)
52,384
900,000
-
-
-
-
-
-
Total overdraft
52,384
900,000
-
-
9,895
170,000
-
-
Indirect and derivative
facilities
(2)
-
-
7,858
135,000
-
-
9,112
156,556
Total short-term
facilities available
52,384
900,000
7,858
135,000
9,895
170,000
9,112
156,556
Utilized short-term
facilities:
Overdraft
-
-
-
-
9,895
170,000
-
-
Indirect and derivative
facilities
(2)
-
-
1,927
33,100
-
-
123
2,110
Total short-term
facilities available
-
-
1,927
33,100
9,895
170,000
123
2,110
Interest rate, based on
South African prime rate
11.50%
11.40%
(1) Overdraft may only be used to fund ATMs and upon utilization is considered restricted cash. We did not utilize this facility
at the end of September 2024, and expect to cancel the facility in the second quarter of fiscal 2025.
(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 ($148.5 million translated at exchange rates as of
September 30, 2024) as described in Note 8. These borrowings include outstanding long-term borrowings obtained by Lesaka SA of
ZAR 1.0 billion, including accrued interest, which was used to partially fund the acquisition of Connect. The Lesaka SA borrowing
arrangements were amended in March 2023 to include a ZAR 200 million revolving credit facility. We have settled all drawn amounts
in full as of September 30, 2024, with the full balance available for utilization in the future. In contemplation of the Connect transaction,
Connect obtained total facilities of ZAR 1.3 billion, which were utilized to repay its existing borrowings, to fund a portion of its capital
expenditures and to settle obligations under the transaction documents, and which has subsequently been upsized for its operational
requirements and has an outstanding balance as of September 30, 2024, of ZAR 1.2 billion, We also have a revolving credit facility,
of ZAR 300.0 million which is utilized to fund a portion of our merchant finance loans receivable book.
On September 30, 2024, we obtained a ZAR 665.0 million funding facility from RMB which has been used on October 1, 2024
to (i) settle an amount of ZAR 232.2 million due to the Adumo sellers; (ii) pay ZAR 207.2 million to acquire 2,601,410 shares of our
common stock from one of the Adumo sellers’ indirect shareholders; (iii) pay ZAR 147.5 million notified by Investec Bank Limited
to Adumo and us as a result of the acquisition, (iv) pay an origination fee of ZAR 7.6 million to RMB and (v) pay ZAR 70.0 million
of transaction-related expenses.
Restricted cash
As of September 30, 2024, we had credit facilities with RMB in order to access cash to fund our ATMs in South Africa. Utilization
of this facility is included in our cash, cash equivalents and restricted cash presented in our consolidated statement of cash flows. We
did not utilize the facility at the end of September 2024. Any cash drawn under the facility may only be used to fund ATMs and is
considered restricted as to use and therefore is classified as restricted cash on our consolidated balance sheet.
We have also entered into cession and pledge agreements with Nedbank related to our Nedbank indirect credit facilities and we
have ceded and pledged certain bank accounts to Nedbank. The funds included in these bank accounts are restricted as they may not
be withdrawn without the express permission of Nedbank. Our cash, cash equivalents and restricted cash presented in our consolidated
statement of cash flows as of September 30, 2024, includes restricted cash of $0.1 million that has been ceded and pledged.
51
Arrangement with African Bank to fund our ATMs
In September 2024, we entered into an arrangement with African Bank Limited (“African Bank”) and certain cash-in-transit
service providers to fund our ATMs. Under this arrangement, African Bank will use its cash resources to fund our ATMs and it is
specifically recorded that the cash in our ATMs are African Bank’s property. Therefore, as we have not utilized a facility to obtain the
cash, and do not own or control the cash for an extended period of time, we do not record cash or cash equivalents and borrowings in
our consolidated statement of financial position. Cash withdrawn from our ATMs by our EPE customers and other consumers are
settled through the interbank settlement system from the ATM users bank account to African Bank’s bank accounts. We pay African
Bank a monthly fee for the service provided which is calculated based on the cumulative daily outstanding balance of cash utilized
multiplied by the South African prime interest rate less 1%. We are exposed to the risk of cash lost while it is in our ATMs (i.e. from
theft) and are required to repay African Bank for any shortages.
Cash flows from operating activities
First quarter
Net cash used operating activities during the first quarter of fiscal 2025 was $4.1 million (ZAR 73.3 million) compared to net
cash provided by operating activities of $3.4 million (ZAR 63.1 million) during the first quarter of fiscal 2024. Excluding the impact
of income taxes, our cash used in operating activities during the first quarter of fiscal 2025 includes cash utilized for the settlement of
working capital movements within our merchant business related to quarter-end transaction processing activities and which were
settled in the following week (our fourth quarter of fiscal 2024 closed on a Sunday), and the net growth in our consumer and merchant
finance loans receivable books, which was partially offset by was positively impacted by the contribution from Merchant and
Consumer businesses.
We didn’t pay any significant taxes during the first quarter of fiscal 2025. During the first quarter of fiscal 2024, we paid second
provisional South African tax payments of $- million (ZAR - million) related to certain Connect entities’ 2024 tax year that had not
yet been aligned with ours.
Taxes (refunded) paid during the first quarter of fiscal 2025 and 2024 were as follows:
Table 13
Three months ended September 30,
2024
2023
2024
2023
$
$
ZAR
ZAR
‘000
‘000
‘000
‘000
Taxation paid related to prior years
-
572
-
10,859
Tax refund received
(113)
(31)
(2,053)
(640)
Total South African taxes paid
(113)
541
(2,053)
10,219
Foreign taxes paid
68
63
1,213
1,196
Total tax (refund) paid
(45)
604
(840)
11,415
Cash flows from investing activities
First quarter
Cash used in investing activities for the first quarter of fiscal 2025 included capital expenditures of $4.0 million (ZAR 70.3
million), primarily due to the acquisition of vaults and POS devices .
Cash used in investing activities for the first quarter of fiscal 2024 included capital expenditures of $2.8 million (ZAR 52.6
million), primarily due to the acquisition of vaults.
52
Cash flows from financing activities
First quarter
During the first quarter of fiscal 2025, we utilized $23.9 million from our South African overdraft facilities to fund our ATMs
and our cash management business through Connect, and repaid $31.0 million of those facilities. We utilized $0.8 million of our long-
term borrowings to fund the acquisition of certain capital expenditures and for working capital requirements. We repaid $5.5 million
of long-term borrowings in accordance with our repayment schedule as well as to settle a portion of our revolving credit facility
utilized.
During the first quarter of fiscal 2024, we utilized $59.6 million from our South African overdraft facilities to fund our ATMs
and our cash management business through Connect, and repaid $62.8 million of those facilities. We utilized approximately $2.5
million of our long-term borrowings to fund the acquisition of certain capital expenditures and for working capital requirements. We
repaid approximately $2.6 million of long-term borrowings in accordance with our repayment schedule as well as to settle a portion
of our revolving credit facility utilized.
Off-Balance Sheet Arrangements
We have no off -balance sheet arrangements.
Capital Expenditures
We expect capital spending for the second quarter of fiscal 2025 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 first quarter of fiscal 2025 and 2024 are discussed under “—Liquidity and Capital Resources —Cash
flows from investing activities.” All of our capital expenditures for the past three fiscal years were funded through internally generated
funds, or, following the Connect acquisition, our asset-backed borrowing arrangement. We had outstanding capital commitments as
of September 30, 2024, of $0.3 million. We expect to fund these expenditures through internally generated funds and available
facilities.
53
Item 3. Quantitative and Qualitative Disclosures About Market Risk
In addition to the tables below, see Note 4 to the unaudited condensed consolidated financial statements for a discussion of
market risk.
We have short and long-term borrowings in South Africa which attract interest at rates that fluctuate based on changes in the
South African prime and 3-month JIBAR interest rates. The following table illustrates the effect on our annual expected interest charge,
translated at exchange rates applicable as of September 30, 2024, as a result of changes in the South African prime and 3-month JIBAR
interest rates, using our outstanding short and long-term borrowings as of September 30, 2024. The effect of a hypothetical 1% (i.e.
100 basis points) increase and a 1% decrease in the interest rates applicable to the borrowings as of September 30, 2024, are shown.
The selected 1% hypothetical change does not reflect what could be considered the best- or worst-case scenarios.
Table 14
As of September 30, 2024
Annual expected
interest charge
($ ’000)
Hypothetical
change in
interest rates
Estimated annual
expected interest
charge after
hypothetical change
in interest rates
($ ’000)
Interest on South African borrowings
19,780
1%
21,367
(1%)
18,190
54
Item 4. Controls and Procedures
Under the supervision and with the participation of our management, including our executive chairman and our group chief
financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e)
promulgated under the Securities Exchange Act of 1934, as amended, as of September 30, 2024.
We previously identified and disclosed in Part II, Item 9A of our Annual Report on Form 10-K for the year ended June 30, 2024,
material weaknesses in our internal control over financial reporting related to: (1) information technology general controls (“ITGCs”),
specifically insufficient risk assessment, design and implementation, monitoring activities and training of individuals to operate
controls in the areas of user access and program-change management for certain information technology systems that support our
financial reporting processes and (2) insufficient design and implementation of controls and associated policies and procedures in our
annual goodwill impairment assessment. A material weakness is a deficiency, or combination of deficiencies, in internal control over
financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim consolidated financial
statements will not be prevented or detected on a timely basis.
As a result of insufficient time to design and implement procedures to remediate the material weaknesses discussed in our Annual
Report on Form 10-K for our fiscal year ended June 30, 2024 (as described above), the executive chairman and the group chief financial
officer concluded that our disclosure controls and procedures were not effective as of September 30, 2024.
Notwithstanding the previously identified material weaknesses, management believes the condensed consolidated financial
statements included in this Quarterly Report on Form 10-Q fairly present, in all material respects, our financial condition, results of
operations and cash flows as of and for the periods presented in accordance with GAAP.
Changes in Internal Control over Financial Reporting
We have commenced with the design and implementation of the remediation plan during the three months ended September 30,
2024 which includes:
-
the review of ITGCs and implementation of changes to certain controls to address the issues related to the material
weaknesses identified above; and
-
the review and implementation of changes to the design of the controls related to the goodwill impairment assessment.
The remediation plan may be adjusted as is appropriate, as we continue to evaluate and enhance our internal control over financial
reporting. Other than the design and implementation of the remediation plan, there have not been any changes in our internal control
over financial reporting during the fiscal quarter ended September 30, 2024, that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
55
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, 2024, 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. Except as set forth below, 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, 2024.
We may not be able to successfully integrate Adumo’s operations with our business.
On October 1, 2024, we announced the closing of our ZAR 1.67 billion ($96.2 million) investment to acquire a 100% interest in
Adumo. Integrating Adumo into our company may require significant attention from our senior management which may divert their
attention from our day-to-day business. The difficulties of integration may be increased by cultural differences between our two
organizations and the necessity of retaining and integrating personnel, including Adumo’s key employees and management team. The
services of these individuals will be important to the continued growth and success of Adumo’s business and to our ability to integrate
Adumo with us. If we were to lose the services of these key employees or fail to sufficiently integrate them, our ability to operate
Adumo successfully would likely be materially and adversely impacted.
As such, if we are unable to successfully integrate Adumo’s operations into our business we could be required to record material
impairments, and as a result, our financial condition, results of operations, cash flows and stock price could suffer.
We depend upon third-party suppliers, making us vulnerable to supply shortages and price fluctuations, which could harm
our business.
We obtain our smart cards, ATMs, electronic payment and POS devices, components for our safe assets, components to repair
the ISV (independent software vendor) division’s POS hardware, and the other hardware we use in our business from a limited number
of suppliers, and do not manufacture this equipment ourselves. We generally do not have long-term agreements with our manufacturers
or component suppliers. If our suppliers become unwilling or unable to provide us with adequate supplies of parts or products when
we need them, or if they increase their prices, we may not be able to find alternative sources in a timely manner and could be faced
with a critical shortage. This could harm our ability to meet customer demand and cause our revenues to decline. Even if we are able
to secure alternative sources in a timely manner, our costs could increase as a result of supply or geopolitical shocks, which may lead
to an increase in the prices of goods and services from third parties. A supply interruption, such as the recent global shortage of
semiconductors, or an increase in demand beyond current suppliers’ capabilities could harm our ability to distribute our equipment
and thus to acquire new customers who use our technology. Any interruption in the supply of the hardware necessary to operate our
technology, or our inability to obtain substitute equipment at acceptable prices in a timely manner, could impair our ability to meet the
demand of our customers, which would have an adverse effect on our business.
We do not have a South African banking license and, therefore, we provide our EPE solution through an arrangement with
a third-party bank, which limits our control over this business and the economic benefit we derive from it. If this arrangement were
to terminate, we would not be able to operate our EPE business without alternate means of access to a banking license. We are
also required to comply with the requirements of payment schemes, including VISA and Mastercard. Furthermore, we provide
certain of our services under partnerships with South African banks. We will be unable to provide our payments and card-acquiring
businesses if we fail to comply with payment scheme rules, and/or fails to maintain certain regulatory licenses and registrations,
and/ or if we were unable to continue to partner with South African banks to provide our payments and card acquiring services.
The South African retail banking market is highly regulated. Under current law and regulations, our EasyPay Everywhere
(“EPE”) business activities require us to be registered as a bank in South Africa or to have access to an existing banking license. We
are not currently so registered, but we have an agreement with Grindrod Bank, a subsidiary of African Bank Limited, that enables us
to implement our EPE program in compliance with the relevant laws and regulations. If this agreement were to be terminated, we
would not be able to operate these services unless we were able to obtain access to a banking license through alternate means.
Furthermore, we have to comply with the South African Financial Intelligence Centre Act, 2001 and money laundering and terrorist
financing control regulations, when we open new bank accounts for our customers and when they transact. Failure to effectively
implement and monitor responses to the legislation and regulations may result in significant fines or prosecution of Grindrod Bank
and ourselves.
We are required to comply with the requirements of payment schemes, including VISA and Mastercard. We have deployed a
significant number of devices, and any mandatory compliance upgrades to our deployed POS devices would require significant capital
expenditures and/or be disruptive to our customer base. Failure to comply with the payment schemes’ rules may result in significant
fines and/or a loss of license to participate in the scheme(s).
56
We provide card acquiring services to our customers by partnering with Nedbank Limited and ABSA Bank Limited, and payment
processing services in partnership with the largest banks in South Africa. If these agreements were to be terminated, Adumo would
not be able to operate its payment services unless it were able to obtain alternative card acquiring or payment processing agreements
with other partners or obtain a direct designation license with the scheme's and regulatory bodies. In addition, if we were to lose our
PASA registrations or fail to have them renewed, it would be unable to operate its payment services.
Compliance with the requirements under these various regulatory regimes may cause us to incur significant additional costs and
failure to comply with such requirements could result in the shutdown of the non-complying facility, the imposition of liens, fines
and/or civil or criminal liability.
In addition, the South African Financial Advisory and Intermediary Services Act, 2002, requires persons who act as
intermediaries between financial product suppliers and consumers in South Africa to register as financial service providers. EasyPay
Insurance was granted a Financial Service Provider, or FSP, license on June 9, 2015, and EasyPay Financial Services (Pty) Ltd was
granted a FSP license on July 11, 2017. If our FSP licenses are withdrawn or suspended, we may be stopped from continuing our
financial services businesses in South Africa unless we are able to enter into a representative arrangement with a third party FSP.
Furthermore, the proposed Conduct of Financial Institutions Bill will make significant changes to the current licensing regime
however, the current proposal is that existing licences will be converted. The second draft of the Conduct of Financial Institutions Bill
was published for public comment on September 29, 2020.
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 September 30, 2024, no officers or directors, as defined
in Rule 16a-1(f),
, modified, or
as defined in Item 408 of Regulation S-K.
57
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
8-K
2.2
October 1, 2024
8-K
10.1
October 1, 2024
8-K
10.2
October 1, 2024
X
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
58
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on November 6, 2024.
LESAKA TECHNOLOGIES, INC.
By: /s/ Ali Mazanderani
Ali Mazanderani
Executive Chairman
By: /s/ Dan L. Smith
Dan L. Smith
Group Chief Financial Officer, Treasurer and Secretary