Business context and reporting period
The supplied filing is Net 1 UEPS Technologies, Inc.’s unaudited Form 10-Q for the quarter ended March 31, 2014 (fiscal 2014 third quarter), not a 2013 Q3 filing. The registrant name in the filing does not match the requested company name, LESAKA TECHNOLOGIES INC.; confirm the intended issuer and period.
The company operated payment-processing and transaction businesses in South Africa and internationally, alongside smart-card accounts, financial services and hardware/software sales. Amounts below are in U.S. dollars, generally thousands, unless stated otherwise.
Key financial metrics
| Metric | Three months ended March 31, 2014 | Nine months ended March 31, 2014 |
|---|---|---|
| Revenue | $138.1 million, up 24% year over year | $398.9 million, up 19% |
| Operating income | $23.9 million; 17% margin, versus a $4.7 million loss | $59.2 million; 15% margin, versus $9.6 million |
| Net income attributable to Net1 | $17.2 million; diluted EPS $0.37 | $41.5 million; diluted EPS $0.90 |
| Operating cash flow | $34.6 million, versus $12.2 million | $5.7 million, versus $31.0 million |
| Capital expenditures | $4.8 million | $17.3 million |
- For the quarter, cost of goods sold and servicing expense was $63.1 million; selling, general and administrative expense was $40.6 million. Interest income was $3.4 million and interest expense $1.7 million. The effective tax rate was 33.3%.
- At March 31, cash and cash equivalents were $30.9 million, down from $53.7 million at June 30, 2013. Total assets were $1.302 billion and total equity $385.6 million.
- Long-term borrowings were $72.1 million, including $14.0 million current and $58.1 million long-term. The Korean facility was secured and carried rates of 5.55%–5.75% at quarter-end. The filing also reports $84.4 million of debt obligations including interest over time.
- Current assets and liabilities included matching settlement assets and obligations of $744.8 million each. Excluding these pass-through balances, current assets were $226.2 million and current liabilities $76.0 million.
Material changes versus the prior comparable period
- Quarterly revenue growth reflected higher KSNET contribution, more terminal and card sales, increased payment-system transactions, prepaid airtime sales and UEPS-based lending. The U.S. dollar’s strengthening against the rand reduced reported results; management said it appreciated 28% against the rand during the quarter.
- Profitability improved substantially as SASSA contract implementation costs—about $20.6 million in the prior-year quarter—largely ended. SG&A fell 25% in reported dollars, while operating results moved from a loss to a profit.
- For the nine months, revenue increased 19% and operating income rose to $59.2 million. Net income attributable to Net1 increased from $4.7 million to $41.5 million.
- Year-to-date operating cash flow declined to $5.7 million, principally as lending growth absorbed working capital: receivables and finance loans used $67.5 million of cash, versus $4.0 million in the prior-year period.
- Financial-services revenue grew sharply with national rollout of lending, but segment margin declined year over year due to rollout costs, loan-loss allowance and overhead allocation. Management said loan growth slowed seasonally early in the calendar year and re-accelerated in March and April.
Outlook, risks and unusual items
- Management said cash and available credit facilities were sufficient to fund operations for at least the next four quarters. It expected fourth-quarter fiscal 2014 capital spending to focus mainly on Korean payment terminals; no specific earnings or revenue guidance was provided.
- SASSA contract risk: After quarter-end, on April 17, 2014, South Africa’s Constitutional Court upheld the finding that the tender awarding the social-grant contract to subsidiary CPS was invalid, but suspended that invalidity pending a new tender or, if none is awarded, the remainder of the original contract period. SASSA was directed to begin a new five-year tender process. The company said it intended to participate and warned that losing the contract would significantly affect its business.
- Credit risk: Finance loans receivable increased to $42.4 million from $8.4 million at June 30, 2013, net of a new $1.8 million allowance. The company described unsecured short-term lending and said further allowances could be needed if repayment capacity deteriorates.
- Guarantees and litigation: Nedbank had issued $13.5 million of guarantees for the company; no related obligation was recorded, but this is the maximum potential payment. A securities class-action lawsuit filed in December 2013 seeks unspecified damages; management considered it without merit and intended to defend it.
- Other developments: The company acquired the remaining KSNET minority interest for about $2.0 million. Its BEE share transactions were implemented April 16, 2014, after quarter-end, involving 4.4 million shares at ZAR 60 per share; financing was provided by a subsidiary and management said the company’s net cash position remained unchanged.
- Foreign-exchange translation, Korean interest rates, competition, the suspended Smart Life insurance license and variable ad hoc hardware orders were additional risks or uncertainties. The company reported no off-balance-sheet arrangements.
Important facts for investors to verify
- Confirm whether this 2014 Net 1 UEPS filing is the intended filing for LESAKA TECHNOLOGIES INC. and the requested 2013 Q3 period.
- Track the SASSA re-tender process, contract continuity and any effect on grant recipients, related services and earnings.
- Review lending-book growth, collections, arrears and loan-loss provisions, particularly given the weak year-to-date operating cash conversion.
- Reconcile reported Korean debt, the $84.4 million contractual debt-obligation figure, and the MD&A reference to $37.8 million owed under the South African short-term facility with the balance sheet and facility-note disclosures.
- Assess the potential exposure from the $13.5 million guarantees, the securities lawsuit and the post-quarter BEE share issuance and associated loan terms.