Lesaka Technologies, Inc. — Form 10-Q summary
Reporting period: Quarter ended March 31, 2024, the third quarter of fiscal 2024, with nine-month results compared with the same periods in fiscal 2023. The filing is dated May 8, 2024. Although the request metadata says “2023 Q3,” the filing covers 2024 Q3.
Business context
Lesaka operates Consumer and Merchant fintech divisions, primarily in South Africa, providing payment processing, value-added services, cash management, lending, insurance and related products. Financial statements are in U.S. dollars; management also discusses results in South African rand (ZAR), the functional currency for much of the business.
Key financial results
| Metric | Three months ended March 31 | Nine months ended March 31 |
|---|---|---|
| Revenue | $138.2 million, up 3% in USD and 9% in ZAR | $418.2 million, up 6% in USD and 14% in ZAR |
| Operating income (loss) | $0.8 million, versus $(1.9) million | $3.3 million, versus $(8.7) million |
| Operating margin | 0.6%, versus (1.4)% | 0.8%, versus (2.2)% |
| Net loss attributable to Lesaka | $(4.0) million, versus $(5.8) million | $(12.4) million, versus $(23.2) million |
| Diluted loss per share | $(0.06), versus $(0.09) | $(0.20), versus $(0.37) |
| Operating cash flow | $19.2 million, versus cash used of $5.1 million | $23.1 million, versus cash used of $9.3 million |
Group Adjusted EBITDA, a non-GAAP measure, was $9.7 million for the quarter, up 40% in USD and 47% in ZAR. For nine months it was $26.7 million, up 57% in USD and 69% in ZAR. Lesaka changed its presentation to include lease expenses in this measure following SEC staff comments and adjusted comparative figures; investors should review the reconciliation to GAAP results.
Quarterly segment revenue was $121.0 million for Merchant and $17.9 million for Consumer. Segment Adjusted EBITDA was $8.4 million and $4.4 million, respectively. Consumer’s improvement reflected account growth, insurance and lending; Merchant’s EBITDA grew modestly as higher activity was partly offset by lower hardware sales. Segment measures exclude several costs and items and are not GAAP operating income.
Balance sheet, debt and liquidity
- At March 31, 2024, cash and cash equivalents were $55.2 million, up from $35.5 million at June 30, 2023; restricted cash was $4.4 million, down from $23.1 million. Cash, cash equivalents and restricted cash totaled $59.6 million.
- Long-term borrowings were $132.4 million, plus a $3.3 million current portion. Short-term credit facilities were $13.3 million, including $4.3 million restricted to ATM funding. Total reported borrowings were therefore approximately $149.0 million.
- Current assets were $185.8 million and current liabilities, including settlement obligations, were $116.2 million. Settlement assets and obligations were $29.3 million and $27.8 million, respectively.
- Finance loans receivable, net, were $40.8 million, compared with $36.7 million at June 30, 2023. The company says growth in consumer and merchant lending balances uses working capital; merchant loans of $15.2 million were pledged as facility security.
- Cash from operations improved, while investing activities used $17.7 million and financing activities used $4.1 million over nine months. Capital expenditures were $8.0 million.
Material changes, outlook and risks
- Management attributed growth to higher prepaid airtime and other value-added services, transaction volumes, insurance premiums and lending revenue. Lower POS hardware sales partly offset growth; airtime sales add revenue but carry low margins.
- Merchant activity included approximately 80,250 Kazang devices deployed, up 12% year over year; supplier-payment throughput grew about 100%. Consumer had approximately 1.46 million active EasyPay Everywhere accounts. Management reported increased consumer loan originations and insurance-policy growth; the annualized consumer portfolio loss ratio was about 6%.
- Management described continued performance improvement but provided no quantified full-year revenue, earnings or cash-flow guidance in the supplied filing text. It expects fourth-quarter capital spending mainly for POS devices, vaults, software, ATMs and branches, funded by internally generated funds and available facilities.
- Touchsides acquisition closed April 30, 2024, after quarter-end, for ZAR 42.4 million (about $2.3 million). The company had not completed the purchase price allocation by filing.
- On May 7, 2024, Lesaka agreed to acquire Adumo for stated base consideration of ZAR 1.59 billion, funded by 17,279,803 Lesaka shares and ZAR 232 million (about $12.5 million) cash. Closing remained subject to shareholder, regulatory, lender and other conditions; management expected closing in calendar Q3 2024. The company expected a further $2.2 million in transaction costs during the remainder of calendar 2024. Failure, delay, dilution, integration costs and execution are identified risks.
- Other exposures include ZAR/USD translation and interest-rate movements, lending credit losses, and Cell C-related uncertainty. Cell C shares continued to be carried at zero. A $0.75 million balance due from the purchaser of a previously sold loan remained unpaid at March 31, 2024. The company also reported $6.0 million of Cell C airtime inventory subject to resale arrangements and dependent on market conditions.
- Lesaka sold its remaining Finbond stake during the period and recorded a $1.2 million impairment before disposal. Management said disclosure controls were effective at March 31, 2024, and no material change in internal control over financial reporting occurred during the quarter.
Important facts for investors to verify
- Whether operating improvement translates into sustained GAAP profitability and positive cash generation after working-capital needs and capital spending.
- Borrowing levels, facility margins and covenant headroom, and the effect of South African interest rates and currency movements on reported results and debt service.
- Credit quality and loss trends in consumer and merchant lending, especially as loan books expand.
- Completion terms, required approvals, financing, share dilution and integration progress for Adumo; and the financial contribution from Touchsides.
- Recovery of the overdue $0.75 million receivable and the realizability and resale of Cell C-related inventory and other exposures.
- The reconciliation and consistency of management’s non-GAAP Adjusted EBITDA presentation with GAAP operating and net results.