Business context and reporting period
Net 1 UEPS Technologies, Inc. (NASDAQ: UEPS) filed this Form 10-Q for the quarter and six months ended December 31, 2019—its fiscal second quarter and first half of fiscal 2020. The filing is for Net 1 UEPS, although the request identifies Lesaka Technologies; verify the issuer and ticker when matching this summary to a company record.
The company operated in South African transaction processing, international transaction processing, and financial inclusion and applied technologies. Its South African business continued to adjust to the expiration of its SASSA grant-payment contract and the migration of beneficiary accounts to SAPO.
Key financial results
Amounts below are U.S. dollars; financial statement amounts are in millions unless stated otherwise.
| Metric | Quarter ended Dec. 31, 2019 | Six months ended Dec. 31, 2019 | Comparable 2018 period |
|---|---|---|---|
| Revenue | $74.1 | $154.8 | $77.4 quarter; $184.5 half-year |
| Operating loss | $(6.9) | $(9.6) | $(48.9) quarter; $(53.2) half-year |
| Net loss from continuing operations | $(0.2) | $(4.6) | $(64.7) quarter; $(73.5) half-year |
| Operating loss margin | (9.3%) | (6.2%) | (63.1%) quarter; (28.8%) half-year |
| Operating cash flow | $4.4 | $(13.9) | $(5.2) quarter; $11.2 half-year |
- Quarterly continuing revenue fell 4% in U.S. dollars and 2% in South African rand. For the first half, revenue fell 16% in both the reported U.S.-dollar comparison and the company’s rand comparison. The six-month comparison includes DNI revenue in 2018 that was classified as discontinued operations; 2019 excludes it.
- Lower South African EPE account volumes and related fees, SASSA contract expiration, and lower international processing activity weighed on revenue. Cost reductions and the absence of prior-year impairment charges substantially narrowed operating losses.
- Quarterly results included a $9.7 million gain on the FIHRST disposal. The 2018 comparison included an $8.2 million goodwill impairment, a $15.8 million non-cash fair-value loss on equity securities, and a $2.7 million Cedar Cellular note impairment.
- Cash and cash equivalents were $50.7 million at December 31. An additional $84.4 million was restricted to ATM funding; total cash, cash equivalents and restricted cash in the cash-flow statement was $135.1 million.
- Total assets were $689.5 million and total liabilities were $261.3 million. Reported current borrowings comprised $98.3 million of short-term facilities and $4.1 million current long-term borrowings. A substantial portion of short-term borrowing and matching cash is restricted to ATM funding.
Material changes, outlook and risks
- Asset sales: FIHRST was sold in December for approximately $11.7 million; proceeds were applied to borrowings. In January 2020, the company agreed to sell KSNET for $237.2 million, with closing expected in March subject to customary conditions. Management said the expected KSNET sale would address substantial doubt about the company’s ability to continue as a going concern. The sale was not yet closed when this filing was made.
- Liquidity and going concern: Management identified risks involving fiscal 2020 performance, continued access to credit facilities, SASSA disputes, realizing value from its remaining 30% DNI interest, and possible additional asset sales. Management concluded it remained a going concern, citing planned asset disposals, ATM-facility extensions through September 2020, cost reductions and other potential liquidity measures. First-half operating cash flow was negative.
- SASSA exposure: Other payables included a $35.3 million accrual for implementation costs, interest and related amounts potentially refundable to SASSA. The company appealed a September 2019 court ruling and was pursuing a separate dispute over fees for a six-month contract extension; outcomes were uncertain.
- Cell C airtime and investment: The company carried its Cell C investment at zero and held airtime inventory subject to sale restrictions, valued at approximately $13.7 million. The airtime could not be sold before April 1, 2020, without bank consent, could not be returned, and sale proceeds were subject to mandatory debt prepayment. The filing warns that failure of Cell C or lack of bank approval could impair recovery.
- Other operations: The company was transitioning South African financial inclusion activities toward a consumer model, but said liquidity constrained growth. New banking products had attracted more than 13,000 accounts by December 31 without marketing. IPG’s product launch depended in part on final Visa approval. The company expected limited capital spending on ATMs and its branch network in fiscal Q3; it provided no overall earnings guidance.
- Controls and legal matters: Management concluded disclosure controls were ineffective at December 31 because there had been insufficient time to assess remediation of a previously reported material weakness. A securities class action filed in December alleged misstatements relating to controls, Cell C investment classification and fiscal 2018 statements; defendants had not been served. The company also disclosed that prior presentations of DNI discontinued operations were incorrect and would be revised in future comparative filings; it said the revisions would not change net income.
Important facts for investors to verify
- Whether the KSNET sale closed on expected terms and how proceeds affected liquidity, debt and the going-concern assessment.
- Available unrestricted cash and usable credit capacity, separately from cash and facilities restricted to ATM funding; confirm facility renewal and repayment terms.
- Developments in the SASSA refund and fee disputes, including the $35.3 million accrual and related legal proceedings.
- Recoverability and permitted resale of the Cell C airtime inventory, and any changes in Cell C’s financial condition.
- Progress in remediating the material weakness and any required revisions to prior-period discontinued-operations presentation.
- Operating trends by segment, particularly South African account retention, IPG processing volumes and the effect of DNI and FIHRST disposals on comparability.