Lesaka Technologies, Inc. — Form 10-Q summary
Business context and period. This unaudited filing covers the three and six months ended December 31, 2022, Lesaka’s fiscal second quarter and first half of fiscal 2023. Lesaka operates mainly in South Africa through Consumer and Merchant segments. Results include Connect for the full current-quarter and first-half periods; it was not included in the comparable fiscal 2022 periods, so the sharp revenue growth is not directly comparable as organic growth. Unless noted otherwise, amounts below are U.S. dollars in millions; financial statement amounts are in thousands.
Financial performance
| Metric | Three months ended Dec. 31, 2022 | Prior-year quarter | Six months ended Dec. 31, 2022 | Prior-year first half |
|---|---|---|---|---|
| Revenue | $136.1 | $31.1 | $260.9 | $65.6 |
| Operating loss | $(2.2) | $(9.4) | $(6.9) | $(20.7) |
| Net loss attributable to Lesaka | $(6.6) | $(12.4) | $(17.3) | $(25.4) |
| Basic and diluted loss per share | $(0.11) | $(0.22) | $(0.28) | $(0.44) |
| Operating cash flow | $3.4 | $(13.8) | $(4.2) | $(21.7) |
- Reported revenue rose 337% in dollars in the quarter and 298% in the first half. In rand, management reported increases of 398% and 358%, respectively. Connect’s substantial low-margin prepaid airtime sales, hardware sales, and higher account and insurance revenues were key contributors.
- Quarterly operating margin improved to (1.6%) from (30.3%). Operating loss narrowed, but depreciation and amortization increased substantially, primarily from Connect acquisition-related intangible amortization.
- Quarterly Segment Adjusted EBITDA was $9.7 million; after $2.3 million of group costs, Group Adjusted EBITDA was $7.4 million. In management’s reporting currency, Group Adjusted EBITDA was ZAR 130.4 million, above the previously stated quarterly guidance ceiling of ZAR 123 million. First-half Group Adjusted EBITDA was $11.6 million, versus a loss of $14.3 million a year earlier.
- Merchant segment adjusted EBITDA was $9.1 million in the quarter and $17.0 million in the first half. Consumer returned to quarterly segment adjusted EBITDA profitability at $0.6 million, but recorded a first-half segment adjusted EBITDA loss of $0.8 million.
- Quarterly operating cash flow was positive, but first-half operating cash flow remained negative. First-half investing cash outflow was $19.5 million, including $8.5 million of capital expenditures and increased settlement assets. Financing cash inflow was $19.4 million.
Balance sheet, debt and liquidity
- At December 31, 2022, cash and cash equivalents were $42.4 million and restricted cash was $54.4 million, compared with cash of $43.9 million and restricted cash of $60.9 million at June 30, 2022. Most restricted cash is tied to ATM funding and is not freely available for general use.
- Total current assets were $226.4 million, including $27.7 million of settlement assets; current liabilities were $159.7 million, including $26.6 million of settlement obligations. Total assets were $645.8 million and total liabilities were $351.8 million.
- Long-term borrowings, including current maturities, totaled $142.9 million. Short-term credit facilities outstanding were $64.8 million, giving approximately $207.7 million of borrowings across these disclosed categories. The $54.3 million ATM overdraft is restricted to ATM funding.
- On December 29, the company extended the final maturities of RMB Facilities G and H to December 31, 2025. RMB also agreed to defer interest payment for the quarter ended December 31, 2022, to support liquidity. A new ZAR 300 million revolving facility for the Connect lending business closed in December.
- Finance loans receivable, net, increased to $39.7 million from $33.9 million at June 30. Accounts payable increased to $26.3 million from $18.6 million. Equity was $214.5 million, down from $234.9 million, and included $79.4 million of redeemable common stock.
Material changes, outlook and risks
- Management described progress in its turnaround strategy, attributing improvement to Connect, merchant growth and Consumer cost reductions. Merchant growth included higher card-acquiring and credit activity; the company reported approximately 64,400 VAS/POS devices in field and 34,500 card-enabled devices at quarter-end. Capital Connect disbursed more than ZAR 262 million during the quarter.
- Consumer initiatives included reducing the ATM estate, closing more than 100 unprofitable branches and selling vehicles. The active EPE account base was approximately 1.3 million; permanent grant accounts grew 4% year over year on a net basis. Management reported quarterly permanent-client ARPU of ZAR 75, up from ZAR 71 in the prior quarter.
- No full-year financial guidance is provided in the supplied filing text. The company expected third-quarter capital spending to focus on ATM and branch infrastructure, IT, POS devices and safe assets. Capital commitments at December 31 were $3.1 million, expected to be funded through internal funds and available facilities.
- Risks include South African rand movements, rising interest rates, and power load-shedding, which management said can reduce Merchant customers’ trading hours. Management’s sensitivity analysis estimated that a 1 percentage-point increase in rates would raise annual expected interest expense on outstanding borrowings by about $2.1 million.
- Credit quality warrants attention: the company provides unsecured consumer loans and merchant finance, and recognized increased merchant-loan allowances. The Cell C investment remained valued at zero; its shareholding fell from 15% to 5% following Cell C’s recapitalization. Cell C airtime inventory was $10.1 million at period-end, with a repurchase arrangement commencing October 2023 subject to sales through Lesaka’s channels.
- Other unusual items included a $1.1 million first-half impairment of the Finbond investment and the disposal of the company’s Carbon interest and related loan. Guarantees had a maximum potential payment of $2.1 million; management said ordinary-course claims were not expected to have a material adverse impact. Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting.
Important facts for investors to verify
- How much of revenue and EBITDA growth is attributable to Connect, low-margin airtime resale and hardware sales, versus recurring or organic growth?
- Whether quarterly Consumer profitability is sustained, given its first-half segment adjusted EBITDA loss.
- Availability of unrestricted liquidity, working-capital movements, and compliance with borrowing covenants and scheduled debt maturities.
- Credit-loss trends in consumer and merchant lending, including the adequacy of loan allowances.
- Progress in selling Cell C airtime, and the recoverability of amounts due from the Carbon sale.
- Exposure to rand weakness, higher borrowing rates and load-shedding, and the funding of stated capital commitments.