Lesaka Technologies, Inc. — FY2022 Form 10-K Summary
Reporting period: Fiscal year ended June 30, 2022; filed September 9, 2022. Although the request metadata refers to 2021 Q4, this filing reports FY2022, not the quarter ended June 2021. Lesaka, formerly Net 1 UEPS Technologies, provides fintech, payments, cash-management, lending and insurance services, primarily in South Africa. It acquired Connect on April 14, 2022, and changed its name in May 2022.
Financial performance and position
| Metric | FY2022 / June 30, 2022 | Prior comparable period |
|---|---|---|
| Revenue | $222.6 million | $130.8 million in FY2021; up 70% in USD and 65% in ZAR |
| Operating loss | $40.2 million; operating margin (18.1%) | $53.9 million loss; margin (41.2%) in FY2021 |
| Net loss | $43.9 million; $0.75 loss per share | $38.1 million; $0.67 loss per share in FY2021 |
| Segment Adjusted EBITDA | Loss of $10.4 million, before corporate costs and other reconciling items | Loss of $31.9 million in FY2021 |
| Cash from operations | Used $37.2 million | Used $58.4 million in FY2021 |
| Cash and liquidity | $43.9 million unrestricted cash; $60.9 million restricted cash; current assets $217.7 million and current liabilities $145.9 million | Unrestricted cash was $198.6 million at June 30, 2021 |
| Borrowings | $141.6 million long-term borrowings plus $66.2 million short-term facilities utilized | No long-term borrowings at June 30, 2021; $14.2 million short-term facilities utilized |
Cost of goods sold, processing, servicing and support was $168.3 million. The resulting gross profit was approximately $54.3 million, or 24.4% of revenue, versus approximately $34.5 million, or 26.4%, in FY2021. Comparability is affected by Connect’s substantial, relatively low-margin prepaid airtime sales. Interest expense rose to $5.8 million from $3.0 million. FY2022 net loss included $5.9 million of reorganization costs and $6.0 million of Connect acquisition transaction costs; excluding those items, management reported an underlying operating loss margin of 12.7%.
Material changes and business developments
- Connect contributed $86.2 million of revenue from acquisition through year-end, and $3.2 million of net loss, including acquisition-related interest and intangible amortization. The purchase consideration was $258.9 million; $202.2 million was paid net of cash acquired. The acquisition added scale and merchant cash-management, acquiring, VAS and lending offerings.
- Merchant revenue rose to $155.4 million from $61.5 million, while segment Adjusted EBITDA increased to $11.3 million from $4.7 million. Connect was consolidated for only about two and a half months.
- Consumer revenue was $65.9 million, roughly flat with FY2021, and segment Adjusted EBITDA loss narrowed to $22.2 million from $26.3 million. The reported FY2022 consumer result includes the $5.9 million restructuring charge.
- Lesaka recorded no MobiKwik valuation change in FY2022; the prior-year result included a $49.3 million non-cash gain. The MobiKwik investment remained carried at $76.3 million. Cell C remained valued at zero.
- Total assets increased to $656.6 million from $428.3 million, including $162.7 million of goodwill and $156.7 million of acquired intangible assets. Equity declined to $234.9 million from $276.0 million.
Cash flow, outlook and risks
Investing activities used $193.7 million, including the Connect acquisition; financing activities provided $122.3 million. The cash-flow statement reports $104.8 million of cash, cash equivalents and restricted cash at year-end, of which $60.9 million was restricted. The substantial reduction in unrestricted cash primarily reflected the acquisition, operations and restructuring payments.
Management’s stated priorities are growing the merchant business, returning Consumer to profitability, building a full-service fintech platform and strengthening stakeholder relationships. Project Spring, a consumer-business restructuring and distribution-network rationalization, is estimated to deliver annualized savings above ZAR 300 million. Management said customer growth was slower than anticipated, but expected its activation, cross-selling and customer-focused initiatives to support improvement in FY2023. The filing gives no quantified revenue, earnings or cash-flow guidance. It anticipates limited FY2023 capital spending on ATMs, branches and IT, alongside Connect investment in POS devices, safe assets and related equipment.
- Funding and covenant exposure: Debt is secured and subject to financial and operating covenants. Interest rates in South Africa were rising; management estimated a 1% rate increase would add about $1.4 million to annual interest expense. Connect facilities also include a bullet repayment and amortization beginning September 2022. The filing reports that certain facility terms were amended on September 7, 2022, after year-end.
- Execution and credit risk: Connect integration, realizing expected synergies, retaining key staff, growing active consumer accounts, and managing consumer and merchant loan losses remain important uncertainties. Lesaka disclosed that Connect was excluded from FY2022 internal-control testing while integration continued.
- South African operating risks: Economic weakness, inflation, rand volatility, electricity outages, civil unrest, crime and cash-transport losses could disrupt operations or pressure margins. FY2022 revenue rose 70% in USD but 65% in ZAR, illustrating the importance of currency effects.
- Regulatory and contingent matters: Lesaka operates its consumer account offering through an arrangement with Grindrod Bank and does not hold a South African banking license; Grindrod was announced as being acquired by African Bank. The Connect transaction requires an employee share ownership plan of at least 3%, potentially 5% subject to specified profitability conditions and approvals. CPS is in liquidation; no claim against Lesaka for CPS obligations had been made, but the company says it cannot assure that none will be brought. Other disclosed exposures include guarantees with a maximum potential payment of about $6.0 million and a $13.7 million Cell C airtime inventory position.
- Other unusual items: The NCR’s application to cancel Moneyline’s credit-provider registration was settled in October 2021, with the application withdrawn. FY2021 net income was affected by the non-cash MobiKwik gain, so headline net-loss comparisons do not reflect only operating performance.
The independent auditor issued an unqualified opinion on the FY2022 financial statements and internal control over financial reporting. Management and the auditor excluded Connect from the internal-control assessment for the acquisition year; Connect represented approximately 39% of consolidated revenue.
Important facts for investors to verify
- Whether Connect integration, customer retention and synergies support the acquisition’s expected growth and profitability, and whether the final purchase-price allocation differs materially from the preliminary allocation.
- Available unrestricted liquidity, restricted-cash requirements, debt maturities, facility amendments and compliance with financial covenants.
- Progress toward Consumer breakeven, active-account growth, the sustainability of Project Spring savings and lending-loss trends.
- Whether the required employee share ownership plan is approved and implemented, and the resulting potential dilution.
- Developments affecting the Grindrod banking arrangement, CPS-related claims, Cell C recapitalization and recovery of the Cell C airtime inventory.
- The effect of rand movements, South African power disruptions and higher interest rates on reported results and cash generation.