Business context and reporting period
The supplied filing is Net 1 UEPS Technologies, Inc. (NASDAQ: UEPS), not Lesaka Technologies Inc. It is an unaudited Form 10-Q for the fiscal quarter and six months ended December 31, 2021; amounts below are U.S. dollars unless stated otherwise.
The company’s South Africa-focused businesses are reported in Consumer, Merchant and Other segments. During the quarter, management changed its segment structure and restated comparative segment information.
Financial performance and position
| Metric | Three months ended Dec. 31, 2021 | Six months ended Dec. 31, 2021 |
|---|---|---|
| Revenue | $31.1 million, down 4% year over year | $65.6 million, down 3% year over year |
| Operating loss | $9.4 million, versus $15.2 million loss | $20.7 million, versus $26.0 million loss |
| Net loss | $12.4 million, versus $4.5 million loss | $25.4 million, versus $33.5 million loss |
| Basic and diluted loss per share | $0.22, versus $0.08 | $0.44, versus $0.59 |
| Net cash used in operating activities | $13.8 million, versus $12.0 million | $21.7 million, versus $41.9 million |
- Operating loss margin improved to 25.3% negative in the quarter from 40.5% negative; first-half margin improved to 26.3% negative from 32.8% negative.
- Quarterly segment results: Consumer revenue was $16.6 million and adjusted EBITDA loss $4.6 million; Merchant revenue was $14.1 million and adjusted EBITDA $0.8 million; Other revenue was $0.4 million and adjusted EBITDA $0.1 million. Segment adjusted EBITDA excludes specified corporate, lease, depreciation and other items.
- At December 31, cash and cash equivalents were $182.4 million, with another $57.8 million classified as restricted cash. Total assets were $424.2 million, total liabilities $99.0 million, and redeemable common stock $85.0 million.
- ATM-related short-term credit facilities utilized were $48.0 million, restricted to ATM funding; $9.8 million of restricted cash secured guarantees and related facilities. Available short-term facilities totaled $113.4 million. The filing reports no other long-term borrowings in the balance-sheet summary.
- Cash, cash equivalents and restricted cash totaled $240.1 million at period-end. Investing activities provided $8.7 million in the first half, including a $7.5 million scheduled Bank Frick sale payment; financing activities provided $40.3 million, mainly reflecting ATM overdraft drawdowns net of repayments.
Material changes versus the prior comparable period
- Revenue weakness reflected lower hardware sales amid the global chip shortage and fewer prepaid airtime sales. Higher processing, insurance and account-holder fees partly offset these declines. The company also cited fewer active ATMs during relocation and lower ATM transaction volumes.
- Operating losses narrowed, principally due to closure of loss-making IPG and Consumer cost reductions. First-half operating loss improved 21% in U.S. dollars and 28% in South African rand.
- Quarterly net loss increased despite lower operating losses, partly because the prior-year quarter included a $15.1 million noncash MobiKwik fair-value gain; the current quarter also recorded a $2.4 million unrealized currency-option loss and $1.5 million of Connect Group transaction costs. First-half net loss improved, mainly reflecting substantially lower equity-accounted investment losses than in the prior year.
- First-half operating cash use declined year over year, though quarterly operating cash use increased, with management citing cash deployed to grow the finance-loan book in December.
- Foreign-currency translation affected reported results: most revenue and expenses are generated in South African rand, while reporting is in U.S. dollars.
Outlook, commentary, risks and unusual items
- Management targeted Consumer breakeven by June 2022 and profitability in the following half year. It reported just under 1.1 million active EPE accounts, more than 126,000 gross enrollments in the quarter, and approximately 221,000 loans originated. These are management targets and operating updates, not guaranteed outcomes.
- Cost initiatives delivered ZAR 53.5 million (about $3.5 million) of quarterly savings. The broader program targets annual savings exceeding ZAR 300 million. A South African employee consultation and retrenchment process began January 10, 2022; expected third-quarter fiscal 2022 cash costs were ZAR 85–105 million (about $5.5–6.7 million).
- Management said Merchant hardware demand remained strong, with delayed terminal orders expected to be fulfilled in the remaining two fiscal quarters. Chip shortages and airtime sales remain relevant execution risks.
- The planned Connect Group acquisition was subject to regulatory approvals, third-party consents and financing conditions. Stated consideration was ZAR 3.7 billion, including 3,065,883 shares issued in three annual tranches, subject to adjustments. January 2022 financing documents provided for facilities of up to ZAR 1.1 billion for the acquisition; the broader transaction financing arrangements totaled ZAR 2.35 billion. Closing was not assured. The filing describes restrictive covenants, collateral requirements and a potential ZAR 50 million payment if specified financing conditions are missed.
- The company entered currency-option contracts covering $120 million to manage exchange exposure on part of the acquisition consideration; they generated a $2.4 million unrealized loss in the period and were due to mature in February 2022.
- Cell C, in which the company holds an investment, was carried at zero; Cell C remained in default on lending arrangements while pursuing recapitalization. The $76.3 million MobiKwik investment was unchanged in carrying value; its planned IPO had been delayed, with listing anticipated during calendar 2022.
- South African civil unrest in July 2021 damaged 19 company branches and 173 ATMs. The company estimated repair and replacement costs of about ZAR 40 million, believed insured, and reported ZAR 26 million received from SASRIA during the period. ATM disruption also contributed to lost transaction fees.
- COVID-19 effects remained uncertain. Management said restrictions were then limited and had not caused significant recent disruption. The filing also identifies credit, currency, interest-rate, acquisition-integration and South African operating risks. Disclosure controls were assessed as effective; no material change in internal control was reported.
Important facts for investors to verify
- Confirm the issuer identity: the supplied filing is for Net 1 UEPS Technologies, Inc. (UEPS), not Lesaka Technologies Inc.
- Track Consumer progress against the June 2022 breakeven target, including active accounts, loan and insurance growth, credit losses, and realized cost savings.
- Verify Connect Group closing status, final purchase consideration, funding availability, covenant compliance, and any associated share issuance or fees.
- Assess liquidity using unrestricted versus restricted cash, operating cash burn, ATM facility usage, and the cash costs of the restructuring.
- Monitor fulfillment of delayed Merchant hardware orders, Cell C recapitalization, MobiKwik IPO developments, and insurance recoveries for unrest-related losses.