Lesaka Technologies, Inc. (then Net 1 UEPS Technologies, Inc.) — Form 10-Q
Reporting period: Fiscal third quarter and nine months ended March 31, 2022. The filing was signed May 10, 2022. The filing describes the company’s planned transition to the Lesaka name; the registrant in this report is Net 1 UEPS Technologies, Inc. Financial amounts below are U.S. dollars unless otherwise noted; statement amounts are in millions.
Financial performance and position
| Metric | Three months ended March 31, 2022 | Prior-year quarter | Nine months ended March 31, 2022 | Prior-year nine months |
|---|---|---|---|---|
| Revenue | $35.2 | $28.8 | $100.8 | $96.3 |
| Operating loss | $(9.4) | $(14.3) | $(30.1) | $(40.3) |
| Net loss | $(3.3) | $(6.2) | $(28.7) | $(39.7) |
| Basic and diluted loss per share | $(0.06) | $(0.11) | $(0.50) | $(0.70) |
| Cash used in operating activities | $(8.8) | $(8.3) | $(30.5) | $(50.1) |
- Quarterly revenue rose 22% in U.S. dollars and 27% in South African rand. Operating loss margin improved to 22.9% negative from 41.8% negative.
- Nine-month revenue increased 5% in U.S. dollars but declined 3% in rand. The nine-month operating loss narrowed 25% in U.S. dollars; net loss improved 28%, helped by substantially lower equity-accounted investment losses than in the prior year.
- Quarterly results included a $5.9 million reorganization charge and a $6.1 million gain from currency options. Nine-month results also included $1.8 million of Connect acquisition costs. Prior-year results included MobiKwik fair-value gains of $10.8 million for the quarter and $25.9 million for the nine months.
- Quarterly segment adjusted EBITDA: Consumer $(6.9) million, including the reorganization charge; Merchant $1.3 million; Other $0.1 million. Management said Consumer’s loss excluding the charge was about $1.0 million. Merchant EBITDA improved from $0.3 million.
- At March 31, cash and cash equivalents were $183.7 million and restricted cash was $56.3 million; total cash, cash equivalents and restricted cash were $240.0 million. Total assets were $433.7 million, total liabilities $95.7 million, and equity $253.0 million. These balance-sheet figures predate the April Connect acquisition and its related borrowing.
- Nine-month investing cash flow provided $10.9 million and financing cash flow provided $34.5 million. Capital expenditures were $1.7 million. Cash used in operations remained substantial despite improving year over year.
- Before the acquisition, short-term ATM-funding overdrafts outstanding were $45.7 million; the company reported $124.1 million of short-term facilities available, including facilities reserved for ATM funding and guarantees. These are not the same as unrestricted liquidity.
Material changes, outlook and risks
- Connect acquisition: Closed April 14, 2022, after the reporting date. Stated consideration was ZAR 3.8 billion (approximately $262 million), consisting of ZAR 3.5 billion cash and ZAR 0.4 billion in company shares. The cash component was funded with ZAR 2.1 billion of company cash, ZAR 1.1 billion of new Net1 borrowings and ZAR 0.3 billion of additional Connect debt. The filing says post-acquisition long-term borrowings total ZAR 2.2 billion. Purchase-price allocation was not complete at filing.
- The acquired group’s facilities include term loans and a general banking facility, with interest tied to JIBAR and financial covenants. Net1’s acquisition-related facilities include cash-balance and asset-cover requirements, restrictions on distributions and other activities, and pledged accounts and subsidiary shares. A VCP-related share subscription mechanism is contingent on specified events; performance by VCP is not assured.
- Management outlook: Management continued targeting monthly Consumer-segment adjusted EBITDA break-even by the end of fiscal Q4, while cautioning that some elements may take longer than planned. Project Spring’s estimated annualized cost savings exceed ZAR 300 million. Management expects further Connect transaction expenses in Q4 and integration to be a focus for the rest of the fiscal year. No specific full-year revenue or earnings guidance is provided.
- Consumer operations ended the quarter with just over 1.1 million active customers after approximately 38,300 net additions; management said growth was slower than anticipated and described initiatives to improve activation. The loan book was ZAR 359 million, up 6% year over year in rand; management reported a roughly 1.0% quarterly portfolio loss ratio.
- Risks include Connect integration and realization of expected benefits; increased post-acquisition debt and covenant compliance; possible dilution and the required employee share ownership plan; currency and rising South African interest rates; credit losses in unsecured lending; and uncertainty in South African economic conditions. The company also noted indirect potential impacts from Russia-Ukraine-related inflation and supply-chain disruption.
- South African civil unrest in July 2021 damaged 19 company branches and 173 ATMs. Insurance claims for approximately ZAR 40 million of repair and replacement costs were met in full; waived third-party ATM fees reduced nine-month revenue by about $0.4 million. COVID-19 impacts remained uncertain, although management expected then-current restrictions to have limited effect.
- The company carries its Cell C investment at zero fair value. MobiKwik’s carrying value was $76.3 million, with no change in the period; its planned IPO had been delayed. Management reported disclosure controls effective as of March 31, 2022, and no material change in internal control over financial reporting during the quarter.
Investor verification checklist
- Verify Connect’s final purchase-price allocation, acquired results, integration progress and whether anticipated strategic benefits and synergies are realized.
- Track post-acquisition debt, interest costs, cash available after restricted balances, covenant headroom and compliance, including any VCP credit-support obligations.
- Assess progress toward Consumer break-even, active-account activation, cost savings from Project Spring and any further restructuring costs.
- Review Merchant growth and profitability, including the sustainability of hardware sales, processing fees and Connect’s contribution.
- Monitor microlending portfolio growth, delinquencies, write-offs and allowance adequacy, along with the Cell C and MobiKwik investment valuations.
- Confirm the timing, dilution and approvals for the required employee share ownership plan and the acquisition-related share awards.