Lesaka Technologies, Inc. — Form 10-Q Summary
Reporting period: Quarter and six months ended December 31, 2023. This is fiscal Q2 2024, notwithstanding the request metadata’s “2023 Q2.” Unless noted otherwise, amounts are U.S. dollars; financial statement amounts are in millions.
Business context
Lesaka operates Merchant and Consumer fintech divisions, primarily in South Africa. Merchant services include payment processing, value-added services, telecom products, cash management and merchant lending. Consumer services include grant-related accounts, microlending and insurance. The interim statements are unaudited.
Financial performance
| Metric | Three months ended Dec. 31, 2023 | Prior-year quarter | Six months ended Dec. 31, 2023 | Prior-year six months |
|---|---|---|---|---|
| Revenue | $143.9 | $136.1 | $280.0 | $260.9 |
| Operating income (loss) | $2.3 | $(2.2) | $2.5 | $(6.9) |
| Net loss attributable to Lesaka | $(2.7) | $(6.6) | $(8.4) | $(17.3) |
| Loss per share, basic and diluted | $(0.04) | $(0.11) | $(0.13) | $(0.28) |
| Operating cash flow | $0.6 | $3.4 | $4.0 | $(4.2) |
| Capital expenditures | $2.2 | $4.0 | $5.0 | $8.5 |
- Quarterly revenue increased 6% in U.S. dollars and 13% in South African rand (ZAR). Six-month revenue rose 7% in U.S. dollars and 16% in ZAR. Growth reflected airtime and other value-added services, transactions, insurance and lending; lower POS hardware sales partly offset growth.
- Quarterly operating margin improved to 1.6% from negative 1.6%; first-half operating margin improved to 0.9% from negative 2.6%. Net losses narrowed, but interest expense increased: $4.8 million for the quarter and $9.7 million for the half-year.
- Management-reported non-GAAP Group Adjusted EBITDA was $9.6 million for the quarter, up 29% in U.S. dollars and 38% in ZAR; first-half adjusted EBITDA was $18.3 million, up 58% in U.S. dollars and 71% in ZAR. The measure excludes specified items and is not GAAP net income.
- Quarterly Segment Adjusted EBITDA was $8.7 million for Merchant and $2.9 million for Consumer. Consumer’s improvement followed cost reductions and higher account, insurance and lending activity; Merchant’s U.S.-dollar EBITDA declined 5% despite higher revenue, and its margin narrowed to 6.8% from 7.6%.
Balance sheet, debt and liquidity
- At December 31, cash and cash equivalents were $44.3 million and restricted cash was $23.5 million, versus $35.5 million and $23.1 million, respectively, at June 30, 2023. Restricted cash is primarily designated for ATM funding and is not generally available for other uses.
- Total assets were $580.6 million; total liabilities were $320.4 million. Long-term borrowings were $139.3 million plus $3.4 million current portion. Short-term credit facilities drawn were $32.7 million, including $23.4 million restricted for ATM funding.
- Six-month operating cash flow was positive $4.0 million, compared with cash used of $4.2 million in the prior-year period. Working-capital investment, including receivables and loan growth, affected cash generation. Investing activities used $12.0 million, including settlement assets and capital spending; financing activities provided $15.7 million.
- Finance loans receivable, net, increased to $39.1 million from $36.7 million at June 30. Merchant loans included $13.1 million pledged as credit-facility security. Merchant lending book quality bears monitoring: about 82% performing, 14% under-performing and 4% non-performing at period-end.
Material changes, outlook and risks
- Revenue and operating results improved versus the prior-year periods, with Consumer returning to positive Segment Adjusted EBITDA. Higher interest rates and borrowings increased financing costs, while a stronger U.S. dollar against the rand weighed on reported U.S.-dollar results.
- Management said quarterly revenue was within its ZAR 2.7–2.8 billion guidance and Group Adjusted EBITDA exceeded its ZAR 170–180 million guidance. No broader full-year financial guidance is stated in the provided filing text.
- Merchant indicators included approximately 79,000 Kazang devices deployed, up 23% year over year, and card-enabled POS devices of approximately 48,200, up 40%. Merchant credit disbursements fell 17% year over year as tighter credit criteria limited approvals; Kazang Pay Advance remained suspended.
- Consumer EPE active transactional accounts were approximately 1.4 million. Management reported about 122,000 gross account activations in the quarter and net active growth of about 92,000; funeral policies reached approximately 384,000, up 31% year over year. Consumer microlending’s reported annualized portfolio loss ratio was approximately 6%.
- South Africa’s elevated interest rates, unemployment, power cuts and challenging macroeconomic and socio-political conditions may affect customers and operating activity. The company also identifies currency translation, borrowing-rate and lending-credit risks. Management expected borrowing costs to remain stable or decline moderately if rates and margins permit; renewed rate increases could raise costs.
- In December 2023, Lesaka sold its remaining Finbond stake for approximately $3.5 million, used to repay capitalized borrowing interest. It recorded a $1.2 million Finbond impairment earlier in the half-year. Cell C investment remained valued at zero. The filing also reports a $0.95 million gain associated with closure of legacy businesses in the quarter, included in the non-GAAP reconciliation.
- After quarter-end, the company announced the acquisition of Touchsides, with an expected March 2024 close subject to customary conditions. It also disclosed a January 2024 amendment reducing the ATM overdraft facility from ZAR 1.4 billion to ZAR 0.9 billion. Chris Meyer was due to conclude as CEO on February 29, 2024; Ali Mazanderani assumed the Executive Chairman role February 1, 2024.
- Guarantees issued for third parties had a maximum potential payment of approximately $1.9 million; no related obligation was recognized. Management said ordinary-course claims were not expected to have a material adverse effect. Disclosure controls were judged effective, and no material change in internal control was reported.
Important facts for investors to verify
- Whether improving operating performance and positive operating cash flow continue, especially after working-capital and lending-book growth.
- How higher interest costs, debt levels, facility margins and the reduced ATM overdraft capacity affect liquidity and profitability.
- Whether merchant credit quality remains within expectations and whether suspended informal-sector lending resumes.
- Whether reported adjusted EBITDA improvements translate into sustained GAAP profitability, given exclusions and one-time items.
- Completion, purchase terms and integration risks for Touchsides, and subsequent developments in leadership transition.
- Exposure to South African rand movements, power disruptions, macroeconomic conditions, and Cell C-related inventory arrangements.