Lesaka Technologies, Inc. — Form 10-Q Summary
Reporting period: Three months ended September 30, 2022, Lesaka’s fiscal first quarter of 2023. Figures are in U.S. dollars unless stated otherwise; financial statements are unaudited. The prior-year comparison is the quarter ended September 30, 2021. Connect was included for the full current quarter but not in the prior-year period, limiting comparability.
Financial performance
| Metric | Q1 FY2023 | Q1 FY2022 |
|---|---|---|
| Revenue | $124.8 million | $34.5 million |
| Operating loss | $4.7 million | $11.2 million |
| Net loss | $10.7 million | $13.0 million |
| Basic and diluted loss per share | $0.17 | $0.23 |
| Net cash used in operating activities | $7.7 million | $7.9 million |
| Capital expenditures | $4.5 million | $0.7 million |
- Revenue increased 262% in dollars and 324% in South African rand (ZAR), primarily from the Connect acquisition. Merchant revenue rose to $109.4 million from $17.1 million; Consumer revenue was $15.0 million versus $17.2 million.
- Operating loss margin improved to 3.7% negative from 32.5% negative. Gross profit, calculated as revenue less cost of goods sold, was $24.3 million, or approximately 19.4% of revenue; Connect’s high-volume, low-margin airtime sales affect the mix.
- Company-defined Segment Adjusted EBITDA was positive $6.5 million versus negative $7.3 million. Merchant contributed $7.9 million; Consumer remained negative $1.4 million. This measure excludes specified expenses and is not equivalent to GAAP operating income.
- Interest expense increased to $4.0 million from $0.8 million, mainly reflecting Connect-related borrowing and ATM funding. Loss from equity-accounted investments was $2.6 million, including a $1.1 million impairment of Finbond.
- Operating cash use was broadly similar year over year, but the company cited increased receivables, growth in merchant finance loans, and funding Consumer operations. Cash used in investing activities was $5.7 million; financing activities provided $10.4 million.
Balance sheet and liquidity
- At September 30, 2022, cash and cash equivalents were $30.1 million and restricted cash was $63.2 million. Cash, cash equivalents and restricted cash totaled $93.4 million, down from $104.8 million at June 30, 2022. Restricted funds include cash for ATM funding and pledged accounts, and are not freely available for general purposes.
- Total assets were $605.8 million, total liabilities $320.5 million, and redeemable common stock $79.4 million. Long-term borrowings were $121.4 million, with a further $6.4 million current portion. Short-term credit facilities were $69.3 million, including $58.0 million restricted to ATM funding.
- Working-capital balances included $33.5 million of net finance loans receivable, $29.4 million of accounts and other receivables, and $31.2 million of inventory. Inventory included $11.0 million of Cell C airtime subject to resale and repurchase arrangements.
- The company reported $2.4 million of capital commitments. It expects to fund planned expenditures through internally generated funds and available facilities.
Material changes, outlook and risks
- Management attributed the substantial revenue and Merchant improvement chiefly to Connect, while also citing Consumer cost reductions. In ZAR, revenue increased 324% and operating losses improved 51% year over year. The stronger U.S. dollar—17% stronger against the rand during the quarter—affected reported results.
- Management said it remained on track to achieve monthly Consumer Segment Adjusted EBITDA break-even in Q2 FY2023; this is a segment target, not consolidated guidance. The filing provides no formal consolidated revenue or earnings forecast.
- Merchant expansion included approximately 57,000 VAS and payments devices, 27,700 card-enabled POS devices, and more than ZAR 190 million of merchant lending disbursements. Consumer active EPE clients reached 1.17 million. Management reported approximately 85,000 new account activations, loan portfolio losses around 1% for the quarter, and churn below 5% but at the higher end of its expected range, partly due to volatility in the SRD grant base.
- Lesaka missed milestones required under its RMB credit agreement by September 30, 2022. RMB did not require the contemplated ZAR 250 million cash placement and did not declare a default; the company said it was renegotiating the lending terms. Separately, the K2020 revolving facility matured in August 2022 but continued to operate normally while legal documentation for an increase and extension was being completed.
- Borrowings carry floating South African interest rates. Management expects higher rates; a hypothetical 1 percentage-point increase would raise estimated annual interest by approximately $2.0 million. Foreign-exchange movements are also significant given the company’s U.S.-dollar reporting currency and predominantly rand-based operations.
- Cell C completed a recapitalization, reducing Lesaka’s effective holding from 15% to a little over 5%; the investment remains carried at zero. MobiKwik remained carried at $76.3 million; its IPO approval expired, and timing depends on market conditions. The company sold its Carbon interest and related loan for deferred consideration; it recorded allowances against amounts due.
- Other notable items include $19.7 million of other comprehensive loss, primarily foreign-currency translation, and a $1.1 million Finbond impairment. Management reported no significant COVID-19 disruption in the quarter and said disclosure controls were effective. The filing identifies ordinary-course claims as not expected to have a material adverse effect.
Important facts for investors to verify
- How much of the revenue increase and improved segment results reflects Connect acquisition and low-margin airtime pass-through, versus underlying growth in existing operations.
- Progress and final terms of the RMB renegotiation, status of the matured K2020 facility, and availability of borrowing capacity relative to restricted cash and operating needs.
- Whether the Consumer business achieves management’s stated Q2 FY2023 monthly break-even target, and whether customer churn, lending losses and collections remain within expectations.
- Recoverability and valuation assumptions for MobiKwik, Finbond and the deferred Carbon sale proceeds, as well as any evidence of value recovery in Cell C.
- Effects of further rand depreciation and South African interest-rate increases on reported results, cash flows and debt-service costs.