Business context and reporting period
This is Net 1 UEPS Technologies, Inc.’s unaudited Form 10-Q for the quarter and six months ended December 31, 2020 (fiscal 2021 Q2). The filing does not identify the registrant as Lesaka Technologies Inc.; investors should verify the company and filing match their request. The business reported three segments: Processing, Financial services and Technology, with operations mainly in South Africa. Amounts below are U.S. dollars unless stated otherwise.
Key financial metrics
| Metric | Quarter ended Dec. 31, 2020 | Six months ended Dec. 31, 2020 |
|---|---|---|
| Revenue | $32.3 million, down 17% year over year (12% lower in ZAR) | $67.4 million, down 21% year over year (9% lower in ZAR) |
| Operating loss | $15.2 million; operating margin (47.1%) | $26.0 million; operating margin (38.5%) |
| Net loss | $4.5 million; diluted loss per share $0.08 | $33.5 million; diluted loss per share $0.59 |
| Operating cash flow | Cash used: $12.0 million, versus $4.4 million provided in prior-year quarter | Cash used: $41.9 million, versus $13.9 million used in prior-year period |
At December 31, cash and cash equivalents were $206.3 million; restricted cash for ATM funding was $60.8 million, matched by short-term ATM-funding facilities. Cash, cash equivalents and restricted cash totaled $267.1 million. Short-term facilities available were $113.2 million, including overdrafts and indirect/derivative facilities; $60.8 million was drawn for ATM funding and $10.7 million of indirect/derivative capacity was utilized. The balance sheet reported total liabilities of $106.7 million, including $60.8 million of ATM-funding facilities, and no long-term borrowings. Management stated it believed cash reserves and facilities were sufficient for the next 12 months.
Total assets were $477.0 million, versus $453.7 million at June 30, 2020; total equity was $285.3 million, versus $290.2 million. The filing does not present a consolidated gross-profit or gross-margin measure.
Material changes versus prior comparable periods
- Quarterly revenue fell mainly on lower prepaid airtime sales and account-fee revenue. Operating losses widened as the largely fixed cost base was not reduced in line with revenue; the quarterly operating-loss margin deteriorated from (26.8%) to (47.1%).
- For the six months, Financial services revenue declined 32% in U.S. dollars and its segment operating loss widened to $3.4 million, reflecting lower account fees, higher employee costs and increased insurance claims. Technology remained profitable, with segment operating income of $2.9 million for the half, up from $1.7 million.
- Equity-accounted investment results shifted to a $20.2 million loss for the half from $1.6 million of income. This included $17.6 million of impairment charges on Finbond and $0.5 million on other investments, including V2.
- Interest expense declined to $0.7 million for the quarter and $1.4 million for the half, primarily due to lower borrowings, lower South African rates and reduced ATM-facility utilization. Prior-year results included a $9.7 million gain on disposal of FIHRST and income from discontinued operations; neither recurred in the current periods.
- Net cash and cash equivalents declined from $217.7 million at June 30, 2020, to $206.3 million. Management cited tax payments, weak trading and growth in lending as uses, partly offset by receipts related to the Korea and DNI disposals.
Outlook, commentary, risks and unusual items
- COVID-19: South Africa returned to Level 3 restrictions on December 28 amid a more severe second infection wave. Businesses continued operating, but the effect on activity remained uncertain. Management reported increased life-insurance claims and warned of possible higher microlending credit losses; loan originations and collections had otherwise returned to normal during the period.
- Strategy and operations: Management is focusing on South Africa and transitioning financial inclusion toward a business-to-consumer model. It reported about 62,000 gross and 44,000 net customer additions in the quarter, while noting that some additions were not yet income-generating because of delays processing grant-income transfers. IPG’s wind-down was advanced, with closure expected early in fiscal Q3 and substantially complete from a cost perspective by fiscal year-end.
- Investments and disposals: MobiKwik’s carrying value rose by $15.1 million to $42.1 million after an external share issuance; the gain was non-cash. Cell C remained valued at zero and was in default on lending arrangements while pursuing recapitalization. Subsequent to quarter-end, Net1 agreed to sell its 35% Bank Frick interest for $30 million, with $3.6 million payable to terminate arrangements and settle IPG-related liabilities; the remaining consideration is payable in installments through July 2022.
- Restatement: The company corrected duplicated acquiring-fee entries that overstated both revenue and cost of goods sold. Prior-period revenue and related costs were reduced by equal amounts; the company said operating income, net income, balance sheet and cash flows were unaffected. The 2019 comparative figures in this filing are marked as restated.
- Controls: Management concluded disclosure controls and procedures were not effective at December 31, 2020, citing insufficient time to assess remediation of a material weakness previously reported in the 2020 Form 10-K. The filing says additional manual mitigating procedures were being used.
- Other risks and contingencies: Currency movements affect reported results because the U.S. dollar is the reporting currency and much of the business operates in ZAR. The company had $10.7 million of guarantees outstanding, reducing available facilities; it had not recognized a related balance-sheet obligation. Management described other ordinary-course claims as not expected to have a material adverse effect. The company withdrew its bankruptcy claim for a U.S. working-capital receivable after concluding recovery was unlikely.
- No specific earnings or revenue guidance was provided. Management expected limited capital spending on South African ATMs and branches in fiscal Q3 and reported $0.6 million of capital commitments at quarter-end.
Important facts for investors to verify
- Confirm that this Net 1 UEPS Technologies filing—not a Lesaka Technologies filing—is the intended document.
- Review the revenue and cost restatement, its affected periods, and the disclosed material weakness and remediation status.
- Assess operating cash burn, restricted ATM cash, facility availability and the distinction between cash balances and funds available for general use.
- Evaluate the $17.6 million Finbond impairment, V2 loan recoverability, and the valuation assumptions behind the $42.1 million MobiKwik carrying value.
- Track COVID-related insurance claims and credit losses, IPG wind-down costs, and progress on Cell C’s recapitalization.
- Verify the Bank Frick sale’s closing, installment collections, and the $3.6 million offset for termination and settlement obligations.