Lesaka Technologies, Inc. — Form 10-Q
Period: Quarter and nine months ended March 31, 2023. The request labels this “2022 Q3,” but the filing covers fiscal third-quarter 2023. Unless stated otherwise, amounts are U.S. dollars; financial-statement amounts are in thousands.
Business context and reporting period
Lesaka operates Consumer and Merchant divisions, primarily in South Africa. The comparison with 2022 is not like-for-like: fiscal 2023 includes Connect, acquired April 14, 2022, while the prior-year comparison does not. Merchant includes payment processing, telecom products and services, technology products, and merchant lending; Consumer includes accounts, microlending, and insurance.
Key financial metrics
| Metric | Q3 FY2023 | Q3 FY2022 | Nine months FY2023 | Nine months FY2022 |
|---|---|---|---|---|
| Revenue | $134.0m | $35.2m | $394.8m | $100.8m |
| Operating loss | $1.9m | $9.4m | $8.7m | $30.1m |
| Net loss | $5.8m | $3.3m | $23.2m | $28.7m |
| Basic and diluted loss per share | $0.09 | $0.06 | $0.37 | $0.50 |
| Cash used in operating activities | $5.1m | $8.8m | $9.3m | $30.5m |
Q3 operating loss margin was 1.4% negative, versus 26.8% negative a year earlier. Cost of goods sold, processing, servicing and support was $105.3m in the quarter; the resulting margin before other operating expenses was approximately 21.4%. Interest expense rose to $5.0m for the quarter and $13.4m year to date, from $0.7m and $2.3m, respectively. Depreciation and amortization was $6.0m for the quarter and $17.9m year to date.
Management’s non-GAAP measures showed Q3 Segment Adjusted EBITDA of $9.9m and Group Adjusted EBITDA of $7.6m; nine-month Group Adjusted EBITDA was $19.3m. These measures exclude specified items and should not be treated as GAAP profit.
At March 31, 2023, cash and cash equivalents were $49.4m and restricted cash was $37.8m, totaling $87.3m. Restricted cash is substantially tied to ATM funding and is not freely available. Total assets were $616.6m, total liabilities $336.2m, and total equity $201.0m; redeemable common stock was reported separately at $79.4m. Borrowings comprised $54.7m of short-term facilities, $3.5m current long-term borrowings, and $147.2m long-term borrowings, approximately $205.4m combined. Nine-month capital expenditures were $13.2m.
Material changes versus prior comparable periods
- Revenue rose 281% in U.S. dollars in Q3 and 292% year to date, largely because Connect contributed a full period in FY2023. Management reported growth of 337% and 355%, respectively, in South African rand.
- Merchant Q3 revenue was $118.1m and Segment Adjusted EBITDA $8.3m, driven principally by Connect. Consumer revenue was $15.9m and Segment Adjusted EBITDA was positive $1.6m, versus a $6.7m loss in Q3 FY2022, which included $5.9m of reorganization costs.
- Despite improved operating results and lower operating cash use, net loss widened in Q3, partly reflecting the absence of prior-year currency-option and equity-disposal gains and substantially higher interest expense. Year-to-date net loss improved from $28.7m to $23.2m.
- Acquisition-related amortization increased materially. Goodwill declined from $162.7m at June 30, 2022 to $149.0m, mainly from foreign-currency translation; intangible assets declined from $156.7m to $132.4m.
- Cash and restricted cash together fell from $104.8m at June 30, 2022 to $87.3m. Long-term borrowings increased from $141.6m gross in the debt rollforward to $150.7m at March 31, while reported short-term facilities were $54.7m.
Outlook, commentary, risks and unusual items
- Management reported a second consecutive quarter of positive Consumer Segment Adjusted EBITDA and described continued Merchant growth. It cited Connect outperformance, cost optimization, and growth in card acquiring, merchant lending and insurance; no quantified full-year earnings guidance is provided.
- Management expects Q4 FY2023 capital spending primarily for POS devices, safe assets, vehicles, equipment, ATMs and branches. Capital commitments at March 31 were $3.1m; the filing says these are expected to be funded from internal funds and available facilities.
- Consumer had approximately 1.3 million active EPE accounts at quarter end. The permanent grant-recipient base grew 3% year over year; management said net growth was slower than anticipated. Consumer loan disbursements were approximately ZAR 397m in the quarter, with a reported portfolio loss ratio around 1% for the quarter. Insurance penetration among active permanent-grant accounts reached approximately 28%.
- Risks include South African rand volatility, rising South African rates, credit losses in consumer and merchant lending, and load-shedding. Management said operations had been relatively resilient to power cuts but noted potential effects on merchants’ trading hours and electronic payments.
- The company held ZAR 164.0m ($9.2m) of prepaid airtime inventory, expected to be sold over the next five months. The filing warns that market conditions or mobile-network-operator performance could impair its ability to sell or recover the inventory. Cell C airtime inventory was $9.2m at March 31; Cell C agreed to repurchase up to ZAR 10m monthly beginning October 2023, subject to the terms disclosed.
- RMB facility amendments changed borrowing terms and asset-cover covenant calculations and removed a minimum group-cash requirement. The company also disclosed approximately $2.0m maximum potential payments under bank-issued guarantees. It reported no material change to previously disclosed risk factors other than the airtime inventory risk described above.
- The South African corporate tax rate reduction from 28% to 27% generated a reported $1.3m tax benefit. Foreign-currency translation reduced Q3 comprehensive income by $9.3m and nine-month comprehensive income by $16.7m. Management stated disclosure controls were effective and there were no material changes to internal control over financial reporting during the quarter.
Important facts for investors to verify
- How much of reported revenue and EBITDA growth reflects Connect acquisition and low-margin prepaid airtime sales, versus organic growth and sustainable margins.
- Debt terms, covenant headroom, interest-rate exposure, and the amount of cash actually available after restrictions; the filing estimates a 1% rate increase would raise annual interest expense by about $2.1m.
- Recoverability and sell-through of prepaid airtime inventory, including the conditions and practical value of Cell C’s repurchase commitment.
- Credit quality and allowance adequacy for microlending and merchant loans, particularly as loan books expand.
- Cash conversion, capital spending needs, and whether positive adjusted EBITDA can translate into sustained operating cash generation and GAAP profitability.
- Potential dilution from restricted stock, options, and the remaining Connect seller share tranches.