0001041514 us-gaap:RestrictedStockMember lsak:AwardDateTwentyThreeMember 2022-07-01 2023-03-31
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
10-Q
(Mark One)
☒
EXCHANGE ACT OF 1934
For the quarterly period ended
March 31, 2024
OR
☐
EXCHANGE ACT OF 1934
For the transition period from
To
Commission file number:
000-31203
LESAKA TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Florida
98-0171860
(State or other jurisdiction
(IRS Employer
of incorporation or organization)
Identification No.)
President Place, 4
th
Floor
,
Cnr. Jan Smuts Avenue and Bolton Road
,
Rosebank, Johannesburg
,
2196
,
South Africa
(Address of principal executive offices, including zip code)
Registrant’s telephone number, including area code:
27
-
11
-
343-2000
Not Applicable
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
Title of each class
Trading Symbol(s)
Name of each exchange
on which registered
Common stock, par value $0.001 per share
LSAK
NASDAQ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90
days.
YES
☒
☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required
to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12
months (or for such shorter period that the registrant was required to submit such files).
YES
☒
☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated
filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,”
“accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the
Exchange Act (check one):
☐
Large accelerated filer
☒
Accelerated filer
☐
Non-accelerated filer
☒
Smaller reporting company
☐
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended
transition period for complying with any new or revised financial accounting standards provided pursuant to
Section 13(a) of the Exchange Act.
☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). YES
☐
☒
As of May 6, 2024 (the latest practicable date),
63,599,696
$0.001 per share, net of treasury shares, were outstanding.
1
Form 10-Q
LESAKA TECHNOLOGIES, INC.
Table of Contents
Page No.
PART I. FINANCIAL INFORMATION
Notes to Unaudited Condensed Consolidated Financial Statements
8
65
Item 5.
Other Information
65
2
Part I. Financial information
Item 1. Financial Statements
LESAKA TECHNOLOGIES, INC.
Unaudited Condensed Consolidated Balance Sheets
March 31,
June 30,
2024
2023
(A)
(In thousands, except share data)
ASSETS
CURRENT ASSETS
Cash and cash equivalents
$
55,223
$
35,499
Restricted cash related to ATM funding and credit facilities (Note 8)
4,383
23,133
Accounts receivable, net and other receivables (Note 2)
34,331
25,665
Finance loans receivable, net (Note 2)
40,754
36,744
Inventory (Note 3)
21,789
27,337
Total current assets before settlement assets
156,480
148,378
Settlement assets
29,300
15,258
Total current assets
185,780
163,636
PROPERTY, PLANT AND EQUIPMENT, net of accumulated depreciation of - March: $
40,276
$
36,563
27,918
27,447
OPERATING LEASE RIGHT-OF-USE (Note 16)
5,533
4,731
EQUITY-ACCOUNTED INVESTMENTS (Note 5)
159
3,171
GOODWILL (Note 6)
133,473
133,743
INTANGIBLE ASSETS, NET (Note 6)
110,798
121,597
DEFERRED INCOME TAXES
9,793
10,315
OTHER LONG-TERM ASSETS, including reinsurance assets (Note 5 and 7)
78,035
77,594
TOTAL ASSETS
551,489
542,234
LIABILITIES
CURRENT LIABILITIES
Short-term credit facilities for ATM funding (Note 8)
4,272
23,021
Short-term credit facilities (Note 8)
9,006
9,025
Accounts payable
19,018
12,380
Other payables (Note 9)
49,470
36,297
Operating lease liability - current (Note 16)
1,763
1,747
Current portion of long-term borrowings (Note 8)
3,269
3,663
Income taxes payable
1,565
1,005
Total current liabilities before settlement obligations
88,363
87,138
Settlement obligations
27,820
14,774
Total current liabilities
116,183
101,912
DEFERRED INCOME TAXES
43,878
46,840
OPERATING LEASE LIABILITY - LONG TERM (Note 16)
3,912
3,138
LONG-TERM BORROWINGS (Note 8)
132,398
129,455
OTHER LONG-TERM LIABILITIES, including insurance policy liabilities (Note 7)
2,602
1,982
TOTAL LIABILITIES
298,973
283,327
REDEEMABLE COMMON STOCK
79,429
79,429
EQUITY
COMMON STOCK (Note 10)
Authorized:
200,000,000
0.001
Issued and outstanding shares, net of treasury - March:
64,466,830
63,640,246
83
83
PREFERRED STOCK
Authorized shares:
50,000,000
0.001
Issued and outstanding shares, net of treasury: March:
-
-
-
-
ADDITIONAL PAID-IN-CAPITAL
341,287
335,696
TREASURY SHARES, AT COST: March:
25,297,772
25,244,286
(288,445)
(288,238)
ACCUMULATED OTHER COMPREHENSIVE LOSS (Note 11)
(195,096)
(195,726)
RETAINED EARNINGS
315,258
327,663
TOTAL LESAKA EQUITY
173,087
179,478
NON-CONTROLLING INTEREST
-
-
TOTAL EQUITY
173,087
179,478
TOTAL LIABILITIES, REDEEMABLE COMMON STOCK AND SHAREHOLDERS’ EQUITY
$
551,489
$
542,234
(A) – Derived from audited financial statements
See Notes to Unaudited Condensed Consolidated Financial Statements
LESAKA TECHNOLOGIES, INC.
Unaudited Condensed Consolidated Statements of Operations
3
Three months ended
Nine months ended
March 31,
March 31,
2024
2023
2024
2023
(In thousands, except per share
data)
(In thousands, except per share
data)
REVENUE (Note 15)
$
138,194
$
133,968
$
418,176
$
394,822
EXPENSE
Cost of goods sold, IT processing, servicing and support
107,854
105,299
329,610
314,651
Selling, general and administration
23,124
24,547
67,146
70,995
Depreciation and amortization
5,791
5,975
17,460
17,892
Transaction costs related to Adumo acquisition (Note 20)
631
-
665
-
OPERATING INCOME (LOSS)
794
(1,853)
3,295
(8,716)
REVERSAL OF ALLOWANCE FOR DOUBTFUL EMI DEBT
RECEIVABLE
-
-
250
-
(LOSS) GAIN ON DISPOSAL OF EQUITY-ACCOUNTED
INVESTMENT (Note 5)
-
(329)
-
(193)
INTEREST INCOME
628
469
1,562
1,269
INTEREST EXPENSE
4,581
4,984
14,312
13,408
LOSS BEFORE INCOME TAX EXPENSE (BENEFIT)
(3,159)
(6,697)
(9,205)
(21,048)
INCOME TAX EXPENSE (BENEFIT) (Note 18)
931
(860)
1,881
(465)
NET LOSS BEFORE EARNINGS (LOSS) FROM EQUITY-
ACCOUNTED INVESTMENTS
(4,090)
(5,837)
(11,086)
(20,583)
EARNINGS (LOSS) FROM EQUITY-ACCOUNTED INVESTMENTS
(Note 5)
43
17
(1,319)
(2,582)
NET LOSS ATTRIBUTABLE TO LESAKA
$
(4,047)
$
(5,820)
$
(12,405)
$
(23,165)
Net loss per share, in United States dollars
(Note 13):
Basic loss attributable to Lesaka shareholders
$
(0.06)
$
(0.09)
$
(0.20)
$
(0.37)
Diluted loss attributable to Lesaka shareholders
$
(0.06)
$
(0.09)
$
(0.20)
$
(0.37)
See Notes to Unaudited Condensed Consolidated Financial Statements
LESAKA TECHNOLOGIES, INC.
Unaudited Condensed Consolidated Statements of Comprehensive (Loss) Income
4
Three months ended
Nine months ended
March 31,
March 31,
2024
2023
2024
2023
(In thousands)
(In thousands)
Net loss
$
(4,047)
$
(5,820)
$
(12,405)
$
(23,165)
Other comprehensive (loss) income, net of taxes
Movement in foreign currency translation reserve
(5,718)
(9,775)
(450)
(19,713)
Release of foreign currency translation reserve related to
disposal of Finbond equity securities (Note 11)
-
243
1,543
342
Release of foreign currency translation reserve related to
liquidation of subsidiaries
-
-
(952)
-
Movement in foreign currency translation reserve related
to equity-accounted investments
-
216
489
2,657
Total other comprehensive income (loss), net of
taxes
(5,718)
(9,316)
630
(16,714)
Comprehensive loss
(9,765)
(15,136)
(11,775)
(39,879)
Comprehensive loss attributable to Lesaka
$
(9,765)
$
(15,136)
$
(11,775)
$
(39,879)
See Notes to Unaudited Condensed Consolidated Financial Statements
LESAKA TECHNOLOGIES, INC.
Unaudited Condensed Consolidated Statements of Changes in Equity
5
Lesaka Technologies, Inc. Shareholders
Number of
Shares
Amount
Number of
Treasury
Shares
Treasury
Shares
Number of
shares, net of
treasury
Additional
Paid-In
Capital
Retained
Earnings
Accumulated
other
comprehensive
loss
Total
Lesaka
Equity
Non-
controlling
Interest
Total
Redeemable
common
stock
For the three months ended March 31, 2023 (dollar amounts in thousands)
Balance – January 1, 2023
88,708,191
$
83
(24,956,854)
$
(287,244)
63,751,337
$
332,537
$
345,392
$
(176,238)
$
214,530
$
-
$
214,530
$
79,429
Shares repurchased (Note 12)
(37,945)
(178)
(37,945)
-
(178)
(178)
Restricted stock granted (Note 12)
11,806
11,806
-
-
Exercise of stock options
37,500
-
37,500
114
114
114
Stock-based compensation charge
(Note 12)
-
1,667
1,667
1,667
Reversal of stock-based compensation
charge (Note 12)
(18,798)
(18,798)
(23)
(23)
(23)
Stock-based compensation charge
related to equity-accounted investment
(Note 5)
-
(9)
(9)
(9)
Net loss
-
(5,820)
(5,820)
-
(5,820)
Other comprehensive income (Note
11)
(9,316)
(9,316)
-
(9,316)
Balance – March 31, 2023
88,738,699
$
83
(24,994,799)
$
(287,422)
63,743,900
$
334,286
$
339,572
$
(185,554)
$
200,965
$
-
$
200,965
$
79,429
For the nine months ended March 31, 2023 (dollar amounts in thousands)
Balance – July
1, 2022
87,215,613
$
83
(24,891,292)
$
(286,951)
62,324,321
$
327,891
$
362,737
$
(168,840)
$
234,920
$
-
$
234,920
$
79,429
Share repurchased (Note 12)
-
(103,507)
(471)
(103,507)
(471)
(471)
Restricted stock granted
1,394,558
1,394,558
-
-
Exercise of stock options
147,326
-
147,326
447
447
447
Stock-based compensation charge
(Note 12)
5,978
5,978
5,978
Reversal of stock-based compensation
charge (Note 12)
(18,798)
(18,798)
(23)
(23)
(23)
Stock-based compensation charge
related to equity-accounted investment
(7)
(7)
(7)
Net loss
(23,165)
(23,165)
-
(23,165)
Other comprehensive loss (Note 11)
(16,714)
(16,714)
-
(16,714)
Balance – March 31, 2023
88,738,699
$
83
(24,994,799)
$
(287,422)
63,743,900
$
334,286
$
339,572
$
(185,554)
$
200,965
$
-
$
200,965
$
79,429
See Notes to Unaudited Condensed Consolidated Financial Statements
LESAKA TECHNOLOGIES, INC.
Unaudited Condensed Consolidated Statements of Changes in Equity
6
Lesaka Technologies, Inc. Shareholders
Number of
Shares
Amount
Number of
Treasury
Shares
Treasury
Shares
Number of
shares, net of
treasury
Additional
Paid-In
Capital
Retained
Earnings
Accumulated
other
comprehensive
loss
Total
Lesaka
Equity
Non-
controlling
Interest
Total
Redeemable
common
stock
For the three months ended March 31, 2024 (dollar amounts in thousands)
Balance – January 1, 2024
89,738,784
$
83
(25,295,261)
$
(288,436)
64,443,523
$
339,149
$
319,305
$
(189,378)
$
180,723
$
-
$
180,723
$
79,429
Shares repurchased (Note 12)
-
(2,511)
(9)
(2,511)
(9)
(9)
Restricted stock granted (Note 12)
65,525
65,525
-
-
Exercise of stock option (Note 12)
15,832
-
15,832
48
48
48
Stock-based compensation charge
(Note 12)
-
-
2,202
2,202
2,202
Reversal of stock-based compensation
charge (Note 12)
(55,539)
(55,539)
(112)
(112)
(112)
Stock-based compensation charge
related to equity-accounted investment
(Note 5)
-
-
-
Net loss
(4,047)
(4,047)
-
(4,047)
Other comprehensive loss (Note 11)
(5,718)
(5,718)
-
(5,718)
Balance – March 31, 2024
89,764,602
$
83
(25,297,772)
$
(288,445)
64,466,830
$
341,287
$
315,258
$
(195,096)
$
173,087
$
-
$
173,087
$
79,429
For the nine months ended March 31, 2024 (dollar amounts in thousands)
Balance – July 1, 2023
88,884,532
$
83
(25,244,286)
$
(288,238)
63,640,246
$
335,696
$
327,663
$
(195,726)
$
179,478
$
-
$
179,478
$
79,429
Shares repurchased (Note 12)
(53,486)
(207)
(53,486)
(207)
(207)
Restricted stock granted
934,521
934,521
-
-
-
Exercise of stock option (Note 12)
23,217
-
23,217
71
71
71
Stock-based compensation charge
(Note 12)
-
-
5,782
5,782
5,782
Reversal of stock-based compensation
charge (Note 12)
(77,668)
(77,668)
(129)
(129)
(129)
Stock-based compensation charge
related to equity-accounted investment
(Note 5)
(133)
(133)
(133)
Net loss
(12,405)
(12,405)
-
(12,405)
Other comprehensive income (Note
11)
630
630
-
630
Balance – March 31, 2024
89,764,602
$
83
(25,297,772)
$
(288,445)
64,466,830
$
341,287
$
315,258
$
(195,096)
$
173,087
$
-
$
173,087
$
79,429
See Notes to Unaudited Condensed Consolidated Financial Statements
LESAKA TECHNOLOGIES, INC.
Unaudited Condensed Consolidated Statements of Cash Flows
7
Three months ended
Nine months ended
March 31,
March 31,
2024
2023
2024
2023
(In thousands)
(In thousands)
Cash flows from operating activities
Net loss
$
(4,047)
$
(5,820)
$
(12,405)
$
(23,165)
Depreciation and amortization
5,791
5,975
17,460
17,892
Movement in allowance for doubtful accounts receivable
843
1,638
3,532
4,167
Fair value adjustment related to financial liabilities
(49)
(21)
(919)
123
Loss on disposal of equity-accounted investments (Note 5)
-
329
-
193
(Earnings) Loss from equity-accounted investments
(43)
(17)
1,319
2,582
Movement in allowance for doubtful loans to equity-accounted investments
-
-
(250)
-
Profit on disposal of property, plant and equipment
(89)
(145)
(288)
(466)
Movement in interest payable
1,054
1,827
1,245
3,289
Facility fee amortized
65
198
381
643
Stock-based compensation charge (Note 12)
2,090
1,644
5,653
5,955
Dividends received from equity-accounted investments
41
-
95
21
Decrease (Increase) in accounts receivable
5,687
(7,620)
(9,815)
(8,601)
Increase in finance loans receivable
(3,720)
(2,507)
(7,097)
(11,318)
Decrease (Increase) in inventory
5,000
(297)
5,506
(1,769)
Increase in accounts payable and other payables
6,463
1,030
20,566
5,421
Increase in taxes payable
904
1,349
558
1,478
Decrease in deferred taxes
(810)
(2,670)
(2,404)
(5,792)
Net cash provided by (used in) operating activities
19,180
(5,107)
23,137
(9,347)
Cash flows from investing activities
Capital expenditures
(2,943)
(4,717)
(7,950)
(13,210)
Proceeds from disposal of property, plant and equipment
395
394
1,115
1,156
Acquisition of intangible assets
(54)
(125)
(236)
(245)
Proceeds from disposal of equity-accounted investment (Note 5)
-
254
3,508
645
Loan to equity-accounted investment (Note 5)
-
-
-
(112)
Repayment of loans by equity-accounted investments
-
-
250
112
Net change in settlement assets
(3,088)
11,043
(14,368)
(972)
Net cash (used in) provided by investing activities
(5,690)
6,849
(17,681)
(12,626)
Cash flows from financing activities
Proceeds from bank overdraft (Note 8)
24,893
128,196
153,479
441,488
Repayment of bank overdraft (Note 8)
(43,380)
(135,986)
(172,221)
(448,288)
Long-term borrowings utilized (Note 8)
3,398
12,868
14,426
23,010
Repayment of long-term borrowings (Note 8)
(7,238)
(2,024)
(13,051)
(5,292)
Acquisition of treasury stock (Note 12)
(9)
(178)
(207)
(471)
Proceeds from exercise of stock options
48
114
71
447
Guarantee fee
-
-
-
(100)
Net change in settlement obligations
2,469
(10,761)
13,362
807
Net cash (used in) provided by financing activities
(19,819)
(7,771)
(4,141)
11,601
Effect of exchange rate changes on cash and cash equivalents
(1,903)
(3,475)
(341)
(7,156)
Net (decrease) increase in cash, cash equivalents and restricted cash
(8,232)
(9,504)
974
(17,528)
Cash, cash equivalents and restricted cash – beginning of period
67,838
96,776
58,632
104,800
Cash, cash equivalents and restricted cash – end of period (Note 14)
$
59,606
$
87,272
$
59,606
$
87,272
See Notes to Unaudited Condensed Consolidated Financial Statements
8
LESAKA TECHNOLOGIES, INC
Notes to the Unaudited Condensed Consolidated Financial Statements
for the three and nine months ended March 31, 2024 and 2023
(All amounts in tables stated in thousands or thousands of U.S. dollars, unless otherwise stated)
1. Basis of Presentation and Summary of Significant Accounting Policies
Unaudited Interim Financial Information
The accompanying unaudited condensed consolidated financial statements include all majority-owned subsidiaries over which
the Company exercises control and have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”)
and the rules and regulations of the United States Securities and Exchange Commission for Quarterly Reports on Form 10-Q and
include all of the information and disclosures required for interim financial reporting. The results of operations for the three and nine
months ended March 31, 2024 and 2023, are not necessarily indicative of the results for the full year. The Company believes that the
disclosures are adequate to make the information presented not misleading.
These unaudited condensed consolidated financial statements should be read in conjunction with the financial statements,
accounting policies and financial notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended June
30, 2023. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all
adjustments (consisting only of normal recurring adjustments), which are necessary for a fair representation of financial results for the
interim periods presented.
References to “Lesaka” are references solely to Lesaka Technologies, Inc. References to the “Company” refer to Lesaka and its
consolidated subsidiaries, collectively, unless the context otherwise requires.
Recent accounting pronouncements adopted
In June 2016, the Financial Accounting Standards Board (“FASB”) issued guidance regarding
Measurement of Credit Losses on
Financial Instruments
. The guidance replaces the incurred loss impairment methodology in current GAAP with a methodology that
reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit
loss estimates. For trade and other receivables, loans, and other financial instruments, an entity is required to use a forward-looking
expected loss model rather than the incurred loss model for recognizing credit losses, which reflects losses that are probable. Credit
losses relating to available-for-sale debt securities will also be recorded through an allowance for credit losses rather than as a reduction
in the amortized cost basis of the securities. The guidance became effective for the Company beginning July 1, 2023. The adoption of
this guidance did not have a material impact on the Company’s financial statements and related disclosures, refer to Note 2.
In November 2019, the FASB issued guidance regarding
Hedging (Topic 815), and Leases (Topic 842).
accounting standards and amends the effective dates for certain major new accounting standards to give implementation relief to
certain types of entities, including Smaller Reporting Companies. The Company is a Smaller Reporting Company. Specifically, the
guidance changes some effective dates for certain new standards on the following topics in the FASB Codification, namely Derivatives
and Hedging (ASC 815); Leases (ASC 842); Financial Instruments — Credit Losses (ASC 326); and Intangibles — Goodwill and
Other (ASC 350). The guidance defers the adoption date of guidance regarding
Measurement of Credit Losses on Financial
Instruments
2023. The adoption of this guidance did not have a material impact on the Company’s financial statements and related disclosures,
refer to Note 2.
The Company’s updated accounting policy regarding allowance for credit losses is as follows:
Allowance for doubtful accounts receivable
Allowance for doubtful finance loans receivable
The Company uses historical default experience over the lifetime of loans in order to calculate a lifetime loss rate for its lending
books. The allowance for credit losses related to Consumer finance loans receivables is calculated by multiplying the lifetime loss rate
with the month-end outstanding lending book. The allowance for credit losses related to Merchant finance loans receivables is
calculated by adding together actual receivables in default plus multiplying the lifetime loss rate with the month-end outstanding
lending book. Prior to July 1, 2023, the Company regularly reviewed the ageing of outstanding amounts due from borrowers and
adjusted its allowance based on management’s estimate of the recoverability of the finance loans receivable. The Company writes off
microlending finance loans receivable and related service fees and interest if a borrower is in arrears with repayments for more than
three months or is deceased. The Company writes off merchant and working capital finance receivables and related fees when it is
evident that reasonable recovery procedures, including where deemed necessary, formal legal action, have failed.
9
1. Basis of Presentation and Summary of Significant Accounting Policies (continued)
Allowance for doubtful accounts receivable (continued)
Allowance for doubtful accounts receivable
The Company uses a lifetime loss rate by expressing write-off experience as a percentage of corresponding invoice amounts (as
opposed to outstanding balances). The allowance for credit losses related to these receivables has been calculated by multiplying the
lifetime loss rate with recent invoice/origination amounts. Prior to July 1, 2023, a specific provision is established where it is considered
likely that all or a portion of the amount due from customers renting safe assets, point of sale (“POS”) equipment, receiving support
and maintenance or transaction services or purchasing licenses or SIM cards from the Company will not be recovered. Non-
recoverability is assessed based on a quarterly review by management of the ageing of outstanding amounts, the location and the
payment history of the customer in relation to those specific amounts.
Recent accounting pronouncements not yet adopted as of March 31, 2024
In November 2023. the FASB issued guidance regarding
Segment Reporting (Topic 280)
disclosure requirements, primarily through enhanced disclosures about significant segment expenses. In addition, the guidance
enhances interim disclosure requirements, clarifies circumstances in which an entity can disclose multiple segment measures of profit
or loss, provides new segment disclosure requirements for entities with a single reportable segment, and contains other disclosure
requirements. This guidance is effective for the Company beginning July 1, 2024 for its year ended June 30, 2025, and for interim
periods commencing from July 1, 2025 (i.e. for the quarter ended September 30, 2025). The Company is currently assessing the impact
of this guidance on its financial statements and related disclosures.
In December 2023, the FASB issued guidance regarding
Income Taxes (Topic 740)
requirements. The guidance requires entities, on an annual basis, to (1) disclose specific categories in the income tax rate reconciliation
and (2) provide additional information for reconciling items that meet a quantitative threshold (if the effect of those reconciling items
is equal to or greater than five percent of the amount computed by multiplying pre-tax income or loss by the applicable statutory
income tax rate). This guidance is effective for the Company beginning July 1, 2025. The Company is currently assessing the impact
of this guidance on its financial statements and related disclosures.
2.
Accounts receivable, net and other receivables and finance loans receivable, net
Accounts receivable, net and other receivables
The Company’s accounts receivable, net, and other receivables as of March 31, 2024, and June 30, 2023, are presented in the
table below:
March 31,
June 30,
2024
2023
Accounts receivable, trade, net
$
12,970
$
11,037
Accounts receivable, trade, gross
13,055
11,546
Allowance for doubtful accounts receivable, end of period
85
509
Beginning of period
509
509
Reallocation to allowance for doubtful finance loans receivable
-
(418)
Reversed to statement of operations
(435)
(31)
Charged to statement of operations
828
2,005
Utilized
(819)
(1,645)
Foreign currency adjustment
2
89
Current portion of amount outstanding related to sale of interest in Carbon, net of
allowance: March 2024: $
750
; June 2023: $
750
-
-
Current portion of total held to maturity investments
-
-
Investment in
7.625
% of Cedar Cellular Investment 1 (RF) (Pty) Ltd
8.625
% notes
-
-
Other receivables
21,361
14,628
Total accounts receivable, net and other receivables
$
34,331
$
25,665
Trade receivables include amounts due from customers which generally have a very short-term life from date of invoice or service
provided to settlement. The duration is less than a year in all cases and generally less than 30 days in many instances. The short-term
nature of these exposures often results in balances at month-end that are disproportionately small compared to the total invoiced
amounts. The month-end outstanding balance are more volatile than the monthly invoice amounts because they are affected by
operational timing issues and the fact that a balance is outstanding at month-end is not necessarily an indication of increased risk but
rather a matter of operational timing.
10
2.
Accounts receivable, net and other receivables and finance loans receivable, net (continued)
Accounts receivable, net and other receivables (continued)
Credit risk in respect of trade receivables are generally not significant and the Company has not developed a sophisticated model
for these basic credit exposures. The Company determined to use a lifetime loss rate by expressing write-off experience as a percentage
of corresponding invoice amounts (as opposed to outstanding balances). The allowance for credit losses related to these receivables
has been calculated by multiplying the lifetime loss rate with recent invoice/origination amounts. Management actively monitors
performance of these receivables over short periods of time. Different balances have different rules to identify an account in distress
but, generally speaking, account balances in distress are identified very early and specific allowances are immediately created.
Subsequent recovery from distressed accounts is generally limited.
Current portion of amount outstanding related to sale of interest in Carbon represents the amount due from the purchaser related
to the sale of the Company’s interest in Carbon Tech Limited (“Carbon”), an equity-accounted investment of $
0.25
allowance for doubtful loans receivable of $
0.25
face value of $
3.0
0.75
$
0.75
0.25
the equity-accounted investment in October 2023, and has reversed the allowance for doubtful loans receivable of $
0.25
the nine months ended December 31, 2023. The Company has not yet received the outstanding $
0.75
$
3.0
Investment in
7.625
% of Cedar Cellular Investment 1 (RF) (Pty) Ltd
8.625
% notes represents the investment in a note which was
due to mature in August 2022 and forms part of Cell C’s capital structure. The carrying value as of each of March 31, 2024, and June
30, 2023, respectively was $
0
Other receivables include prepayments, deposits, income taxes receivable and other receivables.
Contractual maturities of held to maturity investments
Summarized below is the contractual maturity of the Company’s held to maturity investment as of March 31, 2024:
Cost basis
Estimated
fair
value
(1)
Due in one year or less
$
-
$
-
Due in one year through five years
(2)
-
-
Due in five years through ten years
-
-
Due after ten years
-
-
Total
$
-
$
-
(1) The estimated fair value of the Cedar Cellular note has been calculated utilizing the Company’s portion of the assets held by
Cedar Cellular, namely, Cedar Cellular’s investment in Cell C.
(2) The cost basis is zero ($
0.0
11
2.
Accounts receivable, net and other receivables and finance loans receivable, net (continued)
Finance loans receivable, net
The Company’s finance loans receivable, net, as of March 31, 2024, and June 30, 2023, is presented in the table below:
March 31,
June 30,
2024
2023
Microlending finance loans receivable, net
$
25,246
$
20,605
Microlending finance loans receivable, gross
27,000
22,037
Allowance for doubtful finance loans receivable, end of period
1,754
1,432
Beginning of period
1,432
1,394
Reversed to statement of operations
(149)
-
Charged to statement of operations
1,692
1,452
Utilized
(1,217)
(1,214)
Foreign currency adjustment
(4)
(200)
Merchant finance loans receivable, net
15,508
16,139
Merchant finance loans receivable, gross
18,273
18,289
Allowance for doubtful finance loans receivable, end of period
2,765
2,150
Beginning of period
2,150
297
Reallocation from allowance for doubtful accounts receivable
-
418
Reversed to statement of operations
(201)
(1,268)
Charged to statement of operations
1,797
3,068
Utilized
(978)
-
Foreign currency adjustment
(3)
(365)
Total finance loans receivable, net
$
40,754
$
36,744
Total finance loans receivable, net, comprises microlending finance loans receivable related to the Company’s microlending
operations in South Africa as well as its merchant finance loans receivable related to Connect’s lending activities in South Africa.
Certain merchant finance loans receivable with an aggregate balance of $
15.2
security for the Company’s revolving credit facility (refer to Note 8).
Allowance for credit losses
Microlending finance loans receivable
Microlending finance loans receivable related to the Company’s microlending operations in South Africa whereby it provides
unsecured short-term loans to qualifying customers. Loans to customers have a tenor of up to
six months
, with the majority of loans
originated having a tenor of
six months
. The Company analyses this lending book as a single portfolio because the loans within the
portfolio have similar characteristics and management uses similar processes to monitor and assess the credit risk of the lending book.
Refer to Note 4 related to the Company risk management process related to these receivables.
The Company has operated this lending book for more than
five years
loans in order to calculate a lifetime loss rate for the lending book. The allowance for credit losses related to these microlending finance
loans receivables is calculated by multiplying the lifetime loss rate with the month end outstanding lending book. The lifetime loss
rate as of each of July 1, 2023 and March 31, 2024, was
6.50
%. The performing component (that is, outstanding loan payments not in
arrears) of the book exceeds more than
98
% of outstanding lending book as of March 31, 2024.
Merchant finance loans receivable
Merchant finance loans receivable related to the Company’s Merchant lending activities in South Africa whereby it provides
unsecured short-term loans to qualifying customers. Loans to customers have a tenor of up to
twelve months
, with the majority of
loans originated having a tenor of approximately
eight months
. The Company analyses this lending book as a single portfolio because
the loans within the portfolio have similar characteristics and management uses similar processes to monitor and assess the credit risk
of the lending book. Refer to Note 4 related to the Company risk management process related to these receivables.
12
2.
Accounts receivable, net and other receivables and finance loans receivable, net (continued)
Finance loans receivable, net (continued)
Allowance for credit losses (continued)
Merchant finance loans receivable (continued)
The Company has recently (in the past
two years
) commenced lending to merchant customers and uses historical default
experience over the lifetime of loans generated thus far in order to calculate a lifetime loss rate for the lending book. The allowance
for credit losses related to these merchant finance loans receivables is calculated by adding together actual receivables in default plus
multiplying the lifetime loss rate with the month-end outstanding lending book. The lifetime loss rate as of each of July 1, 2023 and
March 31, 2024, was approximately
1.18
%. The performing component (that is, outstanding loan payments not in arrears), under-
performing component (that is, outstanding loan payments that are in arrears) and non-performing component (that is, outstanding
loans for which payments appeared to have ceased) of the book represents approximately
84
%,
14
% and
2
%, respectively, of the
outstanding lending book as of March 31, 2024.
3. Inventory
The Company’s inventory comprised the following categories as of March 31, 2024, and June 30, 2023:
March 31,
June 30,
2024
2023
Raw materials
$
2,437
$
2,819
Work-in-progress
299
30
Finished goods
19,053
24,488
$
21,789
$
27,337
As of March 31, 2024 and June 30, 2023, finished goods includes $
6.0
8.6
inventory that was previously classified as finished goods subject to sale restrictions. In support of Cell C’s liquidity position and
pursuant to Cell C’s recapitalization process, the Company limited the resale of this airtime to its own distribution channels. On
September 30, 2022, Cell C concluded its recapitalization process and the Company and Cell C entered into an agreement under which
Cell C agreed to repurchase, from October 2023, up to ZAR
10
to be repurchased by Cell C is calculated as ZAR
10
The Company’s ability to sell this airtime has increased significantly since the acquisition of Connect because Connect is a significant
reseller of Cell C airtime. As a result, the Company has sold higher volumes of airtime through this channel than it did prior to the
Cell C recapitalization, however, continued sales at these volumes is dependent on prevailing conditions continuing in the airtime
market. If the Company is able to sell at least ZAR
10
not be required to repurchase any airtime from the Company during any specific month. The Company has agreed to notify Cell C
prior to selling any of this airtime, however, there is no restriction placed on the Company on the sale of the airtime
.
13
4. Fair value of financial instruments
Initial recognition and measurement
Financial instruments are recognized when the Company becomes a party to the transaction. Initial measurements are at cost,
which includes transaction costs.
Risk management
The Company manages its exposure to currency exchange, translation, interest rate, credit, microlending credit and equity price
and liquidity risks as discussed below.
Currency exchange risk
The Company is subject to currency exchange risk because it purchases components for its safe assets, that the Company
assembles, and inventories that it is required to settle in other currencies, primarily the euro, renminbi, and U.S. dollar. The Company
has used forward contracts in order to limit its exposure in these transactions to fluctuations in exchange rates between the South
African rand (“ZAR”), on the one hand, and the U.S. dollar and the euro, on the other hand.
Translation risk
Translation risk relates to the risk that the Company’s results of operations will vary significantly as the U.S. dollar is its reporting
currency, but it earns a significant amount of its revenues and incurs a significant amount of its expenses in ZAR. The U.S. dollar to
the ZAR exchange rate has fluctuated significantly over the past three years. As exchange rates are outside the Company’s control,
there can be no assurance that future fluctuations will not adversely affect the Company’s results of operations and financial condition.
Interest rate risk
As a result of its normal borrowing activities, the Company’s operating results are exposed to fluctuations in interest rates, which
it manages primarily through regular financing activities. Interest rates in South Africa have been trending upwards in recent quarters
but have now stabilized and are expected to remain at current levels, or perhaps even decline moderately over calendar 2024. Therefore,
ignoring the impact of changes to the margin on its borrowings (refer to Note 8), the Company expects its cost of borrowing to remain
stable, or even to decline moderately, in the foreseeable future, however if the upward trend resumes the Company would expect
higher interest rates in the future which will increase its cost of borrowing. The Company periodically evaluates the cost and
effectiveness of interest rate hedging strategies to manage this risk. The Company generally maintains surplus cash in cash equivalents
and held to maturity investments and has occasionally invested in marketable securities .
Credit risk
Credit risk relates to the risk of loss that the Company would incur as a result of non-performance by counterparties. The
Company maintains credit risk policies in respect of its counterparties to minimize overall credit risk. These policies include an
evaluation of a potential counterparty’s financial condition, credit rating, and other credit criteria and risk mitigation tools as the
Company’s management deems appropriate. With respect to credit risk on financial instruments, the Company maintains a policy of
entering into such transactions only with South African and European financial institutions that have a credit rating of “B” (or its
equivalent) or better, as determined by credit rating agencies such as Standard & Poor’s, Moody’s and Fitch Ratings.
Consumer microlending credit risk
The Company is exposed to credit risk in its Consumer microlending activities, which provides unsecured short-term loans to
qualifying customers. Credit bureau checks as well as an affordability test are conducted as part of the origination process, both of
which are in line with local regulations. The Company considers this policy to be appropriate because the affordability test it performs
takes into account a variety of factors such as other debts and total expenditures on normal household and lifestyle expenses. Additional
allowances may be required should the ability of its customers to make payments when due deteriorate in the future. A significant
amount of judgment is required to assess the ultimate recoverability of these finance loan receivables, including ongoing evaluation
of the creditworthiness of each customer.
Merchant lending
The Company maintains an allowance for doubtful finance loans receivable related to its Merchant services segment with respect
to short-term loans to qualifying merchant customers. The Company’s risk management procedures include adhering to its proprietary
lending criteria which uses an online-system loan application process, obtaining necessary customer transaction-history data and credit
bureau checks. The Company considers these procedures to be appropriate because it takes into account a variety of factors such as
the customer’s credit capacity and customer-specific risk factors when originating a loan.
14
4. Fair value of financial instruments (continued)
Risk management (continued)
Equity price and liquidity risk
Equity price risk relates to the risk of loss that the Company would incur as a result of the volatility in the exchange-traded price
of equity securities that it holds. The market price of these securities may fluctuate for a variety of reasons and, consequently, the
amount that the Company may obtain in a subsequent sale of these securities may significantly differ from the reported market value.
Equity liquidity risk relates to the risk of loss that the Company would incur as a result of the lack of liquidity on the exchange
on which those securities are listed. The Company may not be able to sell some or all of these securities at one time, or over an
extended period of time without influencing the exchange-traded price, or at all.
Financial instruments
The following section describes the valuation methodologies the Company uses to measure its significant financial assets and
liabilities at fair value.
In general, and where applicable, the Company uses quoted prices in active markets for identical assets or liabilities to determine
fair value. This pricing methodology would apply to Level 1 investments. If quoted prices in active markets for identical assets or
liabilities are not available to determine fair value, then the Company uses quoted prices for similar assets and liabilities or inputs
other than the quoted prices that are observable either directly or indirectly. These investments would be included in Level 2
investments. In circumstances in which inputs are generally unobservable, values typically reflect management’s estimates of
assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-
based techniques that include option pricing models, discounted cash flow models, and similar techniques. Investments valued using
such techniques are included in Level 3 investments.
Asset measured at fair value using significant unobservable inputs – investment in Cell C
The Company’s Level 3 asset represents an investment of
75,000,000
provider in South Africa. The Company used a discounted cash flow model developed by the Company to determine the fair value of
its investment in Cell C as of March 31, 2024 and June 30, 2023, respectively, and valued Cell C at $
0.0
0.0
March 31, 2024, and June 30, 2023, respectively. The Company incorporates the payments under Cell C’s lease liabilities into the
cash flow forecasts and assumes that Cell C’s deferred tax assets would be utilized over the forecast period. The Company has increased
the marketability discount from
10
% to
20
% and the minority discount from
15
% to
24
% due to the reduction in the Company’s
shareholding percentage from
15
% to
5
% as well as current market conditions. The Company utilized the latest revised business plan
provided by Cell C management for the period ended December 31, 2027, for the March 31, 2024, and June 30, 2023, valuations.
Adjustments have been made to the WACC rate to reflect the Company’s assessment of risk to Cell C achieving its business plan.
The following key valuation inputs were used as of March 31, 2024 and June 30, 2023:
Weighted Average Cost of Capital ("WACC"):
Between
20
% and
26
% over the period of the forecast
Long term growth rate:
4.5
% (
4.5
% as of June 30, 2023)
Marketability discount:
20
% (
20
% as of June 30, 2023)
Minority discount:
24
% (
24
% as of June 30, 2023)
Net adjusted external debt - March 31, 2024:
(1)
ZAR
7.4
0.4
Net adjusted external debt - June 30, 2023:
(2)
ZAR
8.1
0.4
(1) translated from ZAR to U.S. dollars at exchange rates applicable as of March 31, 2024.
(2) translated from ZAR to U.S. dollars at exchange rates applicable as of June 30, 2023.
The following table presents the impact on the carrying value of the Company’s Cell C investment of a 1.0% decrease and 1.0%
increase in the WACC rate and the EBITDA margins respectively used in the Cell C valuation on March 31, 2024, all amounts
translated at exchange rates applicable as of March 31, 2024:
Sensitivity for fair value of Cell C investment
1.0% increase
1.0% decrease
WACC rate
$
-
$
553
EBITDA margin
$
1,241
$
-
The fair value of the Cell C shares as of March 31, 2024, represented
0
% of the Company’s total assets, including these shares.
The Company expects to hold these shares for an extended period of time and that there will be short-term equity price volatility with
respect to these shares particularly given that Cell C remains in a turnaround process.
15
4. Fair value of financial instruments (continued)
Financial instruments (continued)
Derivative transactions - Foreign exchange contracts
As part of the Company’s risk management strategy, the Company enters into derivative transactions to mitigate exposures to
foreign currencies using foreign exchange contracts. These foreign exchange contracts are over-the-counter derivative
transactions. Substantially all of the Company’s derivative exposures are with counterparties that have long-term credit ratings of “B”
(or equivalent) or better. The Company uses quoted prices in active markets for similar assets and liabilities to determine fair value
(Level 2). The Company has no derivatives that require fair value measurement under Level 1 or 3 of the fair value hierarchy.
The Company had
no
The following table presents the Company’s assets measured at fair value on a recurring basis as of March 31, 2024, according
to the fair value hierarchy:
Quoted Price in
Active Markets
for Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
Assets
Investment in Cell C
$
-
$
-
$
-
$
-
Related to insurance
business:
Cash, cash equivalents and
restricted cash (included
in other long-term assets)
213
-
-
213
Fixed maturity
investments (included in
cash and cash equivalents)
4,963
-
-
4,963
Total assets at fair value
$
5,176
$
-
$
-
$
5,176
The following table presents the Company’s assets measured at fair value on a recurring basis as of June 30, 2023, according to
the fair value hierarchy:
Quoted Price in
Active Markets
for Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
Assets
Investment in Cell C
$
-
$
-
$
-
$
-
Related to insurance business
Cash and cash equivalents
(included in other long-term
assets)
258
-
-
258
Fixed maturity investments
(included in cash and cash
equivalents)
3,119
-
-
3,119
Total assets at fair value
$
3,377
$
-
$
-
$
3,377
There have been
no
There was
no
3, during the nine months ended March 31, 2024 and 2023.
16
4. Fair value of financial instruments (continued)
Summarized below is the movement in the carrying value of assets and liabilities measured at fair value on a recurring basis, and
categorized within Level 3, during the nine months ended March 31, 2024:
Carrying value
Assets
Balance as of June 30, 2023
$
-
Foreign currency adjustment
(1)
-
Balance as of March 31, 2024
$
-
(1) The foreign currency adjustment represents the effects of the fluctuations of the South African rand against the U.S. dollar on
the carrying value.
Summarized below is the movement in the carrying value of assets and liabilities measured at fair value on a recurring basis, and
categorized within Level 3, during the nine months ended March 31, 2023:
Carrying value
Assets
Balance as of June 30, 2022
$
-
Foreign currency adjustment
(1)
-
Balance as of March 31, 2023
$
-
(1) The foreign currency adjustment represents the effects of the fluctuations of the South African rand against the U.S. dollar
on the carrying value.
Assets measured at fair value on a nonrecurring basis
The Company measures equity investments without readily determinable fair values at fair value on a nonrecurring basis. The
fair values of these investments are determined based on valuation techniques using the best information available and may include
quoted market prices, market comparables, and discounted cash flow projections. An impairment charge is recorded when the cost of
the asset exceeds its fair value and the excess is determined to be other-than-temporary. Refer to Note 5 for impairment charges
recorded during the reporting periods presented herein. The Company has
no
basis.
5. Equity-accounted investments and other long-term assets
Refer to Note 9 to the Company’s audited consolidated financial statements included in its Annual Report on Form 10-K for the
year ended June 30, 2023, for additional information regarding its equity-accounted investments and other long-term assets.
Equity-accounted investments
The Company’s ownership percentage in its equity-accounted investments as of March 31, 2024, and June 30, 2023, was as
follows:
March 31,
June 30,
2024
2023
Finbond Group Limited (“Finbond”)
-
%
27.8
%
Sandulela Technology (Pty) Ltd ("Sandulela")
49.0
%
49.0
%
SmartSwitch Namibia (Pty) Ltd (“SmartSwitch Namibia”)
50.0
%
50.0
%
Finbond
In December 2023, the Company sold its entire remaining equity interest in Finbond which comprised of
220,523,358
and which represented approximately
27.8
% of Finbond’s issued and outstanding ordinary shares immediately prior to the sale.
17
5. Equity-accounted investments and other long-term assets (continued)
Equity-accounted investments (continued)
Finbond (continued)
August 2023 agreement to sell entire stake in Finbond
On August 10, 2023, the Company, through its wholly owned subsidiary Net1 Finance Holdings (Pty) Ltd, entered into an
agreement with Finbond to sell its remaining shareholding to Finbond for a cash consideration of ZAR
64.2
3.5
ZAR
0.2911
finalized in December 2023. The Company did
no
t record a gain or loss on the disposal because the sale proceeds were equivalent to
the net carrying value, including accumulated reserves, of the investment in Finbond as of the disposal date. The cash proceeds received
of ZAR
64.2
3.5
Sale of Finbond shares during the three and nine months ended March 31, 2023
The Company sold
17,357,346
24,818,937
2023, respectively, and recorded a loss of $
0.3
0.4
accounted investments in the Company’s unaudited condensed consolidated statements of operations.
The following table presents the calculation of the loss on disposal of Finbond shares during the three and nine months ended
March 31, 2024 and 2023:
Three months ended
Nine months ended
March 31,
March 31,
2024
2023
2024
2023
Loss on disposal of Finbond shares:
Consideration received in cash
$
-
$
254
$
3,508
$
395
Less: carrying value of Finbond shares sold
-
(349)
(2,112)
(509)
Less: release of foreign currency translation reserve from
accumulated other comprehensive loss
-
(243)
(1,543)
(342)
Add: release of stock-based compensation charge related to
equity-accounted investment
-
9
147
13
Loss on sale of Finbond shares
$
-
$
(329)
$
-
$
(443)
Finbond impairments recorded during the nine months ended March 31, 2024
As noted earlier, the Company has entered into an agreement to exit its position in Finbond and the Company considered this an
impairment indicator. The Company is required to include any foreign currency translation reserve and other equity account amounts
in its impairment assessment if it considers exiting an equity method investment. The Company performed an impairment assessment
of its holding in Finbond, including the foreign currency translation reserve and other equity account amounts, as of September 30,
2023. The Company recorded an impairment loss of $
1.2
difference between the determined fair value of the Company’s interest in Finbond and the Company’s carrying value, including the
foreign currency translation reserve (before the impairment). The Company used the price of ZAR
0.2911
2023 agreement referred to above to calculate the determined fair value for Finbond.
Finbond impairments recorded during the nine months ended March 31, 2023
The Company considered the combination of the ongoing losses incurred and reported by Finbond and its lower share price as
impairment indicators. The Company performed an impairment assessment of its holding in Finbond as of September 30, 2022. The
Company recorded an impairment loss of $
1.1
temporary decrease in Finbond’s value, which represented the difference between the determined fair value of the Company’s interest
in Finbond and the Company’s carrying value (before the impairment). The Company observed continued limited trading in Finbond
shares on the JSE during the three months ended September 30, 2022, because a small number of shareholders owned approximately
80
% of its issued and outstanding shares between them. The Company calculated a fair value per share for Finbond by applying a
liquidity discount of
25
% to the September 30, 2022, Finbond closing price of ZAR
0.49
. The Company increased the liquidity discount
from
15
% (used in the previous impairment assessment) to
25
% as a result of the ongoing limited trading activity observed on the
JSE.
18
5. Equity-accounted investments and other long-term assets (continued)
Equity-accounted investments (continued)
Carbon
In September 2022, the Company, through its wholly-owned subsidiary, Net1 Applied Technologies Netherlands B.V. (“Net1
BV”), entered into a binding term sheet with the Etobicoke Limited (“Etobicoke”) to sell its entire interest, or
25
%, in Carbon to
Etobicoke for $
0.5
3.0
0.75
equity interest and the loan had a carrying value of $
0
Carbon shares purchased as security for the amounts outstanding under the binding term sheet.
The Company received $
0.25
follows: (i) $
0.25
0.75
million in March 2024 (the amount has not been received as of March 31, 2024 (refer to Note 2)). Both amounts were included in the
caption accounts receivable, net and other receivables in the Company’s unaudited condensed consolidated balance sheet as of June
30, 2023. The Company has allocated the $
0.25
subsequent funds received first to the sale of the equity interest and then to the loans.
The Company believed that the fair value of the Carbon shares provided as security was $
0
carrying value as of June 30, 2022, and created an allowance for doubtful loans receivable related to the $
1.0
from Etobicoke. The Company did not incur any significant transaction costs. The Company has included the gain of $
0.25
related to the sale of the Carbon equity interest in the caption net gain on disposal of equity-accounted investments in the Company’s
unaudited condensed consolidated statements of operations.
The following table presents the calculation of the gain on disposal of Carbon in September 2022:
Three months
ended September
30,
2022
Gain on disposal of Carbon shares:
Consideration received in cash in September 2022
$
250
Less: carrying value of Carbon
-
Gain on disposal of Carbon shares:
(1)
$
250
(1) The Company does not expect to pay taxes related to the sale of Carbon because the base cost of its investment exceeds the
sales consideration received. The Company does not believe that it will be able to utilize the loss generated because Net1 BV does not
generate taxable income.
Summarized below is the movement in equity-accounted investments and loans provided to equity-accounted investments during
the nine months ended March 31, 2024:
Finbond
Other
(1)
Total
Investment in equity
Balance as of June 30, 2023
$
3,040
$
131
$
3,171
Stock-based compensation
14
-
14
Comprehensive income:
(956)
126
(830)
Other comprehensive income
489
-
489
Equity accounted (loss) earnings
(1,445)
126
(1,319)
Share of net (loss) earnings
(278)
126
(152)
Impairment
(1,167)
-
(1,167)
Dividends received
-
(95)
(95)
Disposal of Finbond shares
(2,096)
-
(2,096)
Foreign currency adjustment
(2)
(2)
(3)
(5)
Balance as of March 31, 2024
$
-
$
159
$
159
(1) Includes Sandulela, and SmartSwitch Namibia;
(2) The foreign currency adjustment represents the effects of the fluctuations of the ZAR and Namibian dollar, against the U.S.
dollar on the carrying value.
19
5. Equity-accounted investments and other long-term assets (continued)
Other long-term assets
Summarized below is the breakdown of other long-term assets as of March 31, 2024, and June 30, 2023:
March 31,
June 30,
2024
2023
Total equity investments
$
76,297
$
76,297
Investment in
5
% of Cell C (June 30, 2023:
5
%) at fair value (Note 4)
-
-
Investment in
10
% of MobiKwik (June 30, 2023:
10
%)
(1)
76,297
76,297
Investment in
87.5
% of CPS (June 30, 2023:
87.5
%) at fair value
(1)(2)
-
-
Policy holder assets under investment contracts (Note 7)
213
257
Reinsurance assets under insurance contracts (Note 7)
1,525
1,040
Total other long-term assets
$
78,035
$
77,594
(1) The Company determined that MobiKwik and CPS do not have readily determinable fair values and therefore elected to
record these investments at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly
transactions for the identical or a similar investment of the same issuer.
(2) On October 16, 2020, the High Court of South Africa, Gauteng Division, Pretoria ordered that CPS be placed into liquidation.
Summarized below are the components of the Company’s equity securities without readily determinable fair value and held to
maturity investments as of March 31, 2024:
Cost basis
Unrealized
holding
Unrealized
holding
Carrying
gains
losses
value
Equity securities:
Investment in MobiKwik
$
26,993
$
49,304
$
-
$
76,297
Investment in CPS
-
-
-
-
Held to maturity:
Investment in Cedar Cellular notes (Note 2)
-
-
-
-
Total
$
26,993
$
49,304
$
-
$
76,297
Summarized below are the components of the Company’s equity securities without readily determinable fair value and held to
maturity investments as of June 30, 2023:
Cost basis
Unrealized
holding
Unrealized
holding
Carrying
gains
losses
value
Equity securities:
Investment in MobiKwik
$
26,993
$
49,304
$
-
$
76,297
Investment in CPS
-
-
-
-
Held to maturity:
Investment in Cedar Cellular notes
-
-
-
-
Total
$
26,993
$
49,304
$
-
$
76,297
20
6. Goodwill and intangible assets, net
Goodwill
Summarized below is the movement in the carrying value of goodwill for the nine months ended March 31, 2024:
Gross value
Accumulated
impairment
Carrying
value
Balance as of June 30, 2023
$
152,619
$
(18,876)
$
133,743
Foreign currency adjustment
(1)
(297)
27
(270)
Balance as of March 31, 2024
$
152,322
$
(18,849)
$
133,473
(1) – The foreign currency adjustment represents the effects of the fluctuations of the South African rand against the U.S.
dollar on the carrying value.
Goodwill has been allocated to the Company’s reportable segments as follows:
Consumer
Merchant
Carrying value
Balance as of June 30, 2023
$
-
$
133,743
$
133,743
Foreign currency adjustment
(1)
-
(270)
(270)
Balance as of March 31, 2024
$
-
$
133,473
$
133,473
(1) The foreign currency adjustment represents the effects of the fluctuations of the South African rand against the U.S. dollar
on the carrying value.
Intangible assets, net
Carrying value and amortization of intangible assets
Summarized below is the carrying value and accumulated amortization of intangible assets as of March 31, 2024, and June 30,
2023:
As of March 31, 2024
As of June 30, 2023
Gross
carrying
value
Accumulated
amortization
Net
carrying
value
Gross
carrying
value
Accumulated
amortization
Net
carrying
value
Finite-lived intangible assets:
Customer relationships
$
24,927
$
(13,021)
$
11,906
$
24,978
$
(11,565)
$
13,413
Software, integrated
platform and unpatented
technology
110,914
(22,026)
88,888
110,906
(13,711)
97,195
FTS patent
2,030
(2,030)
-
2,034
(2,034)
-
Brands and trademarks
13,824
(3,820)
10,004
13,852
(2,863)
10,989
Total finite-lived intangible
assets
$
151,695
$
(40,897)
$
110,798
$
151,770
$
(30,173)
$
121,597
Aggregate amortization expense on the finite-lived intangible assets for the three months ended March 31, 2024 and 2023, was
$
3.6
3.8
ended March 31, 2024 and 2023, was $
10.8
11.6
the next five fiscal years and thereafter, assuming exchange rates that prevailed on March 31, 2024, is presented in the table below.
Actual amortization expense in future periods could differ from this estimate as a result of acquisitions, changes in useful lives,
exchange rate fluctuations and other relevant factors.
Fiscal 2024 (three months ended March 31, 2024)
$
3,594
Fiscal 2025
14,382
Fiscal 2026
14,382
Fiscal 2027
14,327
Fiscal 2028
14,295
Thereafter
49,818
Total future estimated annual amortization expense
$
110,798
21
7. Assets and policyholder liabilities under insurance and investment contracts
Reinsurance assets and policyholder liabilities under insurance contracts
Summarized below is the movement in reinsurance assets and policyholder liabilities under insurance contracts during the nine
months ended March 31, 2024:
Reinsurance
Assets
(1)
Insurance
contracts
(2)
Balance as of June 30, 2023
$
1,040
$
(1,600)
Increase in policy holder benefits under insurance contracts
809
(5,498)
Claims and decrease in policyholders’ benefits under insurance contracts
(319)
4,833
Foreign currency adjustment
(3)
(5)
8
Balance as of March 31, 2024
$
1,525
$
(2,257)
(1) Included in other long-term assets (refer to Note 5);
(2) Included in other long-term liabilities;
(3) Represents the effects of the fluctuations of the ZAR against the U.S. dollar.
The Company has agreements with reinsurance companies in order to limit its losses from various insurance contracts, however,
if the reinsurer is unable to meet its obligations, the Company retains the liability. The value of insurance contract liabilities is based
on the best estimate assumptions of future experience plus prescribed margins, as required in the markets in which these products are
offered, namely South Africa. The process of deriving the best estimate assumptions plus prescribed margins includes assumptions
related to claim reporting delays (based on average industry experience).
Assets and policyholder liabilities under investment contracts
Summarized below is the movement in assets and policyholder liabilities under investment contracts during the nine months
ended March 31, 2024:
Assets
(1)
Investment
contracts
(2)
Balance as of June 30, 2023
$
257
$
(241)
Increase in policy holder benefits under investment contracts
8
(8)
Claims and decrease in policyholders’ benefits under investment contracts
(44)
44
Foreign currency adjustment
(3)
(8)
(8)
Balance as of March 31, 2024
$
213
$
(213)
(1) Included in other long-term assets (refer to Note 5);
(2) Included in other long-term liabilities;
(3) Represents the effects of the fluctuations of the ZAR against the U.S. dollar.
The Company does not offer any investment products with guarantees related to capital or returns.
8. Borrowings
Refer to Note 12 to the Company’s audited consolidated financial statements included in its Annual Report on Form 10-K for
the year ended June 30, 2023, for additional information regarding its borrowings.
South Africa
The amounts below have been translated at exchange rates applicable as of the dates specified. The 3-month Johannesburg
Interbank Agreed Rate (“JIBAR”), the rate at which private sector banks borrow funds from the South African Reserve Bank, on
March 31, 2024, was
8.35
%. The prime rate, the benchmark rate at which private sector banks lend to the public in South Africa, on
March 31, 2024, was
11.75
%.
22
8. Borrowings (borrowings)
South Africa (continued)
RMB Facilities, as amended, comprising a short-term facility (Facility E) and long-term borrowings
Long-term borrowings - Facility G and Facility H
As of March 31, 2024, the Company had not utilized any of its ZAR
200
rate on this facility as of March 31, 2024, was JIBAR plus
5.50
%.
On November 24, 2023, the Company, through its wholly owned subsidiary, Lesaka Technologies Proprietary Limited (“Lesaka
SA”), entered into an Amendment and Restatement Agreement (the “Amendment”), which includes an Amended and Restated Senior
Facility G Agreement (“Facility G Agreement”) and an Amended and Restated Senior Facility H Agreement (“Facility H Agreement”)
(collectively, the “Loan Documents”) with FirstRand Bank Limited (acting through its Rand Merchant Bank division) (“RMB” or the
“Lenders”).
The Loan Documents were amended to include a Look Through Leverage (“LTL”) ratio, as defined in the Loan Documents, and
expressed as times (“x”), to calculate the margin used in the determination of the interest rate. The LTL ratio is calculated as the Total
Attributable Net Debt, as defined in the Loan Documents, to the Total Attributable EBITDA, as defined in the Loan Documents, for
the measurement period ending on a specified date.
Interest on Facility G and Facility H is based on the JIBAR in effect from time to time plus a margin, which as a result of the
Amendment, from October 1, 2023, will be calculated as: (i)
5.50
% if the LTL ratio is greater than 3.50x; (ii)
4.75
% if the LTL ratio
is less than 3.50x but greater than 2.75x; (iii)
3.75
% if the LTL ratio is less than 2.75x but greater than 1.75x; or (iv)
2.50
% if the LTL
ratio is less than 1.75x.
The Company used cash proceeds of ZAR
64.2
3.5
during the nine months ended March 31, 2024, to repay capitalized interest under Facility G and Facility H.
Available short-term facility - Facility E
As of March 31, 2024, the aggregate amount of the Company’s short-term South African overdraft facility with RMB was ZAR
0.9
47.7
0.1
4.3
This overdraft facility may only be used to fund ATMs and therefore the overdraft utilized and converted to cash to fund the Company’s
ATMs is considered restricted cash. The interest rate on this facility is equal to the prime rate.
Connect Facilities, comprising long-term borrowings and a short-term facility
As of March 31, 2024, the Connect Facilities include (i) an overdraft facility (general banking facility) of ZAR
205.0
which ZAR
170.0
700.0
550.0
utilized); and (iv) an asset-backed facility of ZAR
200.0
154.6
CCC Revolving Credit Facility, comprising long-term borrowings
As of March 31, 2024, the amount of the CCC Revolving Credit Facility was ZAR
300.0
241.0
has been utilized). Interest on the Revolving Credit Facility is payable on the last business day of each calendar month and is based on
the South African prime rate in effect from time to time plus a margin of
0.95
% per annum.
RMB facility, comprising indirect facilities
As of March 31, 2024, the aggregate amount of the Company’s short-term South African indirect credit facility with RMB was
ZAR
135.0
7.1
March 31, 2024 and June 30, 2023, the Company had utilized ZAR
33.1
1.8
33.1
1.8
respectively, of its indirect and derivative facilities of ZAR
135.0
135.0
issue guarantees, letters of credit and forward exchange contracts (refer to Note 19).
23
8. Borrowings (borrowings)
South Africa (continued)
Nedbank facility, comprising short-term facilities
As of March 31, 2024, the aggregate amount of the Company’s short-term South African credit facility with Nedbank Limited
was ZAR
156.6
8.3
156.6
8.3
million), which include guarantees, letters of credit and forward exchange contracts.
As of March 31, 2024 and June 30, 2023, the Company had utilized ZAR
2.1
0.1
2.1
0.1
million), respectively, of its indirect and derivative facilities of ZAR
156.6
156.6
bank to issue guarantees, letters of credit and forward exchange contracts (refer to Note 19).
Movement in short-term credit facilities
Summarized below are the Company’s short-term facilities as of March 31, 2024, and the movement in the Company’s short-
term facilities from as of June 30, 2023 to as of March 31, 2024:
RMB
RMB
RMB
Nedbank
Facility E
Indirect
Connect
Facilities
Total
Short-term facilities available as of
March 31, 2023
$
47,680
$
7,152
$
10,860
$
8,294
$
73,986
Overdraft
-
-
10,860
-
10,860
Overdraft restricted as to use for
ATM funding only
47,680
-
-
-
47,680
Indirect and derivative facilities
-
7,152
-
8,294
15,446
Movement in utilized overdraft
facilities:
Restricted as to use for ATM
funding only
23,021
-
-
-
23,021
No restrictions as to use
-
-
9,025
-
9,025
Balance as of June 30, 2023
23,021
-
9,025
-
32,046
Utilized
153,477
-
2
-
153,479
Repaid
(172,219)
-
(2)
-
(172,221)
Foreign currency
adjustment
(1)
(7)
-
(19)
-
(26)
Balance as of March 31, 2024
4,272
-
9,006
-
13,278
Restricted as to use for ATM
funding only
4,272
-
-
-
4,272
No restrictions as to use
$
-
$
-
$
9,006
$
-
$
9,006
Interest rate as of March 31, 2024
(%)
(2)
11.75
-
11.65
-
Movement in utilized indirect and
derivative facilities:
Balance as of June 30, 2023
$
-
$
1,757
$
-
$
112
$
1,869
Foreign currency adjustment
(1)
-
(3)
-
-
(3)
Balance as of March 31, 2024
$
-
$
1,754
$
-
$
112
$
1,866
(1) Represents the effects of the fluctuations between the ZAR and the U.S. dollar.
(2) Facility E interest set at prime and the Connect facility at prime less
0.10
%.
24
8. Borrowings (continued)
Movement in long-term borrowings
Summarized below is the movement in the Company’s long-term borrowing from as of as of June 30, 2023 to as of March 31,
2024:
Facilities
G & H
A&B
CCC
Asset backed
Total
Included in current
$
-
$
-
$
-
$
3,663
$
3,663
Included in long-term
48,965
64,436
11,802
4,252
129,455
Opening balance as of June 30, 2023
48,965
64,436
11,802
7,915
133,118
Facilities utilized
8,072
-
2,915
3,439
14,426
Facilities repaid
(7,929)
-
(1,968)
(3,154)
(13,051)
Non-refundable fees paid
-
-
-
-
-
Non-refundable fees amortized
309
36
36
-
381
Capitalized interest
5,420
-
-
-
5,420
Capitalized interest repaid
(4,238)
-
-
-
(4,238)
Foreign currency adjustment
(1)
(232)
(130)
(19)
(8)
(389)
Closing balance as of March 31,
2024
50,367
64,342
12,766
8,192
135,667
Included in current
-
-
-
3,269
3,269
Included in long-term
50,367
64,342
12,766
4,923
132,398
Unamortized fees
(292)
(185)
(31)
-
(508)
Due within 2 years
-
1,656
-
3,592
5,248
Due within 3 years
50,659
6,953
12,797
1,180
71,589
Due within 4 years
-
55,918
-
108
56,026
Due within 5 years
$
-
$
-
$
-
$
43
$
43
Interest rates as of March 31, 2024 (%):
13.10
12.10
12.70
12.50
Base rate (%)
8.35
8.35
11.75
11.75
Margin (%)
4.75
3.75
0.95
0.75
Footnote number
(2)
(3)
(4)
(5)
(1) Represents the effects of the fluctuations between the ZAR and the U.S. dollar.
(2) Interest on Facility G and Facility H was calculated based on the 3-month JIBAR in effect from time to time plus a margin
of, from January 1, 2023 to September 30, 2023: (i)
5.50
% for as long as the aggregate balance under the Facilities is greater than
ZAR
800
4.25
% if the aggregate balance under the Facilities is equal to or less than ZAR
800
ZAR
350
2.50
% if the aggregate balance under the Facilities is less than ZAR
350
interest is calculated as described above.
(3) Interest on Facility A and Facility B is calculated based on JIBAR plus a margin, of
3.75
%, in effect from time to time.
(4) Interest is charged at prime plus
0.95
% per annum on the utilized balance.
(5) Interest is charged at prime plus
0.75
% per annum on the utilized balance.
Interest expense incurred under the Company’s South African long-term borrowings and included in the caption interest expense
on the condensed consolidated statement of operations during the three months ended March 31, 2024 and 2023, was $
4.0
$
3.0
and 2023, respectively, were $
0.1
0.2
CCC facilities relates to borrowings utilized to fund a portion of the Company’s merchant finance loans receivable and this interest
expense of $
0.4
0.3
support on the condensed consolidated statement of operations for the three months ended March 31, 2024 and 2023.
Interest expense incurred during the nine months ended March 31, 2024 and 2023, was $
12.1
5.7
respectively. Prepaid facility fees amortized included in interest expense during the nine months ended March 31, 2024 and 2023,
respectively, were $
0.3
0.4
facilities relates to borrowings utilized to fund a portion of the Company’s merchant finance loans receivable and this interest expense
of $
1.1
0.5
the condensed consolidated statement of operations for the nine months ended March 31, 2024 and 2023.
25
9. Other payables
Summarized below is the breakdown of other payables as of March 31, 2024, and June 30, 2023:
March 31,
June 30,
2024
2023
Clearing accounts
(1)
$
9,405
$
4,016
Vendor wallet balances
(1)
15,506
9,492
Accruals
8,988
7,078
Provisions
5,590
7,429
Value -added tax payable
1,344
1,247
Payroll-related payables
828
1,038
Participating merchants' settlement obligation
22
39
Other
7,787
5,958
$
49,470
$
36,297
(1) Clearing accounts and vendor wallet balances (previously defined as transactions-switching funds payables) as of June 30,
2023, were previously included in Other and have been reclassified to separate captions to conform with presentation as of March 31,
2024. Clearing accounts and vendor wallet balances may fluctuate due to day (weekend or public holiday) on which the Company’s
quarter or year end falls because certain elements of transactions within these accounts are not settled over weekends or public holidays.
Other includes deferred income, client deposits and other payables.
10. Capital structure
Issue of shares to Connect sellers pursuant to April 2022 transaction
The total purchase consideration pursuant to the Connect acquisition in April 2022 includes
3,185,079
common stock. These shares of common stock will be issued in
three
of the April 14, 2022 closing. The Company legally issued
1,061,693
the Connect sellers in April 2024, and this had no impact on the number of shares, net of treasury, presented in the unaudited condensed
consolidated statement of changes during the nine months ended March 31, 2024 because the
3,185,079
number of shares, net of treasury, as of June 30, 2023, and March 31, 2024.
Impact of non-vested equity shares on number of shares, net of treasury
The following table presents a reconciliation between the number of shares, net of treasury, presented in the unaudited condensed
consolidated statement of changes in equity during the nine months ended March 31, 2024 and 2023, respectively, and the number of
shares, net of treasury, excluding non-vested equity shares that have not vested as of March 31, 2024 and 2023, respectively:
March 31,
March 31,
2024
2023
Number of shares, net of treasury:
Statement of changes in equity
64,466,830
63,743,900
Non-vested equity shares that have not vested as of end of period
3,131,469
3,194,463
Number of shares, net of treasury, excluding non-vested equity shares that have not
vested
61,335,361
60,549,437
11. Accumulated other comprehensive loss
The table below presents the change in accumulated other comprehensive loss per component during the three months ended
March 31, 2024:
Three months ended
March 31, 2024
Accumulated
foreign
currency
translation
reserve
Total
Balance as of January 1, 2024
$
(189,378)
$
(189,378)
Movement in foreign currency translation reserve
(5,718)
(5,718)
Balance as of March 31, 2024
$
(195,096)
$
(195,096)
26
11. Accumulated other comprehensive loss (continued)
The table below presents the change in accumulated other comprehensive loss per component during the three months ended
March 31, 2023:
Three months ended
March 31, 2023
Accumulated
foreign
currency
translation
reserve
Total
Balance as of January 1, 2023
$
(176,238)
$
(176,238)
Release of foreign currency translation reserve related to disposal of Finbond equity securities
243
243
Movement in foreign currency translation reserve related to equity-accounted investment
216
216
Movement in foreign currency translation reserve
(9,775)
(9,775)
Balance as of March 31, 2023
$
(185,554)
$
(185,554)
The table below presents the change in accumulated other comprehensive loss per component during the nine months ended
March 31, 2024:
Nine months ended
March 31, 2024
Accumulate
d foreign
currency
translation
reserve
Total
Balance as of July 1, 2023
$
(195,726)
$
(195,726)
Release of foreign currency translation reserve related to disposal of Finbond equity securities
(Note 5)
1,543
1,543
Release of foreign currency translation reserve related to liquidation of subsidiaries
(952)
(952)
Movement in foreign currency translation reserve related to equity-accounted investment
489
489
Movement in foreign currency translation reserve
(450)
(450)
Balance as of March 31, 2024
$
(195,096)
$
(195,096)
The table below presents the change in accumulated other comprehensive loss per component during the nine months ended
March 31, 2023:
a
Nine months ended
March 31, 2023
Accumulate
d foreign
currency
translation
reserve
Total
Balance as of July 1, 2022
$
(168,840)
$
(168,840)
Release of foreign currency translation reserve related to disposal of Finbond equity securities
342
342
Movement in foreign currency translation reserve related to equity -accounted investment
2,657
2,657
Movement in foreign currency translation reserve
(19,713)
(19,713)
Balance as of March 31, 2023
$
(185,554)
$
(185,554)
The movement in the foreign currency translation reserve represents the impact of translation of consolidated entities which have
a functional currency (which is primarily ZAR) to the Company’s reporting currency, which is USD.
During the nine months ended March 31, 2024, the Company reclassified losses of $
1.5
comprehensive loss (accumulated foreign currency translation reserve) to net loss related to the disposal of shares in Finbond (refer to
Note 5). During the three and nine months ended March 31, 2023, the Company reclassified losses of $
0.2
0.3
respectively, from accumulated other comprehensive loss (accumulated foreign currency translation reserve) to net loss related to the
disposal of shares in Finbond. The Company also reclassified a gain of $
1.0
(accumulated foreign currency translation reserve) to net loss related to the liquidation of subsidiaries during the nine months ended
March 31, 2024.
27
12. Stock-based compensation
The Company’s Amended and Restated 2022 Stock Incentive Plan (“20 22 Plan”) and the vesting terms of certain stock-based
awards granted are described in Note 17 to the Company’s audited consolidated financial statements included in its Annual Report on
Form 10-K for the year ended June 30, 2023.
Stock option and restricted stock activity
Options
The following table summarizes stock option activity for the nine months ended March 31, 2024 and 2023:
Number of
shares
Weighted
average
exercise
price
($)
Weighted
average
remaining
contractual
term
(in years)
Aggregate
intrinsic
value
($'000)
Weighted
average
grant date
fair value
($)
Outstanding - June 30, 2023
673,274
4.37
5.14
239
1.67
Granted - December 2023
500,000
3.50
5.17
880
1.76
Exercised
(23,217)
1.20
-
14
-
Forfeited
(195,739)
3.93
-
-
1.39
Outstanding - March 31, 2024
954,318
4.03
5.24
45
1.78
Outstanding - June 30, 2022
926,225
4.14
6.60
1,249
1.60
Exercised
(147,326)
3.04
-
190
-
Forfeited
(66,959)
3.66
-
-
-
Outstanding - March 31, 2023
711,940
4.41
5.42
670
1.64
The Company awarded
500,000
ended March 31, 2024. These option s will vest on the first anniversary of the grant date, provided that Mr. Mazandarani continues to
provide services as Executive Chair through the vesting date. These options will vest immediately if Mr. Mazanderani’s employment
is terminated by the Company without cause on or before the first anniversary of the grant date. These
500,000
be exercised during a period commencing from January 31, 2028 to January 31, 2029.
No
months ended March 31, 2024, or during the three and nine months ended December 31, 2022.
During the three and nine months ended March 31, 2024, the Company received $
0.05
0.07
of
15,832
23,217
23,934
37,500
0.1
23,934
6,105
shares of the Company’s common stock to settle income taxes arising upon exercise of the stock options, and these shares have also
been included in the Company’s treasury stock. During the nine months ended March 31, 2023, the Company received approximately
$
0.4
147,326
Employees and a non-employee director forfeited an aggregate of
8,893
195,739
months ended March 31, 2024. Employees forfeited
66,959
The fair value of each option is estimated on the date of grant using the Cox Ross Rubinstein binomial model that uses the
assumptions noted in the following table. The estimated expected volatility is calculated based on the Company’s 750-day volatility.
The estimated expected life of the option was determined based on the historical behavior of employees who were granted options
with similar terms.
The table below presents the range of assumptions used to value stock options granted during the nine months ended March 31,
2024 and 2023:
Nine months ended
March 31,
2024
2023
Expected volatility
56
%
0
%
Expected dividends
0
%
0
%
Expected life (in years)
5
0
Risk-free rate
2.1
%
0.0
%
28
12. Stock-based compensation (continued)
Stock option and restricted stock activity
Options
The following table presents stock options vested and expected to vest as of March 31, 2024:
Number of
shares
Weighted
average
exercise
price
($)
Weighted
average
remaining
contractual
term
(in years)
Aggregate
intrinsic
value
($’000)
Vested and expecting to vest - March 31, 2024
954,318
4.03
5.24
45
These options have an exercise price range of $
3.01
11.23
.
The following table presents stock options that are exercisable as of March 31, 2024:
Number of
shares
Weighted
average
exercise
price
($)
Weighted
average
remaining
contractual
term
(in years)
Aggregate
intrinsic
value
($’000)
Exercisable - March 31, 2024
425,746
4.60
5.69
45
During the three months ended March 31, 2024 and 2023, respectively,
28,569
35,649
During the nine months ended March 31, 2024 and 2023, respectively,
116,063
327,965
Company issues new shares to satisfy stock option exercises.
29
12. Stock-based compensation (continued)
Stock option and restricted stock activity (continued)
Restricted stock
The following table summarizes restricted stock activity for the nine months ended March 31, 2024 and 2023:
Number of
shares of
restricted stock
Weighted
average grant
date fair value
($’000)
Non-vested – June 30, 2023
2,614,419
11,869
Total granted
934,521
3,622
Granted – October 2023
333,080
1,456
Granted – October 2023, with performance conditions
310,916
955
Granted – October 2023
225,000
983
Granted – January 2024
56,330
197
Granted – February 2024
9,195
31
Total vested
(339,803)
1,274
Vested – July 2023
(78,800)
302
Vested – November 2023
(109,833)
429
Vested – December 2023
(67,073)
234
Vested – February 2024
(14,811)
53
Vested – March 2024
(69,286)
256
Forfeitures
(77,668)
278
Non-vested – March 31, 2024
3,131,469
13,434
Non-vested – June 30, 2022
2,385,267
11,879
Total Granted
1,062,153
4,287
Granted – July 2022
32,582
172
Granted – August 2022
179,498
995
Granted – November 2022
150,000
605
Granted – December 2022
430,399
1,862
Granted – December 2022, with performance awards
257,868
596
Granted – January 2023
11,806
57
Total vested
(234,159)
1,098
Vested – July 2022
(78,801)
410
Vested – November 2022
(59,833)
250
Vested – December 2022
(7,060)
29
Vested – February 2023
(19,179)
83
Vested – March 2023
(69,286)
326
Total granted and vested - December 2022
-
-
Granted - December 2022
300,000
1,365
Vested - December 2022
(300,000)
1,365
Forfeitures
(18,798)
9,235
Non-vested – March 31, 2023
3,194,463
14,822
30
12. Stock-based compensation (continued)
Stock option and restricted stock activity (continued)
Restricted stock (continued)
Grants
In October 2023, the Company awarded
333,080
150
The Company also awarded
225,000
except if the executive officer is terminated for cause, in which case the award will be forfeited. In January 2024, the Company awarded
56,330
In October 2023, the Company awarded
310,916
three
a time-based vesting condition and a market condition and vest in full only on the date, if any, that the following conditions are
satisfied: (1) a compounded annual
10
% appreciation in the Company’s stock price off a base price of $
4.00
period commencing on September 30, 2023 through November 17, 2026, and (2) the recipient is employed by the Company on a full-
time basis when the condition in (1) is met. If either of these conditions is not satisfied, then none of the shares of restricted stock will
vest and they will be forfeited. The Company’s closing price on September 30, 2023, was $
3.90
.
The appreciation levels (times and price) and vesting percentages as of each period ended are as follows:
●
Prior to the first anniversary of the grant date:
0
%;
●
Fiscal 2025, the Company’s 30-day volume weighted-average stock price (“VWAP”) before November 17, 2024 is
approximately
1.10
4.40
4.00
:
33
%;
●
Fiscal 2026, the Company’s VWAP before November 17, 2025 is
1.21
4.84
4.00
:
67
%;
●
Fiscal 2027, the Company’s VWAP before November 1, 2026 is
1.33
5.32
) than $
4.00
:
100
%.
The fair value of these shares of restricted stock was calculated using a Monte Carlo simulation. In scenarios where the shares
do not vest, the final vested value at maturity is zero. In scenarios where vesting occurs, the final vested value on maturity is the share
price on vesting date. In its calculation of the fair value of the restricted stock, the Company used an equally weighted volatility of
48.3
% for the closing price (of $
4.37
), a discounting based on U.S. dollar overnight indexed swap rates for the grant date, and no
future dividends. The equally weighted volatility was extracted from the time series for closing prices as the standard deviation of log
prices for the
three years
In July 2022, December 2022 and January 2023, the Company awarded
32,582
,
430,399
, and
11,806
respectively, to employees and an executive officer which have time-based vesting conditions. In December 2022, the Company
awarded
257,868
related to share price performance) vesting conditions. The Company also agreed to match, on a
one
-for-one basis, (1) an employee’s
purchase of up to $
1.0
Company granted
179,498
150,000
the Company’s common stock, and in November 2022, the Company granted
150,000
shares of restricted stock contain time-based vesting conditions. The Company awarded
300,000
December 31, 2022, which vested on the date of the award.
The
257,868
condition and vest in full only on the date, if any, that the following conditions are satisfied: (1) a compounded annual
10
% appreciation
in the Company’s stock price off a base price of $
4.94
December 1, 2025, and (2) the recipient is employed by the Company on a full-time basis when the condition in (1) is met. If either of
these conditions is not satisfied, then none of the shares of restricted stock will vest and they will be forfeited. The Company’s closing
price on December 1, 2022, was $
4.08
.
The appreciation levels (times and price) and vesting percentages as of each period ended are as follows:
●
Prior to the first anniversary of the grant date:
0
%;
●
Fiscal 2024, stock price as of December 1, 2023 is
1.1
5.43
4.94
:
33
%;
●
Fiscal 2025, stock price as of December 1, 2024 is
1.21
5.97
4.94
:
67
%;
●
Fiscal 2026, stock price as of December 1, 2025 is
1.331
6.57
) than $
4.94
:
100
%.
The fair value of these shares of restricted stock was calculated using a Monte Carlo simulation. In scenarios where the shares
do not vest, the final vested value at maturity is zero. In scenarios where vesting occurs, the final vested value on maturity is the share
price on vesting date. In its calculation of the fair value of the restricted stock, the Company used an equally weighted volatility of
50.1
% for the closing price (of $
4.08
), a discounting based on U.S. dollar overnight indexed swap rates for the grant date, and no
future dividends. The equally weighted volatility was extracted from the time series for closing prices as the standard deviation of log
prices for the three years preceding the grant date.
31
12. Stock-based compensation (continued)
Stock option and restricted stock activity (continued)
Restricted stock (continued)
As fully described in Note 17 to the Company’s audited consolidated financial statements included in its Annual Report on Form
10-K for the year ended June 30, 2023, the Company granted a further
12,962
32,405
nine months ended March 31, 2023, respectively, which were ineligible for transfer until the earlier of December 31, 2022, or the
occurrence of the agreed event.
Vesting
In July 2023,
78,800
March 2024, an aggregate of
261,003
53,486
shares to be withheld to satisfy the withholding tax liability on the vesting of their shares. These
53,486
the Company’s treasury shares.
In July 2022,
78,801
35,460
satisfy the withholding tax liability on the vesting of these shares. In November, December 2022, February 2023 and March 2023, an
aggregate of
155,358
38,008
to satisfy the withholding tax liability on the vesting of these shares. These
73,468
35,460
38,008
) shares have been included in
our treasury shares.
Forfeitures
During the three and nine months ended March 31, 2024, respectively, employees forfeited
55,539
77,668
stock following their termination of employment with the Company. During the three and nine months ended March 31, 2023,
employees forfeited
18,798
Stock-based compensation charge and unrecognized compensation cost
The Company recorded a stock-based compensation charge, net during the three months ended March 31, 2024 and 2023, of $
2.1
million and $
1.6
Total charge
Allocated to cost
of goods sold, IT
processing,
servicing and
support
Allocated to
selling, general
and
administration
Three months ended March 31, 2024
Stock-based compensation charge
$
2,202
$
-
$
2,202
Reversal of stock compensation charge related to stock
options and restricted stock forfeited
(112)
-
(112)
Total - three months ended March 31, 2024
$
2,090
$
-
$
2,090
Three months ended March 31, 2023
Stock-based compensation charge
$
1,667
$
-
$
1,667
Reversal of stock compensation charge related to stock
options and restricted stock forfeited
(23)
-
(23)
Total - three months ended March 31, 2023
$
1,644
$
-
$
1,644
32
12. Stock-based compensation (continued)
Stock-based compensation charge and unrecognized compensation cost (continued)
The Company recorded a stock-based compensation charge, net during the nine months ended March 31, 2024 and 2023, of $
5.7
million and $
6.0
a
Total charge
Allocated to cost
of goods sold, IT
processing,
servicing and
support
Allocated to
selling, general
and
administration
Nine months ended March 31, 2024
Stock-based compensation charge
$
5,782
$
-
$
5,782
Reversal of stock compensation charge related to stock
options forfeited
(129)
-
(129)
Total - nine months ended March 31, 2024
$
5,653
$
-
$
5,653
Nine months ended March 31, 2023
Stock-based compensation charge
$
5,978
$
-
$
5,978
Reversal of stock compensation charge related to stock
options and restricted stock forfeited
(23)
-
(23)
Total - nine months ended March 31, 2023
$
5,955
$
-
$
5,955
The stock-based compensation charges have been allocated to selling, general and administration based on the allocation of the
cash compensation paid to the relevant employees.
As of March 31, 2024, the total unrecognized compensation cost related to stock options was $
0.6
expects to recognize over
two years
. As of March 31, 2024, the total unrecognized compensation cost related to restricted stock awards
was $
5.9
two years
.
As of March 31, 2024, and June 30, 2023, respectively, the Company recorded a deferred tax asset of $
1.1
0.6
million, related to the stock-based compensation charge recognized related to employees of Lesaka. As of March 31, 2024, and June
30, 2023, respectively, the Company recorded a valuation allowance of $
1.1
0.6
because it does not believe that the stock-based compensation deduction would be utilized as it does not anticipate generating sufficient
taxable income in the United States. The Company deducts the difference between the market value on the date of exercise by the
option recipient and the exercise price from income subject to taxation in the United States.
13. (Loss) Earnings per share
The Company has issued redeemable common stock which is redeemable at an amount other than fair value. Redemption of a
class of common stock at other than fair value increases or decreases the carrying amount of the redeemable common stock and is
reflected in basic earnings per share using the two-class method. There were
no
carrying value of the redeemable common stock during the three and nine months ended March 31, 2024 and 2023. Accordingly, the
two-class method presented below does not include the impact of any redemption. The Company’s redeemable common stock is
described in Note 14 to the Company’s audited consolidated financial statements included in its Annual Report on Form 10-K for the
year ended June 30, 2023.
Basic (loss) earnings per share includes shares of restricted stock that meet the definition of a participating security because these
shares are eligible to receive non -forfeitable dividend equivalents at the same rate as common stock. Basic (loss) earnings per share
has been calculated using the two-class method and basic (loss) earnings per share for the three and nine months ended March 31,
2024 and 2023, reflects only undistributed earnings. The computation below of basic (loss) earnings per share excludes the net loss
attributable to shares of unvested restricted stock (participating non-vested restricted stock) from the numerator and excludes the
dilutive impact of these unvested shares of restricted stock from the denominator.
Diluted (loss) earnings per share has been calculated to give effect to the number of shares of additional common stock that
would have been outstanding if the potential dilutive instruments had been issued in each period. Stock options are included in the
calculation of diluted (loss) earnings per share utilizing the treasury stock method and are not considered to be participating securities,
as the stock options do not contain non-forfeitable dividend rights. The Company has excluded employee stock options to purchase
42,770
185,902
2024 and 2023, because the effect would be antidilutive.
The calculation of diluted (loss) earnings per share includes the dilutive effect of a portion of the restricted stock granted to
employees as these shares of restricted stock are considered contingently returnable shares for the purposes of the diluted (loss)
earnings per share calculation and the vesting conditions in respect of a portion of the restricted stock had been satisfied.
33
13. (Loss) Earnings per share (continued)
The vesting conditions for all awards made are discussed in Note 17 to the Company’s audited consolidated financial statements
included in its Annual Report on Form 10-K for the year ended June 30, 2023.
The following table presents net loss attributable to Lesaka and the share data used in the basic and diluted loss per share
computations using the two-class method:
Three months ended
Nine months ended
March 31,
March 31,
2024
2023
2024
2023
(in thousands except
(in thousands except
percent and
percent and
per share data)
per share data)
Numerator:
Net loss attributable to Lesaka
$
(4,047)
$
(5,820)
$
(12,405)
$
(23,165)
Undistributed loss
(4,047)
(5,820)
(12,405)
(23,165)
Percent allocated to common shareholders
(Calculation 1)
96%
96%
95%
96%
Numerator for loss per share: basic and diluted
$
(3,868)
$
(5,605)
$
(11,816)
$
(22,130)
Denominator
Denominator for basic (loss) earnings per share:
weighted-average common shares outstanding
60,990
61,492
60,134
60,102
Effect of dilutive securities:
Denominator for diluted (loss) earnings
per share: adjusted weighted average
common shares outstanding and assuming
conversion
60,990
61,492
60,134
60,102
Loss per share:
Basic
$
(0.06)
$
(0.09)
$
(0.20)
$
(0.37)
Diluted
$
(0.06)
$
(0.09)
$
(0.20)
$
(0.37)
(Calculation 1)
Basic weighted-average common shares
outstanding (A)
60,990
61,492
60,134
60,102
Basic weighted-average common shares
outstanding and unvested restricted shares
expected to vest (B)
63,805
63,854
63,134
62,913
Percent allocated to common shareholders
96%
96%
95%
96%
Options to purchase
742,543
3.50
11.23
outstanding during the three months ended March 31, 2024, but were not included in the computation of diluted (loss) earnings per
share because the options’ exercise price was greater than the average market price of the Company’s common stock. Options to
purchase
293,949
4.87
11.23
the three months ended March 31, 2023, respectively, but were not included in the computation of diluted (loss) earnings per share
because the options’ exercise price was greater than the average market price of the Company’s common stock. The options, which
expire at various dates through February 3, 2032, were still outstanding as of March 31, 2024.
14. Supplemental cash flow information
The following table presents supplemental cash flow disclosures for the three and nine months ended March 31, 2024 and 2023:
Three months ended
Nine months ended
March 31,
March 31,
2024
2023
2024
2023
Cash received from interest
$
624
$
465
$
1,551
$
1,260
Cash paid for interest
$
3,464
$
3,157
$
12,697
$
10,120
Cash paid for income taxes
$
88
$
436
$
3,498
$
3,495
34
14. Supplemental cash flow information (continued)
Disaggregation of cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash included on the Company’s unaudited condensed consolidated statement of cash flows
includes restricted cash related to cash withdrawn from the Company’s debt facilities to fund ATMs. This cash may only be used to
fund ATMs and is considered restricted as to use and therefore is classified as restricted cash. Cash, cash equivalents and restricted
cash also includes cash in certain bank accounts that has been ceded to Nedbank. As this cash has been pledged and ceded it may not
be drawn and is considered restricted as to use and therefore is classified as restricted cash as well. Refer to Note 8 for additional
information regarding the Company’s facilities. The following table presents the disaggregation of cash, cash equivalents and restricted
cash as of March 31, 2024 and 2023, and June 30, 2023:
March 31,
2024
March 31,
2023
June 30, 2023
Cash and cash equivalents
$
55,223
$
49,423
$
35,499
Restricted cash
4,383
37,849
23,133
Cash, cash equivalents and restricted cash
$
59,606
$
87,272
$
58,632
Leases
The following table presents supplemental cash flow disclosure related to leases for the three and nine months ended March 31,
2024 and 2023:
Three months ended
Nine months ended
March 31,
March 31,
2024
2023
2024
2023
Cash paid for amounts included in the measurement of
lease liabilities
Operating cash flows from operating leases
$
853
$
695
$
2,225
$
2,256
Right-of-use assets obtained in exchange for lease
obligations
Operating leases
$
718
$
61
$
2,601
$
61
15. Revenue recognition
Disaggregation of revenue
The following table presents the Company’s revenue disaggregated by major revenue streams, including a reconciliation to
reportable segments for the three months ended March 31, 2024:
Merchant
Consumer
Total
Processing fees
$
28,682
$
6,353
$
35,035
South Africa
27,155
6,353
33,508
Rest of world
1,527
-
1,527
Technology products
1,795
8
1,803
South Africa
1,751
8
1,759
Rest of world
44
-
44
Telecom products and services
87,585
83
87,668
South Africa
82,484
83
82,567
Rest of world
5,101
-
5,101
Lending revenue
-
6,229
6,229
Interest from customers
1,553
-
1,553
Insurance revenue
-
3,178
3,178
Account holder fees
-
1,560
1,560
Other
675
493
1,168
South Africa
622
493
1,115
Rest of world
53
-
53
Total revenue, derived from the following geographic locations
120,290
17,904
138,194
South Africa
113,565
17,904
131,469
Rest of world
$
6,725
$
-
$
6,725
35
15. Revenue recognition (continued)
Disaggregation of revenue (continued)
The following table presents the Company’s revenue disaggregated by major revenue streams, including a reconciliation to
reportable segments for the three months ended March 31, 2023:
Merchant
Consumer
Total
Processing fees
$
27,541
$
6,438
$
33,979
South Africa
26,240
6,438
32,678
Rest of world
1,301
-
1,301
Technology products
4,322
298
4,620
South Africa
4,254
298
4,552
Rest of world
68
-
68
Telecom products and services
83,420
7
83,427
South Africa
79,308
7
79,315
Rest of world
4,112
-
4,112
Lending revenue
-
5,052
5,052
Interest from customers
1,555
-
1,555
Insurance revenue
-
2,584
2,584
Account holder fees
-
1,419
1,419
Other
1,254
78
1,332
South Africa
1,205
78
1,283
Rest of world
49
-
49
Total revenue, derived from the following geographic locations
118,092
15,876
133,968
South Africa
112,562
15,876
128,438
Rest of world
$
5,530
$
-
$
5,530
The following table presents the Company’s revenue disaggregated by major revenue streams, including a reconciliation to
reportable segments for the nine months ended March 31, 2024:
Merchant
Consumer
Total
Processing fees
$
87,246
$
18,261
$
105,507
South Africa
82,903
18,261
101,164
Rest of world
4,343
-
4,343
Technology products
7,035
39
7,074
South Africa
6,901
39
6,940
Rest of world
134
-
134
Telecom products and services
266,857
176
267,033
South Africa
252,000
176
252,176
Rest of world
14,857
-
14,857
Lending revenue
-
17,188
17,188
Interest from customers
4,526
-
4,526
Insurance revenue
-
8,686
8,686
Account holder fees
-
4,430
4,430
Other
2,321
1,411
3,732
South Africa
2,169
1,411
3,580
Rest of world
152
-
152
Total revenue, derived from the following geographic locations
367,985
50,191
418,176
South Africa
348,499
50,191
398,690
Rest of world
$
19,486
$
-
$
19,486
36
15. Revenue recognition (continued)
Disaggregation of revenue (continued)
The following table presents the Company’s revenue disaggregated by major revenue streams, including a reconciliation to
reportable segments for the nine months ended March 31, 2023:
Merchant
Consumer
Total
Processing fees
$
83,121
$
19,696
$
102,817
South Africa
79,175
19,696
98,871
Rest of world
3,946
-
3,946
Technology products
16,057
584
16,641
South Africa
15,871
584
16,455
Rest of world
186
-
186
Telecom products and services
241,352
13
241,365
South Africa
228,860
13
228,873
Rest of world
12,492
-
12,492
Lending revenue
-
14,332
14,332
Interest from customers
4,254
-
4,254
Insurance revenue
-
7,118
7,118
Account holder fees
-
4,240
4,240
Other
3,724
331
4,055
South Africa
3,583
331
3,914
Rest of world
141
-
141
Total revenue, derived from the following geographic locations
348,508
46,314
394,822
South Africa
331,743
46,314
378,057
Rest of world
$
16,765
$
-
$
16,765
16. Leases
The Company has entered into leasing arrangements classified as operating leases under accounting guidance. These leasing
arrangements relate primarily to the lease of its corporate head office, administration offices and branch locations through which the
Company operates its consumer business in South Africa. The Company’s operating leases have remaining lease terms of between
one and
five years
. The Company also operates parts of its consumer business from locations which it leases for a period of less than
one year
. The Company’s operating lease expense during the three months ended March 31, 2024 and 2023 was $
0.9
0.7
2.2
million and $
2.3
The Company has also entered into short-term leasing arrangements, primarily for the lease of branch locations and other
locations, to operate its consumer business in South Africa. The Company’s short-term lease expense during the three months ended
March 31, 2024 and 2023, was $
0.9
1.0
months ended March 31, 2024 and 2023, was $
2.8
3.0
The following table presents supplemental balance sheet disclosure related to the Company’s right-of-use assets and its operating
lease liabilities as of March 31, 2024 and June 30, 2023:
March 31,
June 30,
2024
2023
Right of use assets obtained in exchange for lease obligations:
Weighted average remaining lease term (years)
3.4
1.8
Weighted average discount rate (percent)
10.1
9.7
37
16. Leases (continued)
The maturities of the Company’s operating lease liabilities as of March 31, 2024, are presented below:
Maturities of operating lease liabilities
Year ended June 30,
2024 (excluding nine months to March 31, 2024)
$
639
2025
2,070
2026
1,543
2027
1,318
2028
1,173
Thereafter
120
Total undiscounted operating lease liabilities
6,863
Less imputed interest
1,188
Total operating lease liabilities, included in
5,675
Operating lease liability - current
1,763
Operating lease liability - long-term
$
3,912
17. Operating segments
Operating segments
The Company discloses segment information as reflected in the management information systems reports that its chief operating
decision maker uses in making decisions and to report certain entity-wide disclosures about products and services, and the countries in
which the entity holds material assets or reports material revenues. A description of the Company’s operating segments is contained in
Note 21 to the Company’s audited consolidated financial statements included in its Annual Report on Form 10-K for the year ended
June 30, 2023.
The Company analyzes its business and operations in terms of two inter-related but independent operating segments:
(1) Consumer Division (“Consumer”) and (2) Merchant Division (“Merchant”).
The reconciliation of the reportable segment’s revenue to revenue from external customers for the three months ended March 31,
2024 and 2023, is as follows:
Revenue
Reportable
Segment
Inter-
segment
From
external
customers
Merchant
$
121,013
$
723
$
120,290
Consumer
17,904
-
17,904
Total for the three months ended March 31, 2024
$
138,917
$
723
$
138,194
Merchant
$
118,092
$
-
$
118,092
Consumer
15,876
-
15,876
Total for the three months ended March 31, 2023
$
133,968
$
-
$
133,968
38
17. Operating segments (continued)
Operating segments (continued)
The reconciliation of the reportable segment’s revenue to revenue from external customers for the nine months ended March 31,
2024 and 2023, is as follows:
Revenue
Reportable
Segment
Inter-
segment
From
external
customers
Merchant
$
370,244
$
2,259
$
367,985
Consumer
50,191
-
50,191
Total for the nine months ended March 31, 2024
$
420,435
$
2,259
$
418,176
Merchant
$
348,508
$
-
$
348,508
Consumer
46,314
-
46,314
Total for the nine months ended March 31, 2023
$
394,822
$
-
$
394,822
The Company evaluates segment performance based on segment earnings before interest, tax, depreciation and amortization
(“EBITDA”), adjusted for items mentioned in the next sentence (“Segment Adjusted EBITDA”), the Company’s reportable segments’
measure of profit or loss. The Company does not allocate once-off items, stock-based compensation charges, certain lease expenses
(“Lease adjustments”), depreciation and amortization, impairment of goodwill or other intangible assets, other items (including gains
or losses on disposal of investments, fair value adjustments to equity securities), interest income, interest expense, income tax expense
or (earnings) loss from equity-accounted investments to its reportable segments. Group costs generally include: employee related costs
in relation to employees specifically hired for group roles and related directly to managing the US-listed entity; expenditures related to
compliance with the Sarbanes-Oxley Act of 2002; non-employee directors’ fees; legal fees; group and US-listed related audit fees; and
directors and officer’s insurance premiums. Once-off items represents non-recurring expense items, including costs related to
acquisitions and transactions consummated or ultimately not pursued. Unrealized loss FV for currency adjustments represents foreign
currency mark-to-market adjustments on certain intercompany accounts. The Lease adjustments reflect lease expenses and the Stock-
based compensation adjustments reflect stock-based compensation expense and are both excluded from the calculation of Segment
Adjusted EBITDA and are therefore reported as reconciling items to reconcile the reportable segments’ Segment Adjusted EBITDA
to the Company’s loss before income tax expense.
The reconciliation of the reportable segments’ measure of profit or loss to loss before income taxes for the three and nine months
ended March 31, 2024 and 2023, is as follows:
Three months ended
Nine months ended
March 31,
March 31,
2024
2023
2024
2023
Reportable segments' measure of profit or loss
$
12,752
$
9,939
$
34,934
$
26,136
Operating loss: Group costs
(2,199)
(2,293)
(6,032)
(6,849)
Once-off costs
(907)
(1,141)
(169)
(1,858)
Unrealized Loss FV for currency adjustments
(121)
(43)
(101)
(43)
Lease adjustments
(850)
(696)
(2,224)
(2,255)
Stock-based compensation charge adjustments
(2,090)
(1,644)
(5,653)
(5,955)
Depreciation and amortization
(5,791)
(5,975)
(17,460)
(17,892)
Reversal of allowance of EMI doubtful debt
-
-
250
-
Gain on disposal of equity-accounted investments
-
(329)
-
(193)
Interest income
628
469
1,562
1,269
Interest expense
(4,581)
(4,984)
(14,312)
(13,408)
Loss before income tax expense
$
(3,159)
$
(6,697)
$
(9,205)
$
(21,048)
39
17. Operating segments (continued)
Operating segments (continued)
The following tables summarize supplemental segment information for the three and nine months ended March 31, 2024 and
2023:
Three months ended
Nine months ended
March 31,
March 31,
2024
2023
2024
2023
Revenues
Merchant
$
121,013
$
118,092
$
370,244
$
348,508
Consumer
17,904
15,876
50,191
46,314
Total reportable segment revenue
138,917
133,968
420,435
394,822
Segment Adjusted EBITDA
Merchant
(1)
8,394
8,290
25,148
25,303
Consumer
(1)
4,358
1,649
9,786
833
Total Segment Adjusted EBITDA
12,752
9,939
34,934
26,136
Depreciation and amortization
Merchant
2,050
1,898
6,169
5,522
Consumer
179
288
527
811
Subtotal: Operating segments
2,229
2,186
6,696
6,333
Group costs
3,562
3,789
10,764
11,559
Total
5,791
5,975
17,460
17,892
Expenditures for long-lived assets
Merchant
2,797
3,020
7,638
10,545
Consumer
146
1,697
312
2,665
Subtotal: Operating segments
2,943
4,717
7,950
13,210
Group costs
-
-
-
-
Total
$
2,943
$
4,717
$
7,950
$
13,210
(1) Segment Adjusted EBITDA for Consumer includes retrenchment costs of $
0.01
0.1
months ended March 31, 2024. Segment Adjusted EBITDA for Merchant includes retrenchment costs of $
0.2
4.7
million) and Consumer includes retrenchment costs of $
0.2
2.9
The segment information as reviewed by the chief operating decision maker does not include a measure of segment assets per
segment as all of the significant assets are used in the operations of all, rather than any one, of the segments. The Company does not
have dedicated assets assigned to a particular operating segment. Accordingly, it is not meaningful to attempt an arbitrary allocation
and segment asset allocation is therefore not presented.
18. Income tax
Income tax in interim periods
For the purposes of interim financial reporting, the Company determines the appropriate income tax provision by first applying
the effective tax rate expected to be applicable for the full fiscal year to ordinary income. This amount is then adjusted for the tax
effect of significant unusual items, for instance, changes in tax law, valuation allowances and non-deductible transaction-related
expenses that are reported separately, and have an impact on the tax charge. The cumulative effect of any change in the enacted tax
rate, if and when applicable, on the opening balance of deferred tax assets and liabilities is also included in the tax charge as a discrete
event in the interim period in which the enactment date occurs.
For the three and nine months ended March 31, 2024, the Company’s effective tax rate was impacted by the tax expense recorded
by the Company’s profitable South African operations, non-deductible expenses, the on-going losses incurred by certain of the
Company’s South African businesses and the associated valuation allowances created related to the deferred tax assets recognized
regarding net operating losses incurred by these entities.
For the three and nine months ended March 31, 2023, the Company’s effective tax rate was impacted by a reduction in the enacted
South African corporate income tax rate from
28
% to
27
% from January 2023 (but backdated to July 1, 2022), the tax expense recorded
by the Company’s profitable South African operations, non-deductible expenses, the on-going losses incurred by certain of the
Company’s South African businesses and the associated valuation allowances created related to the deferred tax assets recognized
regarding net operating losses incurred by these entities.
40
18. Income tax (continued)
Uncertain tax positions
The Company had
no
Company had
no
no
t expect changes related
to its unrecognized tax benefits will have a significant impact on its results of operations or financial position in the next 12 months.
The Company has
no
in the U.S. federal jurisdiction. As of March 31, 2024, the Company’s South African subsidiaries are no longer subject to income tax
examination by the South African Revenue Service for periods before June 30, 2019. The Company is subject to income tax in other
jurisdictions outside South Africa, none of which are individually material to its financial position, statement of cash flows, or results
of operations.
19. Commitments and contingencies
Guarantees
The South African Revenue Service and certain of the Company’s customers, suppliers and other business partners have asked
the Company to provide them with guarantees, including standby letters of credit, issued by South African banks. The Company is
required to procure these guarantees for these third parties to operate its business.
RMB has issued guarantees to these third parties amounting to ZAR
33.1
1.8
applicable as of March 31, 2024) thereby utilizing part of the Company’s short-term facilities. The Company pays commission of
between
3.42
% per annum to
3.44
% per annum of the face value of these guarantees and does not recover any of the commission from
third parties.
Nedbank has issued guarantees to these third parties amounting to ZAR
2.1
0.1
applicable as of March 31, 2024) thereby utilizing part of the Company’s short-term facilities. The Company pays commission of
between
0.47
% per annum to
1.84
% per annum of the face value of these guarantees and does not recover any of the commission from
third parties.
The Company has not recognized any obligation related to these guarantees in its consolidated balance sheet as of March 31,
2024. The maximum potential amount that the Company could pay under these guarantees is ZAR
35.2
1.9
at exchange rates applicable as of March 31, 2024). As discussed in Note 8, the Company has ceded and pledged certain bank accounts
to Nedbank as security for the guarantees issued by them with an aggregate value of ZAR
2.1
0.1
exchange rates applicable as of March 31, 2024). The guarantees have reduced the amount available under its indirect and derivative
facilities in the Company’s short-term credit facilities described in Note 8.
Contingencies
The Company is subject to a variety of insignificant claims and suits that arise from time to time in the ordinary course of
business. Management currently believes that the resolution of these other matters, individually or in the aggregate, will not have a
material adverse impact on the Company’s financial position, results of operations or cash flows.
20. Subsequent events
April 2024 acquisition of Touchsides
In February 2024, the Company announced that it had entered into a Sale and Purchase Agreement with Heineken International
B.V. to acquire all of the outstanding equity of Touchsides (Pty) Ltd (“Touchsides”). The transaction was subject to customary closing
conditions and the final conditions were satisfied in April 2024. The transaction closed on April 30, 2024. The total purchase
consideration was ZAR
42.4
2.3
commenced the purchase price allocation related to this transaction however the process had not been completed as of the date of filing
this Quarterly Report on Form 10-Q on May 8, 2024. The Company expects to include its preliminary allocation of the purchase
consideration related to this acquisition in its audited financial statements to be included in its Annual Report on Form 10-K for the
year ended June 30, 2024. The Company incurred transaction related expenditures of $
0.1
1.9
months to March 31, 2024, related to the acquisition of Touchsides. These transaction related expenditures are included in the caption
selling, general and administration in the Company’s unaudited condensed consolidated statements of operations. The Company does
not expect to incur any significant expenditure related to the transaction during the three months ended June 30, 2024.
41
20. Subsequent events (continued)
April 2024 acquisition of Touchsides (continued)
Touchsides is a leading data analytics and insights company, and highly complementary with the Company’s Kazang business.
The acquisition significantly expands Kazang’s footprint in the informal market by adding an established solution that has a strong
presence in the licensed tavern market. Touchsides has an installed base of over
10,000
licensed taverns, and processes more than
1.5
software-as-a-service (“SaaS”) solutions to licensed tavern outlets, enabling the measurement of sales activity in real-time,
management of stock levels and informing commercial decisions, such as pricing and promotional offers.
The data and insights gathered from these terminals carries significant value and potential to be monetized through relationships
with a range of clients including fast-moving consumer goods companies, retailers, wholesalers, route-to-market suppliers, and
financiers.
Touchsides has been allocated to our Merchant operating segment.
May 2024 offer to acquire Adumo
On May 7, 2024, the Company entered into a Sale and Purchase Agreement (the “Sale Agreement”) with Lesaka SA”), and the
Sellers (as defined in the Sale Agreement). Pursuant to the Sale Agreement and subject to its terms and conditions, Lesaka, through
its subsidiary, Lesaka SA, agreed to acquire, and the Sellers agreed to sell, all of the outstanding equity interests and certain claims in
the Adumo (RF) Proprietary Limited (“Adumo”).
The purchase consideration will be settled through the combination of an issuance of
17,279,803
common stock and a ZAR
232
12.5
in cash. The share issuance was based off of the Base Purchase Consideration, as defined in the Sale Agreement, of ZAR
1.59
($
85.9
232
4.25
1.59
0.232
17,279,803
The Sale Agreement includes customary covenants from the Sellers, including (i) to conduct the business in the ordinary course
during the period between the execution of the Sale Agreement and the closing of the transactions contemplated thereby, and (ii) not
to engage in certain kinds of transactions during such period.
The closing of the transaction is subject to customary closing conditions, including (i) approval from the competition authorities
of South Africa and Namibia; (ii) exchange control approval from the financial surveillance department of the South African Reserve
Bank; (iii) the Company obtaining confirmation from RMB that it has sufficient funds to settle the cash portion of the purchase
consideration; (iv) approval of Adumo shareholders (including preference shareholders) with respect to entering into and
implementation of the Sale Agreement, and all other agreements and transactions contemplated in the Sale Agreement by June 6,
2024; (v) obtaining the consent of Adumo’s lender regarding Adumo entering into and implementing the Sale Agreement, and all
other agreements and transactions contemplated in the Sale Agreement by June 5, 2024, (vi) the release of certain Seller’s shares held
as security by such bank; (vi) obtaining the consent of the lender of one of Adumo’s shareholders regarding Adumo entering into the
transaction by June 6, 2024; (vii) the Company obtaining all necessary regulatory and shareholder approval to issue the Consideration
Shares to the Sellers; (viii) on or before June 6, 2024, the Company signing a written addendum to the Policy Agreement with
International Finance Corporation that provides for the inclusion of the Consideration Shares attributable to certain Seller shareholders
in the definition of “Put Shares” under the Policy Agreement, and related changes; and (ix) obtaining certain third-party consents.
In addition, the closing of the transaction is subject to either: (i) on or before July 6, 2024, the direct and/or indirect shareholders
of one of the Sellers providing written unconditional undertakings to purchase all of certain of its shareholders
pro rata
to the Consideration Shares in consideration for an aggregate amount equal to ZAR
285,772,238
14.0
Cash Component”); or (ii) if the foregoing does not occur in a timely manner then, on or before October 31, 2024, Lesaka SA (or is
nominee) will enter into a written unconditional agreement with Crossfin SPV in relation to the acquisition of all of such entitlements
in respect of all such Consideration Shares (other than those which are required to be liquidated in order to satisfy cash tax obligations),
provided that the aggregate consideration for such entitlements will be equal to the Replacement Cash Component and provided further
that (i) Lesaka SA (or its nominee) has provided a bank guarantee from RMB or other South African registered bank in respect of the
settlement of such aggregate consideration and (ii) that, to the extent applicable, Lesaka SA’s nominee has, prior to the conclusion
thereof, obtained all approvals as may be required to conclude and implement such agreement.
42
20. Subsequent events (continued)
May 2024 offer to acquire Adumo (continued)
The Company has agreed to file a resale registration statement with the United States Securities and Exchange Commission
(“SEC”) covering the resale of the Consideration Shares by the Sellers following the closing of the transaction. The Company has
undertaken to use its commercially reasonable efforts to have the resale registration statement declared effective by the SEC following
its filing.
The Company incurred transaction-related expenditures of $
0.6
0.7
March 31, 2024, related to the process to acquire Adumo. The Company expects to incur a further $
2.2
over the remainder of the 2024 calendar year.
43
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with our Annual Report on Form 10-K for the year ended June 30, 2023,
and the unaudited condensed consolidated financial statements and the accompanying notes included in this Form 10-Q.
U.S. securities laws require that when we publish any non-GAAP measures, we disclose the reason for using these non-GAAP
measures and provide reconciliations to the most directly comparable GAAP measures. We discuss why we consider it useful to
present these non -GAAP measures and the material risks and limitations of these measures, as well as a reconciliation of these non-
GAAP measures to the most directly comparable GAAP financial measure below at “—Results of Operations—Use of Non-GAAP
Measures” below.
Forward-looking statements
Some of the statements in this Form 10-Q constitute forward-looking statements. These statements relate to future events or our
future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our or our industry’s
actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity,
performance or achievements expressed, implied or inferred by these forward-looking statements. Such factors include, among other
things, those listed under Item 1A.—“Risk Factors” in our Annual Report on Form 10-K for the year ended June 30, 2023. In some
cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “could,” “would,” “expects,”
“plans,” “intends,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of such terms and other
comparable terminology.
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we do not know whether
we can achieve positive future results, levels of activity, performance, or goals. Actual events or results may differ materially. We
undertake no obligation to update any of the forward-looking statements after the date of this Form 10-Q to conform those statements
to reflect the occurrence of unanticipated events, except as required by applicable law.
You should read this Form 10-Q and the documents that we reference herein and the documents we have filed as exhibits hereto
and thereto and which we have filed with the United States Securities and Exchange Commission (“SEC”) completely and with the
understanding that our actual future results, levels of activity, performance and achievements may be materially different from what
we expect. We qualify all of our forward-looking statements by these cautionary statements.
Recent Developments
As of the date hereof, we have been successfully executing on our strategic objectives in building a leading fintech platform and
consolidating Southern African fintech. We experienced continued improvement in our financial performance in the third quarter of
fiscal 2024 with year-on-year revenue and profitability improvements in both Merchant and Consumer divisions.
Operating income of $0.8 million (ZAR 15.0 million) improved 145% in ZAR, compared with an operating loss of $1.9 million
(ZAR 33.2 million) during the third quarter of fiscal 2023.
Group Adjusted EBITDA, a non-GAAP measure, of $9.7 million (ZAR 183.3 million) this quarter, a 47% increase in ZAR,
compared to $7.0 million (ZAR 124.6 million) in the third quarter of fiscal 2023. The continued resilience of our business model in a
challenging environment for our merchant and consumer customers demonstrates the value our customers place on our services.
Our mission at Lesaka is to enable merchants to compete and grow, and to improve the lives of South Africa’s grant beneficiaries
by providing access to innovative financial technology and value creating solutions. We achieve this through our vision to build and
operate the leading full-service fintech platform in Southern Africa, offering cash management, payment processing, Value Added
Services (“VAS”), capital and financial services to merchants and underserved consumers.
Merchant Division
The year-on-year growth achieved by our Merchant Division is supported by the robust secular trends underpinning financial
inclusion, cash management and digitalization for micro, small and medium enterprises (“MSMEs”), especially in the micro-
merchant sector of South Africa, where we have a leading market position.
Performance in our Merchant division has been driven by:
●
Kazang, our VAS and supplier payments business, continues to see adoption by micro-merchants, with a 12% year-on-year
growth in the number of devices deployed.
o
We had approximately 80,250 devices deployed as of March 31, 2024, compared to approximately 71,800 devices
one year ago, and approximately 79,000 devices at the end of the second quarter of fiscal 2024. Core to our device
placement strategy is the decision to focus on quality business and optimizing our existing fleet, which is reflected
in a healthy throughput and margin per device.
44
o
As previously communicated, our product mix for VAS sales has changed with low-margin money transfers
reducing significantly due to a change in the regulatory environment impacting the industry as a whole. Money
transfers currently comprise approximately 5% of VAS throughput, compared to approximately 25% a year ago.
This change has had limited impact on profitability as money transfers are a very low margin product.
o
VAS throughput, excluding the low-margin money transfers, increased 36% year-on-year and was flat quarter-on-
quarter, as expected, which is due to seasonality, with second quarter of our fiscal year being traditionally our
strongest quarter due to higher activity over the year-end festive season benefitting certain product lines.
o
Whilst we saw growth in our traditional VAS products of electricity, airtime and gaming, much of the growth has
been driven by the uptake of our supplier payments platform by micro-merchants. As we bring more suppliers onto
our platform, we should see these volumes continue growing. Supplier payment throughput volumes increased
approximately 100% in the third quarter compared to a year ago and now accounts for approximately 35% of our
VAS throughput volumes, compared to approximately 20% a year ago.
●
We provide card acquiring solutions to micro-merchants via Kazang Pay and to small and medium merchants through Card
Connect. Card-enabled POS devices increased to approximately 50,200 as of March 31, 2024, a year-on-year growth of 21%.
Throughput on deployed devices increased 21% year-on-year to R3.9 billion.
●
Our current Merchant Credit offering through Capital Connect in the SME market. Kazang Pay Advance in the micro-
merchant sector remains suspended as we reported in the previous quarter. Capital Connect disbursed ZAR 219 million during
this quarter, compared to ZAR 194 million in the comparable period last year, representing a 13% increase.
●
Our digital cash management offerings, Cash Connect and Kazang Vaults, effectively “puts the bank” in approximately 4,460
merchants’ stores, compared to approximately 4,370 merchants’ stores a year ago. We provide robust cash vaults in the SME
sector and is building a presence in the micro-merchant sector, which enables our merchant customer base to significantly
mitigate their operational risks pertaining to cash management and security.
Acquisition of Touchsides
In February 2024 we announced the acquisition of Touchsides (Pty) Ltd (“Touchsides”). With closing conditions now satisfied,
the deal closed on April 30, 2024. Touchsides is a leading data analytics and insights company, and highly complementary with our
Kazang business. The acquisition significantly expands Kazang’s footprint in the informal market by adding an established solution
that has a strong presence in the licensed tavern market. Touchsides has an installed base of over 10,000 active POS terminals across
South Africa’s licensed taverns, and processes more than 1.5 million transactions per day. The business provides platform-as-a-service
(“PaaS”) and software-as-a-service (“SaaS”) solutions to licensed tavern outlets, enabling the measurement of sales activity in real-
time, management of stock levels and informing commercial decisions, such as pricing and promotional offers. The data and insights
gathered from these terminals carries significant value and potential to be monetized through relationships with a range of clients
including fast-moving consumer goods companies, retailers, wholesalers, route-to-market suppliers, and financiers. Touchsides has
been allocated to our Merchant operating segment.
Acquisition of Adumo
In May 2024 we announced the acquisition of Adumo RF (Pty) Ltd, subject to shareholder and regulatory approvals. Adumo’s
serves approximately 23,000 active merchants. Its primary operations include card acquiring, integrated payments and reconciliation
services processing more than ZAR 24 billion in throughput per year. The company’s corporate card services cover over 245,000 card
holders supporting payroll, incentives, rewards, and expense management. Adumo ISV, also known as GAAP, is the largest POS and
Software-as-a-Service solutions provider to the hospitality sector in Southern Africa.
The acquisition continues Lesaka’s consolidation in the Southern African fintech sector. The Lesaka ecosystem will serve 1.7
million active consumers, 119,000 merchants, and processes over ZAR 250 billion in throughput (cash, card and VAS) per year. The
Group will have over 3,300 employees operating on the ground in 5 countries: South Africa, Namibia, Botswana, Zambia, and Kenya.
The acquisition enhances Lesaka's strengths in both the consumer and merchant markets.
The purchase consideration will be settled through the combination of an issuance of 17,279,803 shares of our common stock
and a ZAR 232 million ($12.5 million, translated at the prevailing rate of $1: ZAR 18.5 as of May 6, 2024) payment in cash. The share
issuance was based off of the Base Purchase Consideration, as defined in the transaction agreement, of ZAR 1.59 billion ($85.9
million), less the ZAR 232 million cash payment, implying a value per share of $4.25 ((ZAR 1.59 billion – ZAR 0.232 billion)/
17,279,803 / ZAR 18.5). Adumo shareholders include Apis Growth Fund I, a private equity fund managed by Apis Partners LLP
(“Apis”), African Rainbow Capital (“ARC”), the largest shareholder of Crossfin Holdings (RF) Pty Ltd (“Crossfin”), as well as the
International Finance Corporation and Adumo management.
The transaction is expected to close in the third calendar quarter of 2024 and is subject to shareholder and regulatory approvals
and satisfaction of customary closing conditions.
45
Consumer Division
We continue to deliver against our strategic focus areas underpinning our growth strategy in our Consumer Division and our
mission to improve the lives of South Africa’s grant beneficiaries. Progress made on these levers: (i) growing active EasyPay
Everywhere (“EPE”) account numbers, (ii) increasing average revenue per user (“ARPU”) through cross-selling and (iii) cost
optimization, and (iv) enhancing our product and service offering, resulted in revenue and profitability growth in the Consumer
Division in third quarter of fiscal 2024.
The progress on our key initiatives is as follows:
●
Driving customer acquisition
o
Gross EPE account activations, for the permanent base, during our current quarter showed significant year-on-year
improvement due to various strategic initiatives. We achieved approximately 63,000 gross account activations in the
third quarter, compared to approximately 38,000 in the third quarter of fiscal 2023. After accounting for churn, net
active account growth for the quarter was approximately 28,000 accounts, compared to approximately 1,000 in third
quarter of fiscal 2023.
o
Our total active EPE transactional account base stood at approximately 1.46 million at the end of March 2024, of
which approximately 1.28 million (or approximately 87%) are permanent grant recipients. The balance comprises
Social Relief of Distress (“SRD”) grant recipients, which was introduced during the COVID pandemic and extended
in calendar year 2023.
o
Our priority is to grow our permanent grant recipient customers base, where we can build deeper relationships by
offering other products such as insurance and lending. We do not offer the same breadth of service to the SRD grant
base due to the temporary nature of the grant.
●
Progress on cross selling
EasyPay Loans
o
We originated approximately 266,000 loans during the quarter with our consumer loan book, before allowances,
increasing 28% to ZAR 509 million as at March 31, 2024, compared to ZAR 397 million as of March 31, 2023.
o
We have not amended our credit scoring or other lending criteria and the growth is reflective of the demand for our
tailored loan product for this market, growth in EPE bank account customer base and improved cross-selling
capabilities.
o
The loan conversion rate continues to improve following the implementation of a number of targeted consumer
lending campaigns and encouraging results from our digital channels during the current quarter.
o
The portfolio loss ratio, calculated as the loans written off during the period as a percentage of the total loan book,
remained at approximately 6% on an annualized basis, in line with the first and second quarter of fiscal 2024.
EasyPay Insurance
o
Our funeral insurance product continued its strong growth and is a material contributor to the improvement in our
overall ARPU. We have been able to improve customer penetration to more than 30% of our active permanent grant
account base as of March 31, 2024, compared to approximately 28% as of March 31, 2023. Approximately 46,000
new policies were written in the quarter, compared to approximately 36,000 in the comparable period in fiscal 2023.
The total number of active policies has grown by 34% to approximately 414,000 policies as of March 31, 2024,
compared to March 31, 2023.
ARPU
o
ARPU for our permanent client base has increased to approximately ZAR 90 for the third quarter of fiscal 2024,
from approximately ZAR 78 in the third quarter of fiscal 2023.
Leadership Changes
On February 29, 2024 Mr. Chris Meyer completed his tenure as Group CEO of Lesaka, a position he held since July 1, 2021. Mr.
Ali Mazanderani took over the majority of Mr. Meyer’s responsibilities as Executive Chairman of Lesaka on March 1, 2024. Ali
Mazanderani has been integral to the development of Lesaka’s strategy and has been a Non-Executive Director since 2020. As part
of the change in leadership, Mr. Kuben Pillay, step down as our Chairman on January 31, 2024, and commenced his role as Lead
Independent Director of Lesaka on February 1, 2024.
46
Critical Accounting Policies
Our unaudited condensed consolidated financial statements have been prepared in accordance with U.S. GAAP, which requires
management to make estimates and assumptions about future events that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities. As future events and their effects cannot be determined with absolute certainty, the
determination of estimates requires management’s judgment based on a variety of assumptions and other determinants such as
historical experience, current and expected market conditions and certain scientific evaluation techniques. Critical accounting policies
are those that reflect significant judgments or uncertainties and may potentially result in materially different results under different
assumptions and conditions. We have identified the following critical accounting policies that are described in more detail in our
Annual Report on Form 10-K for the year ended June 30, 2023:
●
Business Combinations and the Recoverability of Goodwill;
●
Intangible Assets Acquired Through Acquisitions;
●
Revenue recognition – principal versus agent considerations;
●
Valuation of investment in Cell C;
●
Recoverability of equity securities and equity-accounted investments;
●
Deferred Taxation;
●
Stock-based Compensation;
●
Accounts Receivable and Allowance for Doubtful Accounts Receivable; and
●
Lending.
Recent accounting pronouncements adopted
Refer to Note 1 to our unaudited condensed consolidated financial statements for a full description of accounting pronouncements
adopted, including the dates of adoption and the effects on our unaudited condensed consolidated financial statements.
Recent accounting pronouncements not yet adopted as of March 31, 2024
Refer to Note 1 to our unaudited condensed consolidated financial statements for a full description of recent accounting
pronouncements not yet adopted as of March 31, 2024, including the expected dates of adoption and effects on our financial condition,
results of operations and cash flows.
Currency Exchange Rate Information
Actual exchange rates
The actual exchange rates for and at the end of the periods presented were as follows:
Table 1
Three months ended
Nine months ended
Year ended
March 31,
March 31,
June 30,
2024
2023
2024
2023
2023
ZAR : $ average exchange rate
18.7313
17.7506
18.7536
17.4641
17.7641
Highest ZAR : $ rate during period
19.4568
18.6008
19.4568
18.6008
19.7558
Lowest ZAR : $ rate during period
18.2076
16.7978
17.6278
16.2035
16.2034
Rate at end of period
18.8760
17.7936
18.8760
17.7936
18.8376
![form10qp49i0](https://capedge.com/proxy/10-Q/0001562762-24-000130/form10qp49i0.gif)
47
Translation exchange rates for financial reporting purposes
We are required to translate our results of operations from ZAR to U.S. dollars on a monthly basis. Thus, the average rates used
to translate this data for the three and six months ended March 31, 2024 and 2023, vary slightly from the averages shown in the table
above. Except as described below, the translation rates we use in presenting our results of operations are the rates shown in the
following table:
Three months ended
Nine months ended
Year ended
Table 2
March 31,
March 31,
June 30,
2024
2023
2024
2023
2023
Income and expense items: $1 = ZAR
18.8780
17.9318
18.7571
17.4037
17.9400
Balance sheet items: $1 = ZAR
18.8760
17.7936
18.8760
17.7936
18.8376
We have translated the results of operations and operating segment information for the three and nine months ended March 31,
2024, provided in the tables below using the actual average exchange rates per month (i.e. for each of January 2024, February 2024,
and March 2024 for the third quarter of fiscal 2024) between the USD and ZAR in order to reduce the reconciliation of information
presented to our chief operating decision maker. The impact of using this method compared with the average rate for the quarter and
year to date is not significant, however, it does result in minor differences. We believe that presentation using the average exchange
rates per month compared with the average exchange rate per quarter and year to date improves the accuracy of the information
presented in our external financial reporting and leads to fewer differences between our external reporting measures which are
supplementally presented in ZAR, and our internal management information, which is also presented in ZAR.
Results of Operations
The discussion of our consolidated overall results of operations is based on amounts as reflected in our unaudited condensed
consolidated financial statements which are prepared in accordance with U.S. GAAP. We analyze our results of operations both in
U.S. dollars, as presented in the unaudited condensed consolidated financial statements, and supplementally in ZAR, because ZAR is
the functional currency of the entities which contribute the majority of our results and is the currency in which the majority of our
transactions are initially incurred and measured. Presentation of our reported results in ZAR is a non-GAAP measure. Due to the
significant impact of currency fluctuations between the U.S. dollar and ZAR on our reported results and because we use the U.S. dollar
as our reporting currency, we believe that the supplemental presentation of our results of operations in ZAR is useful to investors to
understand the changes in the underlying trends of our business.
48
Our operating segment revenue presented in “—Results of operations by operating segment” represents total revenue per
operating segment before intercompany eliminations. A reconciliation between total operating segment revenue and revenue, as well
as the reconciliation between our segment performance measure and net loss before tax (benefits) expense, is presented in our
unaudited condensed consolidated financial statements in Note 17 to those statements. Our chief operating decision maker was our
Group Chief Executive Officer until February 29, 2024 and is our Executive Chairman from March 1, 2024, and each of them evaluates
segment performance based on segment earnings before interest, tax, depreciation and amortization (“EBITDA”), adjusted for items
mentioned in the next sentence (“Segment Adjusted EBITDA”) for each operating segment. We do not allocate once-off items (as
defined below), stock-based compensation charges, depreciation and amortization, impairment of goodwill or other intangible assets,
certain lease expenses (“Lease expenses”), other items (including gains or losses on disposal of investments, fair value adjustments to
equity securities, fair value adjustments to currency options), interest income, interest expense, income tax expense or loss from equity-
accounted investments to our reportable segments. Once-off items represents non-recurring expense items, including costs related to
acquisitions and transactions consummated or ultimately not pursued. The Lease expenses reflect lease expenses (refer to Note 16 to
our unaudited condensed consolidated financial statements) and the Stock-based compensation adjustments reflect stock-based
compensation expense and are both excluded from the calculation of Segment Adjusted EBITDA and are therefore reported as
reconciling items to reconcile the reportable segments’ Segment Adjusted EBITDA to our loss before income tax expense.
Group Adjusted EBITDA represents Segment Adjusted EBITDA after deducting Lease expenses and group costs. Refer also
“Results of Operations—Use of Non-GAAP Measures” below.
Connect is included for the entire year to date of fiscal 2024 and 2023.
We analyze our business and operations in terms of two inter-related but independent operating segments: (1) Merchant Division
and (2) Consumer Division. In addition, corporate activities that are impracticable to allocate directly to the operating segments, as
well as any inter-segment eliminations, are included in Group costs. Inter-segment revenue eliminations are included in Eliminations.
Third quarter of fiscal 2024 compared to third quarter of fiscal 2023
The following factors had a significant impact on our results of operations during the third quarter of fiscal 2024 as compared
with the same period in the prior year:
●
Higher revenue:
Our revenues increased 9% in ZAR, primarily due to an increase in low margin prepaid airtime sales and
other value-added services, as well as higher transaction, insurance and lending revenues, which was partially offset by lower
hardware sales revenue in our POS hardware distribution business given the lumpy nature of bulk sales;
●
Operating income generated:
Operating profitability continues to improve as a result of the increase in the trading activity
as noted above off of a stable selling, general and administration base;
●
Lower net interest charge:
81.0 million) primarily due to higher interest rates; and
●
Foreign exchange movements:
compared to the prior period, which adversely impacted our U.S. dollar reported results.
49
Consolidated overall results of operations
This discussion is based on the amounts prepared in accordance with U.S. GAAP.
The following tables show the changes in the items comprising our statements of operations, both in U.S. dollars and in ZAR:
Table 3
In United States Dollars
Three months ended March 31,
2024
2023
%
$ ’000
$ ’000
change
Revenue
138,194
133,968
3%
Cost of goods sold, IT processing, servicing and support
107,854
105,299
2%
Selling, general and administration
23,124
24,547
(6%)
Depreciation and amortization
5,791
5,975
(3%)
Transaction costs related to Adumo acquisition
631
-
nm
Operating income (loss)
794
(1,853)
nm
Loss on disposal of equity-accounted investments
-
329
nm
Interest income
628
469
34%
Interest expense
4,581
4,984
(8%)
Loss before income tax expense (benefit)
(3,159)
(6,697)
(53%)
Income tax expense (benefit)
931
(860)
nm
Net loss before earnings from equity-accounted investments
(4,090)
(5,837)
(30%)
Earnings from equity-accounted investments
43
17
153%
Net loss attributable to us
(4,047)
(5,820)
(30%)
Table 4
In South African Rand
Three months ended March 31,
2024
2023
%
ZAR ’000
ZAR ’000
change
Revenue
2,609,913
2,402,288
9%
Cost of goods sold, IT processing, servicing and support
2,036,881
1,888,201
8%
Selling, general and administration
436,746
440,172
(1%)
Depreciation and amortization
109,379
107,143
2%
Transaction costs related to Adumo acquisition
11,915
-
nm
Operating income (loss)
14,992
(33,228)
nm
Loss on disposal of equity-accounted investments
-
5,900
nm
Interest income
11,861
8,410
41%
Interest expense
86,504
89,372
(3%)
Loss before income tax expense (benefit)
(59,651)
(120,090)
(50%)
Income tax expense (benefit)
17,575
(15,422)
nm
Net loss before earnings from equity-accounted investments
(77,226)
(104,668)
(26%)
Earnings from equity-accounted investments
811
305
166%
Net loss attributable to us
(76,415)
(104,363)
(27%)
Revenue increased by $4.2 million (ZAR 0.2 billion), or 3.2% (in ZAR, 8.6%), primarily due to the increase in the number of
low-margin prepaid airtime vouchers sold and an increase in volume of other value-added services provided, as well as higher
transaction volumes processed, insurance premiums collected and lending revenues following an increase in loan originations, which
was partially offset by a lower number of hardware sales in our POS hardware distribution business given the lumpy nature of bulk
sales. Refer to discussion above at “—Recent Developments” for a description of key trends impacting our revenue this quarter.
Cost of goods sold, IT processing, servicing and support increased by $2.6 million (ZAR 0.1 billion), or 2.4% (in ZAR, 7.9%),
primarily due to the increase in low margin prepaid airtime sales and higher insurance-related claims, which were partially offset by
the lower cost of goods sold related to fewer hardware sales.
Selling, general and administration expenses decreased by $1.4 million (ZAR 3.4 million), or 5.8% (in ZAR 0.8%). The modest
decrease in ZAR was primarily due to lower general and administration expenses, which were partially offset by higher employee-
related expenses, higher stock-based compensation charges and the year-over-year impact of inflationary increases on certain expenses.
50
Depreciation and amortization expense decreased by $0.2 million, or 3.1% , and in ZAR increased by ZAR 2.2 million or 2.1%.
In the ZAR, the increase was due to an increase in depreciation expense related to additional POS devices deployed.
Transaction costs related to Adumo acquisition includes fees paid to external service providers associated with legal, commercial,
financial and tax due diligence activities performed and other legal and advisory services procured.
Our operating income (loss) margin for the third quarter of fiscal 2024 and 2023 was 0.6% and(1.4) %, respectively. We discuss
the components of operating loss margin under “—Results of operations by operating segment.”
We did not record any changes in the fair value of equity interests in MobiKwik and Cell C during the third quarter of fiscal 2024
or 2023, respectively. We continue to carry our investment in Cell C at $0 (zero). Refer to Note 4 for the methodology and inputs used
in the fair value calculation for Cell C.
We recorded a loss of $0.3 million during the third quarter of fiscal 2023 related to the disposal of a minor portion of our
investment in Finbond.
Interest on surplus cash increased to $0.6 million (ZAR 11.9 million) from $0.5 million (ZAR 8.4 million), primarily due to
higher interest rates.
Interest expense decreased to $4.6 million (ZAR 86.5 million) from $5.0 million (ZAR 89.4 million), primarily as a result of
lower interest expense incurred on certain of our borrowing for which we were able to negotiate lower rates of interest towards the
end of calendar 2023, which was partially offset by higher overall base interest rates and higher overall borrowings during the third
quarter of fiscal 2024 compared with comparable period in the prior quarter.
Fiscal 2024 tax expense was $0.9 million (ZAR 17.6 million) compared to a tax benefit of $(0.9) million (ZAR (15.4) million)
in fiscal 2023. Our effective tax rate for fiscal 2024 was impacted by the tax expense recorded by our profitable South African
operations, a deferred tax benefit related to acquisition-related intangible asset amortization, non-deductible expenses, the on-going
losses incurred by certain of our South African businesses and the associated valuation allowances created related to the deferred tax
assets recognized regarding net operating losses incurred by these entities.
Our effective tax rate for fiscal 2023 was impacted by a reduction in the enacted South African corporate income tax rate from
28% to 27% from January 2023 (but backdated to July 1, 2022), the tax expense recorded by our profitable South African operations,
a deferred tax benefit related to acquisition-related intangible asset amortization, non-deductible expenses, the on-going losses incurred
by certain of our South African businesses and the associated valuation allowances created related to the deferred tax assets recognized
regarding net operating losses incurred by these entities.
Finbond is listed on the Johannesburg Stock Exchange and reports its six-month results during our first quarter and its annual
results during our fourth quarter. We sold our entire remaining interest in Finbond during the third quarter of fiscal 2024. The table
below presents the relative (loss) earnings from our equity-accounted investments:
Table 5
Three months ended March 31,
2024
2023
$ %
$ ’000
$ ’000
change
Other
43
17
153%
Total loss from equity-accounted investments
43
17
153%
51
Results of operations by operating segment
The composition of revenue and the contributions of our business activities to operating loss are illustrated below:
Table 6
In United States Dollars
Three months ended March 31,
2024
% of
2023
% of
% change
Operating Segment
$ ’000
total
$ ’000
total
Consolidated revenue:
Merchant
121,013
88%
118,092
88%
2%
Consumer
17,904
13%
15,876
12%
13%
Subtotal: Operating segments
138,917
101%
133,968
100%
4%
Eliminations
(723)
(1%)
-
-
nm
Total consolidated revenue
138,194
100%
133,968
100%
3%
Group Adjusted EBITDA:
Merchant
(1)
8,394
87%
8,290
119%
1%
Consumer
(1)
4,358
45%
1,649
24%
164%
Lease expenses
(2)
(850)
(9%)
(696)
(10%)
22%
Group costs
(2,199)
(23%)
(2,293)
(33%)
(4%)
Group Adjusted EBITDA (non-GAAP)
(3)
9,703
100%
6,950
100%
40%
(1) Segment Adjusted EBITDA Consumer includes retrenchment costs of $0.01 million for the third quarter of fiscal 2024.
(2) Lease expenses which were previously excluded from the calculation of Group Adjusted EBITDA have now been included
in the calculation. This change is in response to comments received from the staff of the SEC in March 2024 regarding our non-GAAP
financial reporting. Comparative information has been adjusted to conform with the updated presentation.
(3) Group Adjusted EBITDA is a non-GAAP measure, refer to reconciliation below at “—Results of Operations—Use of Non-
GAAP Measures”.
Table 7
In South African Rand
Three months ended March 31,
2024
% of
2023
% of
% change
Operating Segment
ZAR ’000
total
ZAR ’000
total
Consolidated revenue:
Merchant
2,285,394
88%
2,117,602
88%
8%
Consumer
338,170
13%
284,686
12%
19%
Subtotal: Operating segments
2,623,564
101%
2,402,288
100%
9%
Eliminations
(13,651)
(1%)
-
-
nm
Total consolidated revenue
2,609,913
100%
2,402,288
100%
9%
Group Adjusted EBITDA:
Merchant
(1)
158,524
86%
148,655
119%
7%
Consumer
(1)
82,330
45%
29,570
24%
178%
Lease expenses
(2)
(16,059)
(9%)
(12,481)
(10%)
29%
Group costs
(41,529)
(23%)
(41,118)
(33%)
1%
Group Adjusted EBITDA (non-GAAP)
(3)
183,266
100%
124,626
100%
47%
(1) Segment Adjusted EBITDA for Consumer includes retrenchment costs of ZAR 0.1 million for the third quarter of fiscal 2024.
(2) Lease expenses which were previously excluded from the calculation of Group Adjusted EBITDA have now been included
in the calculation. This change is in response to comments received from the staff of the SEC in March 2024 regarding our non-GAAP
financial reporting. Comparative information has been adjusted to conform with the updated presentation.
(3) Group Adjusted EBITDA is a non-GAAP measure, refer to reconciliation below at “—Results of Operations—Use of Non-
GAAP Measures”.
Merchant
Segment revenue increased due to the increase in prepaid airtime vouchers sold and other value-added services provided, which
was partially offset by a lower number of hardware sales in our POS hardware distribution business given the lumpy nature of bulk
sales as well as lower revenue generated from a decrease in certain valued-added services transaction volumes processed (such as
international money transfers). In ZAR, the increase in Segment Adjusted EBITDA is primarily due to the higher sales activity, which
was partially offset by lower hardware sales. Connect records a significant proportion of its airtime sales in revenue (see further below)
and cost of sales, while only earning a relatively small margin. This significantly depresses the Segment Adjusted EBITDA margins
shown by the business.
52
Our Segment Adjusted EBITDA margin (calculated as Segment Adjusted EBITDA divided by revenue) for the third quarter of
fiscal 2024 and 2023 was 6.9% and 7.0%, respectively.
Prepaid airtime sales
In South Africa and other countries, mobile network operators (“MNOs”) offer prepaid or contract (or postpaid) services to their
customers to telephony services using a mobile telephony network or networks. MNOs also offer similar products (prepaid or postpaid)
for mobile data which uses other wireless network protocols such as wireless fidelity (“wifi”). We use the term “prepaid airtime” to
include both of these prepaid products.
Generally speaking, the difference between the two models is that prepaid is paid for upfront by the customer and contract is paid
in arrears. MNOs sell prepaid products directly to their customers and also indirectly to their customers through distribution channels
(which include wholesalers, retailers and other parties, including ourselves).
We sell a variety of products through our distribution channels, including prepaid airtime, prepaid electricity, gaming vouchers.
We refer to these products collectively as VAS.
In order to “load” airtime onto a mobile device an MNOs customer requires a prepaid airtime voucher. A unique code is assigned
to each prepaid airtime voucher and is required to activate the prepaid airtime on a mobile device. Like certain tangible goods, once
sold, our customers cannot return prepaid airtime vouchers to us (except of course if there is a defect in the service provided by us,
which rarely occurs).
We can either purchase an agreed quantity of prepaid airtime vouchers upfront directly from wholesalers or other parties (so
called “Pinned airtime” - these electronic vouchers are stored on a server owned and maintained by us and we treat these vouchers as
inventory) or we can “interface” directly into a wholesaler and deliver the airtime voucher directly to our customers (typically
merchants) as the airtime is sold by the merchant to MNOs customers (so called Pinless airtime).
Consumer
Segment revenue increased primarily due to higher transaction fees generated from the higher EPE account holders base,
insurance premiums collected and lending revenues following an increase in loan originations. This increase in revenue has translated
into improved profitability, which was partially offset by higher insurance-related claims and higher employee-related expenses and
the year-over-year impact of inflationary increases on certain expenses.
Our Segment Adjusted EBITDA margin for the third quarter of fiscal 2024 and 2023 was 24.3% and 10.4%, respectively.
Group costs
Our group costs primarily include employee related costs in relation to employees specifically hired for group roles and costs
related directly to managing the US-listed entity; expenditures related to compliance with the Sarbanes-Oxley Act of 2002; non-
employee directors’ fees; legal fees; group and US-listed related audit fees; and directors’ and officers’ insurance premiums.
Our group costs for fiscal 2024 decreased modestly compared with the prior period due to lower external audit, legal fees and
lower provision for executive bonuses, which was partially offset by higher employee (base salary) costs, consulting fees and travel
expenses.
Year to date fiscal 2024 compared to year to date fiscal 2023
The following factors had a significant impact on our results of operations during the year to date fiscal 2024 as compared with
the same period in the prior year:
●
Higher revenue:
Our revenues increased 14% in ZAR, primarily due to an increase in low margin prepaid airtime sales and
other value-added services, as well as higher transaction, insurance and lending revenues, which was partially offset by lower
hardware sales revenue in our POS hardware distribution business given the lumpy nature of bulk sales;
●
Operating income generated:
Operating profitability was achieved following years of operating losses as a result of the
various cost reduction initiatives in Consumer implemented in prior periods as well as the contribution from Connect;
●
Higher net interest charge:
211.3 million) primarily due to higher interest rates; and
●
Foreign exchange movements:
compared to the prior period, which adversely impacted our U.S. dollar reported results.
53
Consolidated overall results of operations
This discussion is based on the amounts prepared in accordance with U.S. GAAP.
The following tables show the changes in the items comprising our statements of operations, both in U.S. dollars and in ZAR:
Table 8
In United States Dollars
Nine months ended March 31,
2024
2023
%
$ ’000
$ ’000
change
Revenue
418,176
394,822
6%
Cost of goods sold, IT processing, servicing and support
329,610
314,651
5%
Selling, general and administration
67,146
70,995
(5%)
Depreciation and amortization
17,460
17,892
(2%)
Transaction costs related to Adumo acquisition
665
-
nm
Operating income (loss)
3,295
(8,716)
nm
Reversal of allowance for EMI doubtful debt receivable
250
-
nm
Net loss on disposal of equity-accounted investments
-
193
nm
Interest income
1,562
1,269
23%
Interest expense
14,312
13,408
7%
Loss before income tax expense (benefit)
(9,205)
(21,048)
(56%)
Income tax expense (benefit)
1,881
(465)
nm
Net loss before loss from equity-accounted investments
(11,086)
(20,583)
(46%)
Loss from equity-accounted investments
1,319
2,582
(49%)
Net loss attributable to us
(12,405)
(23,165)
(46%)
Table 9
In South African Rand
Nine months ended March 31,
2024
2023
%
ZAR ’000
ZAR ’000
change
Revenue
7,842,078
6,871,364
14%
Cost of goods sold, IT processing, servicing and support
6,181,076
5,476,091
13%
Selling, general and administration
1,259,415
1,235,576
2%
Depreciation and amortization
327,408
311,387
5%
Transaction costs related to Adumo acquisition
12,550
-
nm
Operating income (loss)
61,629
(151,690)
nm
Reversal of allowance for EMI doubtful debt receivable
4,741
-
nm
Net loss on disposal of equity-accounted investments
-
3,359
nm
Interest income
29,309
22,085
33%
Interest expense
268,262
233,349
15%
Loss before income tax expense (benefit)
(172,583)
(366,313)
(53%)
Income tax expense (benefit)
35,245
(8,093)
nm
Net loss before loss from equity-accounted investments
(207,828)
(358,220)
(42%)
Loss from equity-accounted investments
25,041
44,936
(44%)
Net loss attributable to us
(232,869)
(403,156)
(42%)
Revenue increased by $23.4 million (ZAR 1.0 billion), or 5.9% (in ZAR, 14.1%), primarily due to the increase in the number of
low-margin prepaid airtime vouchers sold and an increase in volume of other value-added services provided, as well as higher
transaction volumes processed, insurance premiums collected and lending revenues following an increase in loan originations, which
was partially offset by a lower number of hardware sales in our POS hardware distribution business given the lumpy nature of bulk
sales.
Cost of goods sold, IT processing, servicing and support increased by $15.0 million (ZAR 0.7 billion), or 4.8% (in ZAR, 12.9%),
primarily due to the increase in low margin prepaid airtime sales, which were partially offset by the lower cost of goods sold related
to fewer hardware sales.
Selling, general and administration expenses decreased by $3.8 million, or 5.4%, and in ZAR increased by ZAR 23.8 million, or
1.9%. In ZAR, the modest increase was primarily due to higher employee-related expenses related to the expansion of our senior
management team and the year-over-year impact of inflationary increases on employee -related expenses, which were partially offset
by the benefits of various cost reduction initiatives in Consumer.
54
Depreciation and amortization expense decreased by $0.4 million, or 2.4%, and in ZAR increased by ZAR 16.0 million or 5.1%.
In the ZAR, the increase was due to an increase in depreciation expense related to additional POS devices deployed.
Transaction costs related to Adumo acquisition includes fees paid to external service providers associated with legal, commercial,
financial and tax due diligence activities performed and other legal and advisory services procured.
Our operating income (loss) margin for the year to date fiscal 2024 and 2023 was 0.8% and (2.2)%, respectively. We discuss the
components of operating loss margin under “—Results of operations by operating segment.”
We did not record any changes in the fair value of equity interests in MobiKwik and Cell C during the year to date fiscal 2024
or 2023, respectively.
During the year to date fiscal 2024, we received an outstanding amount of $0.3 million related to the sale Carbon in fiscal 2023,
which resulted in the reversal of an allowance for doubtful loans receivable of $0.3 million recorded in fiscal 2023.
We
recorded a
gain of $0.3 million related to the disposal of our entire interest in Carbon during the year to date fiscal 2023. Refer to Note 5 to our
unaudited condensed consolidated financial statements for additional information regarding this disposal.
We recorded a net loss of $0.2 million comprising a loss of $0.4 million related to the disposal of a minor portion of our investment
in Finbond and a $0.25 million gain related to the disposal of our entire interest in Carbon during the year to date fiscal 2023. Refer to
Note 5 to our unaudited condensed consolidated financial statements for additional information regarding this disposal.
Interest on surplus cash increased to $1.6 million (ZAR 29.3 million) from $1.3 million (ZAR 22.1 million), primarily due to
higher interest rates.
Interest expense increased to $14.3 million (ZAR 268.3 million) from $13.4 million (ZAR 233.3 million), primarily as a result
of higher overall interest rates and higher overall borrowings during the year to date fiscal 2024 compared with comparable period in
the prior year to date, which was partially offset by lower interest expense incurred on certain of our borrowing for which we were
able to negotiate lower rates of interest during the latter half of fiscal 2023 and again towards the end of calendar 2023.
Fiscal 2024 tax expense was $1.9 million (ZAR 35.2 million) compared to a tax benefit of $(0.5) million (ZAR (8.1) million) in
fiscal 2023. Our effective tax rate for fiscal 2024 was impacted by the tax expense recorded by our profitable South African operations,
a deferred tax benefit related to acquisition-related intangible asset amortization, non-deductible expenses, the on-going losses incurred
by certain of our South African businesses and the associated valuation allowances created related to the deferred tax assets recognized
regarding net operating losses incurred by these entities.
Our effective tax rate for fiscal 2023 was impacted by a reduction in the enacted South African corporate income tax rate from
28% to 27% from January 2023 (but backdated to July 1, 2022), the tax expense recorded by our profitable South African operations,
a deferred tax benefit related to acquisition-related intangible asset amortization, non-deductible expenses, the on-going losses incurred
by certain of our South African businesses and the associated valuation allowances created related to the deferred tax assets recognized
regarding net operating losses incurred by these entities.
Finbond is listed on the Johannesburg Stock Exchange and reports its six-month results during our first half and its annual results
during our fourth quarter. The table below presents the relative (loss) earnings from our equity-accounted investments:
Table 10
Nine months ended March 31,
2024
2023
$ %
$ ’000
$ ’000
change
Finbond
(1,445)
(2,631)
(45%)
Share of net loss
(278)
(1,521)
(82%)
Impairment
(1,167)
(1,110)
5%
Other
126
49
157%
(1,319)
(2,582)
(49%)
55
Results of operations by operating segment
The composition of revenue and the contributions of our business activities to operating loss are illustrated below:
Table 11
In United States Dollars
Nine months ended March 31,
2024
% of
2023
% of
% change
Operating Segment
$ ’000
total
$ ’000
total
Consolidated revenue:
Merchant
370,244
89%
348,508
88%
6%
Consumer
50,191
12%
46,314
12%
8%
Subtotal: Operating segments
420,435
101%
394,822
100%
6%
Eliminations
(2,259)
(1%)
-
-
nm
Total consolidated revenue
418,176
100%
394,822
100%
6%
Group Adjusted EBITDA:
Merchant
(1)
25,148
94%
25,303
149%
(1%)
Consumer
(1)
9,786
37%
833
5%
1,075%
Lease expenses
(2)
(2,224)
(8%)
(2,255)
(13%)
(1%)
Group costs
(6,032)
(23%)
(6,849)
(40%)
(12%)
Group Adjusted EBITDA (non-GAAP)
(3)
26,678
100%
17,032
100%
57%
(1) Segment Adjusted EBITDA for Merchant includes retrenchments costs of $0.2 million and Consumer includes retrenchment
costs of $0.2 million for year to date fiscal 2024.
(2) Lease expenses which were previously excluded from the calculation of Group Adjusted EBITDA have now been included
in the calculation. This change is in response to comments received from the staff of the SEC in March 2024 regarding our non-GAAP
financial reporting. Comparative information has been adjusted to conform with the updated presentation.
(3) Group Adjusted EBITDA is a non-GAAP measure, refer to reconciliation below at “—Results of Operations—Use of Non-
GAAP Measures”.
Table 12
In South African Rand
Nine months ended March 31,
2024
% of
2023
% of
% change
Operating Segment
ZAR ’000
total
ZAR ’000
total
Consolidated revenue:
Merchant
6,942,910
89%
6,065,329
88%
14%
Consumer
941,566
12%
806,035
12%
17%
Subtotal: Operating segments
7,884,476
101%
6,871,364
100%
15%
Eliminations
(42,398)
(1%)
-
-
nm
Total consolidated revenue
7,842,078
100%
6,871,364
100%
14%
Group Adjusted EBITDA:
Merchant
(1)
471,640
94%
440,366
149%
7%
Consumer
(1)
183,857
37%
14,497
5%
1,168%
Lease expenses
(2)
(41,739)
(8%)
(39,245)
(13%)
6%
Group costs
(113,172)
(23%)
(119,198)
(40%)
(5%)
Group Adjusted EBITDA (non-GAAP)
(3)
500,586
100%
296,420
100%
69%
(1) Segment Adjusted EBITDA for Merchant includes retrenchments costs of ZAR 4.7 million and Consumer includes
retrenchment costs of ZAR 2.9 million for year to date fiscal 2024.
(2) Lease expenses which were previously excluded from the calculation of Group Adjusted EBITDA have now been included
in the calculation. This change is in response to comments received from the staff of the SEC in March 2024 regarding our non-GAAP
financial reporting. Comparative information has been adjusted to conform with the updated presentation.
(3) Group Adjusted EBITDA is a non-GAAP measure, refer to reconciliation below at “—Results of Operations—Use of Non-
GAAP Measures”.
56
Merchant
Segment revenue increased due to the increase in prepaid airtime vouchers sold and other value-added services provided, which
was partially offset by a lower number of hardware sales in our POS hardware distribution business given the lumpy nature of bulk
sales as well as lower revenue generated from a decrease in certain valued-added services transaction volumes processed (such as
international money transfers). In ZAR, the increase in Segment Adjusted EBITDA is primarily due to the higher sales activity, which
was partially offset by lower hardware sales
Our Segment Adjusted EBITDA margin for the year to date fiscal 2024 and 2023 was 6.8% and 7.3%, respectively.
Consumer
Segment revenue increased primarily due to more transaction fees generated from the higher EPE account holders base, higher
insurance revenues, and an increase in lending revenue as a result of an increase in loan originations. This increase in revenue, together
with the cost reduction initiatives initiated in fiscal 2022 and through fiscal 2023, have translated into a turnaround in the Consumer
Division and the realization of sustained positive Segment Adjusted EBITDA in year to date fiscal 2024 compared with year to date
fiscal 2023. Consumer Segment Adjusted EBITDA during the year to date fiscal 2024 was also impacted by higher credit losses (as a
result of an increase in originations) and higher insurance-related claims (as a result of a higher number of insurance policies) compared
with the year to date fiscal 2023.
Our Segment Adjusted EBITDA margin for the year to date fiscal 2024 and 2023 was 19.5% and 1.8%, respectively.
Group costs
Our group costs for fiscal 2024 decreased compared with the prior period due to lower external audit, legal and consulting fees
and lower provision for executive bonuses, which was partially offset by higher employee costs and travel expenses.
Use of Non-GAAP Measures
U.S. securities laws require that when we publish any non-GAAP measures, we disclose the reason for using these non-GAAP
measures and provide reconciliations to the most directly comparable GAAP measures. The presentation of Group Adjusted EBITDA
is a non-GAAP measure. We provide this non-GAAP measure to enhance our evaluation and understanding of our financial
performance and trends. We believe that this measure is helpful to users of our financial information understand key operating
performance and trends in our business because it excludes certain non-cash expenses (including depreciation and amortization and
stock-based compensation charges) and income and expenses that we consider once-off in nature.
Non-GAAP Measures
Group Adjusted EBITDA is earnings before interest, tax, depreciation and amortization (“EBITDA”), adjusted for non-
operational transactions (including loss on disposal of equity-accounted investments, gain related to fair value adjustments to currency
options), (earnings) loss from equity-accounted investments, stock-based compensation charges and once-off items. Once-off items
represents non-recurring income and expense items, including costs related to acquisitions and transactions consummated or ultimately
not pursued.
Lease expenses which were previously excluded from the calculation of Group Adjusted EBITDA have now been included in
the calculation. This change is in response to comments received from the staff of the SEC in March 2024 regarding our non-GAAP
financial reporting. Comparative information has been adjusted to conform with the updated presentation.
57
The table below presents the reconciliation between GAAP net loss attributable to Lesaka to Group Adjusted EBITDA:
Table 13
Three months ended
March 31,
Nine months ended
March 31,
2024
2023
2024
2023
$ ’000
$ ’000
$ ’000
$ ’000
Loss attributable to Lesaka - GAAP
(4,047)
(5,820)
(12,405)
(23,165)
(Earnings) loss from equity accounted investments
(43)
(17)
1,319
2,582
Net loss before (earnings) loss from equity-accounted investments
(4,090)
(5,837)
(11,086)
(20,583)
Income tax (benefit) expense
931
(860)
1,881
(465)
Loss before income tax expense
(3,159)
(6,697)
(9,205)
(21,048)
Interest expense
4,581
4,984
14,312
13,408
Interest income
(628)
(469)
(1,562)
(1,269)
Reversal of allowance for doubtful EMI loan receivable
-
-
(250)
-
Net gain on disposal of equity-accounted investment
-
329
-
193
Operating income (loss)
794
(1,853)
3,295
(8,716)
PPA amortization (amortization of acquired intangible assets)
3,562
3,789
10,762
11,559
Depreciation and amortization
2,229
2,186
6,698
6,333
Stock-based compensation charges
2,090
1,644
5,653
5,955
Once-off items
(1)
907
1,141
169
1,858
Unrealized loss FV for currency adjustments
121
43
101
43
Group Adjusted EBITDA - Non-GAAP
9,703
6,950
26,678
17,032
(1) The table below presents the components of once-off items for the periods presented:
Table 14
Three months ended
March 31,
Nine months ended
March 31,
2024
2023
2024
2023
$ ’000
$ ’000
$ ’000
$ ’000
Transaction costs
276
470
456
792
Transaction costs related to Adumo acquisition
631
-
665
-
(Income recognized) Expenses incurred related to closure of legacy
businesses
-
-
(952)
395
Indirect taxes provision
-
438
-
438
Separation of employee expense
-
183
-
183
Employee misappropriation of company funds
-
50
-
50
Total once-off items
907
1,141
169
1,858
Once-off items are non-recurring in nature, however, certain items may be reported in multiple quarters. For instance, transaction
costs include costs incurred related to acquisitions and transactions consummated or ultimately not pursued. The transactions can span
multiple quarters, for instance in fiscal 2022 we incurred significant transaction costs related to the acquisition of Connect over a
number of quarters, and the transactions are generally non-recurring.
(Income recognized) Expenses incurred related to closure of legacy businesses represents (i) gains recognized related to the
release of the foreign currency translation reserve on deconsolidation of a subsidiaries and (ii) costs incurred related to subsidiaries
which we are in the process of deregistering/ liquidation and therefore we consider these costs non-operational and ad hoc in nature.
Indirect tax provision includes non-recurring indirect taxes which have been provided related to prior periods following an on-going
investigation from a tax authority. We incurred separation costs related to the termination of certain senior-level employees, including
an executive officer and senior managers, during the period and we consider these specific terminations to be of a non-recurring nature.
Employee misappropriation of company funds represents a once-off loss incurred.
58
Liquidity and Capital Resources
As of March 31, 2024, our cash and cash equivalents were $55.2 million and comprised of U.S. dollar-denominated balances of
$3.4 million, ZAR-denominated balances of ZAR 942.2 million ($49.9 million), and other currency deposits, primarily Botswana pula,
of $2.0 million, all amounts translated at exchange rates applicable as of March 31, 2024. The increase in our unrestricted cash balances
from June 30, 2023, was primarily due to a positive contribution from our Merchant and Consumer operations and utilization of our
borrowings facilities to fund certain components of our operations, which was partially offset by the utilization of cash reserves to
fund certain scheduled and other repayments of our borrowings, purchase ATMs and vaults, and to make an investment in working
capital.
We generally invest any surplus cash held by our South African operations in overnight call accounts that we maintain at South
African banking institutions, and any surplus cash held by our non-South African companies in U.S. dollar-denominated money market
accounts.
Historically, we have financed most of our operations, research and development, working capital, and capital expenditures, as
well as acquisitions and strategic investments, through internally generated cash and our financing facilities. When considering
whether to borrow under our financing facilities, we consider the cost of capital, cost of financing, opportunity cost of utilizing surplus
cash and availability of tax efficient structures to moderate financing costs. For instance, in fiscal 2022, we obtained loan facilities
from RMB to fund a portion of our acquisition of Connect. Following the acquisition of Connect, we now utilize a combination of
short and long-term facilities to fund our operating activities and a long-term asset-backed facility to fund the acquisition of POS
devices and vaults. Refer to Note 12 to our consolidated financial statements for the year ended June 30, 2023, for additional
information related to our borrowings.
Available short-term borrowings
Summarized below are our short-term facilities available and utilized as of March 31, 2024:
Table 15
RMB Facility E
RMB Indirect
RMB Connect
Nedbank
$ ’000
ZAR ’000
$ ’000
ZAR ’000
$ ’000
ZAR ’000
$ ’000
ZAR ’000
Total short-term facilities
available, comprising:
Overdraft
-
-
-
-
10,860
205,000
-
-
Overdraft restricted as to
use
(1)
47,680
900,000
-
-
-
-
-
-
Total overdraft
47,680
900,000
-
-
10,860
205,000
-
-
Indirect and derivative
facilities
(2)
-
-
7,152
135,000
-
-
8,294
156,556
Total short-term
facilities available
47,680
900,000
7,152
135,000
10,860
205,000
8,294
156,556
Utilized short-term
facilities:
Overdraft
-
-
-
-
9,006
170,000
-
-
Overdraft restricted as to
use
(1)
4,272
80,634
-
-
-
-
-
-
Indirect and derivative
facilities
(2)
-
-
1,754
33,107
-
-
112
2,110
Total short-term
facilities available
4,272
80,634
1,754
33,107
9,006
170,000
112
2,110
Interest rate, based on
South African prime rate
11.75%
11.65%
(1) Overdraft may only be used to fund ATMs and upon utilization is considered restricted cash.
(2) Indirect and derivative facilities may only be used for guarantees, letters of credit and forward exchange contracts to support
guarantees issued by RMB and Nedbank to various third parties on our behalf.
59
Long-term borrowings
We have aggregate long-term borrowing outstanding of ZAR 2.6 billion ($135.7 million translated at exchange rates as of March
31, 2024) as described in Note 8. These borrowings include outstanding long-term borrowings obtained by Lesaka SA of ZAR 1.0
billion, including accrued interest, which was used to partially fund the acquisition of Connect. The Lesaka SA borrowing
arrangements were amended in March 2023 to include a ZAR 200 million revolving credit facility. We used this revolving credit
facility during the nine months ended March 31, 2024, and settled all drawn in full as of March 31, 2024, with the full balance available
for utilization in the future. In contemplation of the Connect transaction, Connect obtained total facilities of ZAR 1.3 billion, which
were utilized to repay its existing borrowings, to fund a portion of its capital expenditures and to settle obligations under the transaction
documents, and which has subsequently been upsized for its operational requirements and has an outstanding balance as of March 31,
2024, of ZAR 1.2 billion, We also have a revolving credit facility, of ZAR 300.0 million which is utilized to fund a portion of our
merchant finance loans receivable book.
Restricted cash
We have credit facilities with RMB in order to access cash to fund our ATMs in South Africa. Our cash, cash equivalents and
restricted cash presented in our consolidated statement of cash flows as of March 31, 2024, includes restricted cash of $4.4 million
related to cash withdrawn from our debt facility to fund ATMs. This cash may only be used to fund ATMs and is considered restricted
as to use and therefore is classified as restricted cash on our consolidated balance sheet.
We have also entered into cession and pledge agreements with Nedbank related to our Nedbank indirect credit facilities and we
have ceded and pledged certain bank accounts to Nedbank. The funds included in these bank accounts are restricted as they may not
be withdrawn without the express permission of Nedbank. Our cash, cash equivalents and restricted cash presented in our consolidated
statement of cash flows as of March 31, 2024, includes restricted cash of $0.1 million that has been ceded and pledged.
Cash flows from operating activities
Third quarter
Net cash provided by operating activities during the third quarter of fiscal 2024 was $19.2 million (ZAR 362.1 million) compared
to net cash used in operating activities of $5.1 million (ZAR 91.6 million) during the third quarter of fiscal 2023. Excluding the impact
of income taxes, our cash provided by operating activities during the third quarter of fiscal 2024 was positively impacted by the
contribution from Merchant and Consumer, which was partially offset by growth in our consumer and merchant finance loans
receivable books and temporary working capital movements within our merchant business as a result of quarter-end transaction
processing activities closing on a Sunday, and further impacted by a public holiday on April 1, 2024, and which were settled in the
following week.
We didn’t pay any significant taxes during the third quarter of fiscal 2024. During the third quarter of fiscal 2023, we paid second
provisional South African tax payments of $0.3 million (ZAR 5.1 million) related to certain Connect entities’ 2023 tax year that had
not yet been aligned with ours.
Taxes paid during the third quarter of fiscal 2024 and 2023 were as follows:
Table 16
Three months ended March 31,
2024
2023
2024
2023
$
$
ZAR
ZAR
‘000
‘000
‘000
‘000
First provisional payments
1
-
18
-
Second provisional payments
36
280
691
5,090
Tax refund received
(7)
-
(128)
-
Total South African taxes paid
30
280
581
5,090
Foreign taxes paid
58
156
1,072
2,759
Total tax paid
88
436
1,653
7,849
60
Year to date
Net cash provided by operating activities during the year to date of fiscal 2024 was $23.1 million (ZAR 434.0 million) compared
to net cash used in operating activities of $9.3 million (ZAR 162.7 million) during the year to date of fiscal 2023. Excluding the impact
of income taxes, our cash provided by operating activities during the third quarter of fiscal 2024 was positively impacted by the
contribution from Merchant and Consumer, which was partially offset by growth in our consumer and merchant finance loans
receivable books and temporary working capital movements within our merchant business as a result of quarter-end transaction
processing activities closing on a Sunday, and further impacted by a public holiday on April 1, 2024, and which were settled in the
following week.
During the year to date of fiscal 2024, we paid first provisional South African tax payments of $2.7 million (ZAR 49.5 million)
related to our 2024 tax year and South African tax payments related to prior years of $0.6 million (ZAR 12.2 million). During the year
to date of fiscal 2023, we paid first provisional South African tax payments of $3.0 million (ZAR 50.8 million) related to our 2023 tax
year, and additional second provisional South African tax payments of $0.5 million (ZAR 8.5 million) related to our 2022 tax year
and as discussed above.
Taxes paid during the year to date of fiscal 2024 and 2023 were as follows:
Table 17
Nine months ended March 31,
2024
2023
2024
2023
$
$
ZAR
ZAR
‘000
‘000
‘000
‘000
First provisional payments
2,663
2,955
49,534
50,798
Second provisional payments
36
471
691
8,461
Taxation paid related to prior years
641
10
12,187
180
Tax refund received
(38)
(198)
(768)
(3,540)
Total South African taxes paid
3,302
3,238
61,644
55,899
Foreign taxes paid
196
257
3,677
4,534
Total tax paid
3,498
3,495
65,321
60,433
Cash flows from investing activities
Third quarter
Cash used in investing activities for the third quarter of fiscal 2024 included capital expenditures of $2.9 million (ZAR 55.6
million), primarily due to the acquisition of vaults and POS devices.
Cash used in investing activities for the third quarter of fiscal 2023 included capital expenditures of $4.7 million (ZAR 84.6
million), primarily due to the acquisition of vaults and POS devices. During the third quarter of fiscal 2023, we received proceeds of
$0.3 million related to the sale of minor positions in Finbond.
Year to date
Cash used in investing activities for the year to date of fiscal 2024 included capital expenditures of $8.0 million (ZAR 149.1
million), primarily due to the acquisition of vaults and POS devices. During the year to date of fiscal 2024, we received proceeds of
$3.5 million related to the sale of remaining interest in Finbond and $0.25 million related to the second (and final) tranche from the
disposal of our entire equity interest in Carbon.
Cash used in investing activities for the year to date of fiscal 2023 included capital expenditures of $13.2 million (ZAR 229.9
million), primarily due to the acquisition of vaults, POS devices and computer equipment. During the year to date fiscal 2023, we
received proceeds of $0.25 million related to the first tranche (of two) from the disposal of our entire equity interest in Carbon and
$0.4 million related to the sale of minor positions in Finbond.
61
Cash flows from financing activities
Third quarter
During the third quarter of fiscal 2024 , we utilized $24.9 million from our South African overdraft facilities to fund our ATMs
and our cash management business through Connect, and repaid $43.4 million of those facilities. We utilized $3.4 million of our long-
term borrowings to fund the acquisition of certain capital expenditures and for working capital requirements. We repaid $7.2 million
of long-term borrowings in accordance with our repayment schedule as well as to settle a portion of our revolving credit facility
utilized.
During the third quarter of fiscal 2023, we utilized $128.2 million from our South African overdraft facilities to fund our ATMs
and our cash management business through Connect, and repaid $136.0 million of those facilities. We utilized approximately $12.9
million of our long-term borrowings to fund our merchant finance loans receivable business, to fund the acquisition of certain capital
expenditures and for working capital requirements. We repaid approximately $2.0 million of long-term borrowings in accordance with
our repayment schedule. We received $0.1 million from the exercise of stock options. We also paid $0.2 million to repurchase shares
from employees in order for the employees to settle taxes due related to the vesting of shares of restricted stock and to settle the strike
price due and taxes due related to the exercise of stock options.
Year to date
During the year to date of fiscal 2024, we utilized $153.5 million from our South African overdraft facilities to fund our ATMs
and our cash management business through Connect, and repaid $172.2 million of those facilities. We utilized $14.4 million of our
long-term borrowings to fund the acquisition of certain capital expenditures and for working capital requirements. We repaid $13.1
million of long-term borrowings in accordance with our repayment schedule as well as to settle a portion of our revolving credit facility
utilized. We also paid $0.2 million to repurchase shares from employees in order for the employees to settle taxes due related to the
vesting of shares of restricted stock.
During the year to date of fiscal 2023, we utilized $441.5 million from our South African overdraft facilities to fund our ATMs
and our cash management business through Connect, and repaid $448.3 million of those facilities. We utilized approximately $23.0
million of our long-term borrowings to fund our merchant finance loans receivable business, to fund the acquisition of certain capital
expenditures and for working capital requirements. We repaid approximately $5.3 million of long-term borrowings in accordance with
our repayment schedule. We received $0.4 million from the exercise of stock options. We also paid $0.5 million to repurchase shares
from employees in order for the employees to settle taxes due related to the vesting of shares of restricted stock and to settle the strike
price due and taxes due related to the exercise of stock options.
Off-Balance Sheet Arrangements
We have no off -balance sheet arrangements.
Capital Expenditures
We expect capital spending for the fourth quarter of fiscal 2024 to primarily include spending for acquisition of POS devices,
vaults, computer software, computer and office equipment, as well as for our ATM infrastructure and branch network in South Africa.
Our capital expenditures for the third quarter of fiscal 2024 and 2023 are discussed under “—Liquidity and Capital Resources—Cash
flows from investing activities.” All of our capital expenditures for the past three fiscal years were funded through internally generated
funds, or, following the Connect acquisition, our asset-backed borrowing arrangement. We had outstanding capital commitments as
of March 31, 2023, of $0.2 million. We expect to fund these expenditures through internally generated funds and available facilities.
62
Item 3. Quantitative and Qualitative Disclosures About Market Risk
In addition to the tables below, see Note 4 to the unaudited condensed consolidated financial statements for a discussion of
market risk.
We have short and long-term borrowings in South Africa which attract interest at rates that fluctuate based on changes in the
South African prime and 3-month JIBAR interest rates. The following table illustrates the effect on our annual expected interest charge,
translated at exchange rates applicable as of March 31, 2024, as a result of changes in the South African prime and 3-month JIBAR
interest rates, using our outstanding short and long-term borrowings as of March 31, 2024. The effect of a hypothetical 1% (i.e. 100
basis points) increase and a 1% decrease in the interest rates applicable to the borrowings as of March 31, 2024, are shown. The
selected 1% hypothetical change does not reflect what could be considered the best- or worst-case scenarios.
Table 18
As of March 31, 2024
Annual expected
interest charge
($ ’000)
Hypothetical
change in
interest rates
Estimated annual
expected interest
charge after
hypothetical change
in interest rates
($ ’000)
Interest on South African borrowings
18,644
1%
20,139
(1%)
17,150
63
Item 4. Controls and Procedures
Under the supervision and with the participation of our management, including our executive chairman and our group chief
financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e)
promulgated under the Securities Exchange Act of 1934, as amended, as of March 31, 2024. Management recognizes that any controls
and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and
management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on
this evaluation, the executive chairman and the group chief financial officer concluded that our disclosure controls and procedures
were effective as of March 31, 2024.
Changes in Internal Control over Financial Reporting
There have not been any changes in our internal control over financial reporting during the fiscal quarter ended March 31, 2024,
that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
64
Part II. Other Information
Item 1A. Risk Factors
See “Item 1A RISK FACTORS” in Part I of our Annual Report on Form 10-K for the fiscal year ended June 30, 2023, for a
discussion of risk factors relating to (i) our business, (ii) operating in South Africa and other foreign markets, (iii) government
regulation, and (iv) our common stock. Except as set forth below, there have been no material changes from the risk factors previously
disclosed in our Annual Report on Form 10-K for the fiscal year ended June 30, 2023.
Failure to complete, or delays in completing, the Adumo acquisition, could materially and adversely affect our results of
operations and stock price.
The completion of the Adumo acquisition is subject to a number of conditions precedent, including receipt of shareholder and
regulatory approvals and certain third-party consents. Some of these conditions are outside our control.
We will need to obtain approval from our shareholders to issues shares of our common stock to the Adumo sellers as part
consideration of the purchase price. Under the terms of the of the transaction agreement we need to obtained this approval by no later
than October 31, 2024. We will need to prepare and provide certain materials to our shareholders in order for them to approve the
issuance of the shares to the Adumo sellers. We will need to engage external service providers to assist us with the preparation and
distribution of these materials. The transaction may fail if we are unable to prepare these materials in a timely manner and obtain the
necessary shareholder approvals.
To complete the acquisition, we must make certain filings with and obtain certain consents and approvals from various
governmental and regulatory authorities. The regulatory approval processes may take a lengthy period of time to complete, and there
can be no assurance as to the outcome of the approval processes, including the undertakings and conditions that may be required for
approval, or whether the regulatory approvals will be obtained at all.
In addition, the completion of the acquisition is conditional on, among other things, no action or circumstance occurring that
would result in a material adverse effect on the Adumo’s business operations or financial results.
We cannot provide any assurance regarding if or when all conditions precedent to the acquisition will be satisfied or waived. If,
for any reason, the acquisition is not completed, or its completion is materially delayed and/or the transaction agreement is terminated,
the market price of our common stock may be materially and adversely affected.
In addition, if the acquisition is not completed for any reason, there are risks that (i) the announcement of the acquisition and (ii)
the dedication of management’s attention and other of our resources to the completion thereof, could have a negative impact on our
relationships with our stakeholders and could have a material adverse effect on our current and future operations, financial condition
and prospects.
We may not realize some or all of the anticipated benefits from the Adumo acquisition.
Even if we complete the Adumo acquisition, we may experience unforeseen events, changes or circumstances that may adversely
affect us. For example, we may incur unexpected costs, charges or expenses resulting from the transaction, including charges to future
earnings if Adumo’s business does not perform as expected. Our expectations regarding Adumo’s business and prospects may not be
realized, including as a result of changes in the financial condition of the markets that Adumo serves. In addition, there are risks
associated with Adumo’s product and service offerings or results of operations, including the risk of failing to comply with certain
regulatory rules required to operate its business.
Further, there are numerous challenges, risks and costs involved with integrating the operations of Adumo with ours. For example,
integrating Adumo into our company will require significant attention from our senior management which may divert their attention
from our day-to-day business. The difficulties of integration may also be increased by cultural differences between our two
organizations and the necessity of retaining and integrating personnel, including Adumo’s key employees.
Our Sarbanes-Oxley Act of 2002 (“Sarbanes”) management certification and auditor attestation regarding the effectiveness of
our internal control over financial reporting as of June 30, 2024, will likely exclude the operations of Adumo, as we only expect to
close the transaction in fiscal 2025. The requirement to evaluate and report on our internal controls also applies to companies that we
acquire. As a group of South African private companies, Adumo is not required to comply with Sarbanes prior to the time we acquired
it. The integration of Adumo into our internal control over financial reporting would be expected to require significant time and
resources from our management and other personnel and is expected to increase our compliance costs. If we fail to successfully
integrate the operations of Adumo into our internal control over financial reporting for fiscal 2025, our internal control over financial
reporting may not be effective.
If some or all of the aforementioned or other risks materialize, our ability to realize the anticipated benefits of Adumo could be
materially impaired, and as a result, our financial condition, results of operations, cash flows and stock price could suffer.
65
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The table below presents information relating to purchases of shares of our common stock during the third quarter of fiscal
2024:
Table 19
(a)
(b)
(c)
(d)
Period
Total number
of shares
purchased
Average price
paid per share
(US dollars)
Total number of shares
purchased as part of publicly
announced plans or
programs
Maximum dollar value of
shares that may yet be
purchased under the plans
or programs
Jan-24
-
-
100,000,000
Feb-24
(1)
2,511
3.68
-
100,000,000
Mar-24
(1)
-
-
100,000,000
Total
2,511
-
(1) Relates to the delivery of shares of our common stock to us by certain of our employees to settle their income tax liabilities.
These shares do not reduce the repurchase authority under the share repurchase program.
Item 5. Other Information
Our Section 16 officers and directors, as defined in Rule 16a-1(f) of the Securities Exchange Act of 1934 (the “Exchange Act”),
may from time to time enter into plans for the purchase or sale of our common stock that are intended to satisfy the affirmative defense
conditions of Rule 10b5-1(c) of the Exchange Act. During the quarter ended March 31, 2024, no officers or directors, as defined in
Rule 16a-1(f),
adopted
, modified, or
terminated
non-Rule
10b5-1
defined in Item 408 of Regulation S-K.
66
Item 6. Exhibits
The following exhibits are filed as part of this Form 10-Q:
Incorporated by Reference Herein
Exhibit
No.
Description of Exhibit
Included
Herewith
Form
Exhibit
Filing Date
10.46
8-K
10.1
January 23, 2024
X
X
X
X
101.INS
XBRL Instance Document
X
101.SCH
XBRL Taxonomy Extension Schema
X
101.CAL
XBRL Taxonomy Extension Calculation Linkbase
X
101.DEF
XBRL Taxonomy Extension Definition Linkbase
X
101.LAB
XBRL Taxonomy Extension Label Linkbase
X
101.PRE
XBRL Taxonomy Extension Presentation Linkbase
X
104
Cover page formatted as Inline XBRL and contained in
Exhibit 101
67
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on May 8, 2024.
LESAKA TECHNOLOGIES, INC.
By: /s/ Ali Mazanderani
Ali Mazanderani
Executive Chairman
By: /s/ Naeem E. Kola
Naeem E. Kola
Group Chief Financial Officer, Treasurer and Secretary