LSAK - Lesaka delivers improved profitability as it exceeds FY24 Q2 guidance

JOHANNESBURG, South Africa, Feb. 06, 2024 (GLOBE NEWSWIRE) -- Lesaka Technologies, Inc. (Nasdaq: LSAK; JSE: LSK) today released results for the second quarter ended December 31, 2023 (“Q2 2024”).

Performance Highlights for Q2 2024 :

• Revenue of $143.9 million (ZAR 2.7 billion) ¹ in Q2 2024, compared to $136.1 million (ZAR 2.4 billion) ¹ for the second quarter ended December 31, 2022 (“Q2 2023”). In South African Rand (“ZAR”), revenue grew 13%.
• Operating income of $2.3 million (ZAR 42.5 million) for the quarter, compares to an operating loss of $2.2 million (ZAR 38.4 million) in Q2 2023, driven by successful execution against our strategy and growth in the Consumer and Merchant Divisions. Operating income for Q2 2024, includes a $1.0 million (ZAR 17.6 million) non-cash gain related to the release of a foreign currency translation reserve upon liquidation of a dormant subsidiary.
• Net loss continued to narrow, at $2.7 million (ZAR 50.8 million) ¹ . This compares to a net loss of $6.6 million (ZAR 116.5 million) ¹ in Q2 2023 and represents a 56% improvement in ZAR.
• Group Adjusted EBITDA, of $9.6 million (ZAR 180.5 million) ¹ exceeded the upper end of Q2 2024 guidance, representing an improvement of 38% in ZAR compared to the Q2 2023 Group Adjusted EBITDA of $7.4 million (ZAR 130.4 million) ¹ . See Attachment B for a reconciliation of this non-GAAP measure.
• The Merchant Division reported revenue $127.9 million (R2.4 billion), an increase of 13% in ZAR, compared to $120.6 million (ZAR 2.1 billion). Segment Adjusted EBITDA increased to $8.7 million (ZAR 162.9 million) for the quarter, a 2% increase in ZAR compared to Q2 2023. Year-on-year comparatives for revenue and Segment Adjusted EBITDA are impacted by a very strong comparative quarter in Q2 2023, primarily due to performance in our NUETS business, which is influenced by client capex cycles.
• The Consumer Division reported Segment Adjusted EBITDA of $2.9 million (ZAR 55.2 million) ¹ in Q2 2024, a 445% increase in ZAR, compared to $0.6 million (ZAR 10.1 million) in Q2 2023. Strategic initiatives to grow the Consumer Division are yielding positive results with revenue increasing 16% year-on-year in ZAR to $16.7 million (ZAR 313 million), off a reduced cost base.
• The Net debt to Group Adjusted EBITDA ² ratio improved to 2.7 times, compared to 3.6 times in Q2 2023, driven by debt reduction and growth in Group Adjusted EBITDA.
• Guidance for fiscal 2024 re-affirmed.

Outgoing Lesaka Group CEO Chris Meyer said, “I am pleased to announce that we have once again achieved excellent results this quarter. Our Consumer team's hard work over the past two years is paying off, resulting in substantial customer and profit growth. Our Merchant division has also performed well, and our anticipated acquisition of Touchsides has given us new technology and expertise in the tavern vertical, allowing us to continue innovating in this competitive market.

The progress Lesaka has made in the last two years has been remarkable, and I am proud of our achievements. I am confident that the exceptional leadership team and motivated colleagues will continue Lesaka's journey towards becoming the leading fintech platform in Southern Africa. The appointment of Ali Mazanderani as Executive Chairman is very exciting for Lesaka. He is an exceptional fintech entrepreneur and leader, with deep experience and a proven track-record in the fintech sector and in emerging markets, including South Africa.”

(1) Average exchange rates applicable for the quarter: ZAR 18.71 to $1 for Q2 2024, ZAR 18.71 to $1 for Q1 2024, ZAR 17.52 to $1 for Q2 2023. The ZAR weakened 6.8% against the U.S. dollar during Q2 2024 when compared to Q2 2023 and 0.01% when compared to the prior sequential quarter (Q1 2024).
(2) Non-GAAP measure. Net Debt to EBITDA ratio is calculated as net debt at specific date divided by Annualized Group Adjusted EBITDA.

Summary Financial Metrics

Three months ended

Six months ended

(1) Group Adjusted EBITDA, fundamental earnings (loss) and fundamental earnings (loss) per share are non-GAAP measures and are described below under “Use of Non-GAAP Measures—Group Adjusted EBITDA, and —Fundamental net earnings (loss) and fundamental earnings (loss) per share.” See Attachment B for a reconciliation of GAAP net loss attributable to Lesaka to Group Adjusted EBITDA, and GAAP net loss to fundamental net earnings (loss) and earnings (loss) per share.

Factors Impacting Comparability of Q2 2024 and Q2 2023 Results

• Higher revenue: Our revenues increased 13% 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: The net interest charge increased to $4.4 million (ZAR 81.2 million) from $4.0 million (ZAR 70.0 million) primarily due to higher interest rates; and
• Foreign exchange movements: The U.S. dollar was 7% stronger against the ZAR during Q2 2024 compared to the prior period, which adversely impacted our U.S. dollar reported results.

Results of Operations by Segment and Liquidity

Our chief operating decision maker is our Group Chief Executive Officer and he 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”). We do not allocate once-off items, stock-based compensation charges, certain lease charges, 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, fair value adjustments to currency options), interest income, interest expense, income tax expense or loss from equity-accounted investments to our reportable segments. See Attachment B for a reconciliation of GAAP net income before tax to Group Adjusted EBITDA.

Merchant

Merchant Division revenue was $127.9 million in Q2 2024, up 13% compared to Q2 2023 in ZAR. Segment revenue increased due to the increase in low margin prepaid airtime sales and other value-added services, which was partially offset by lower hardware sales revenue given the lumpy nature of bulk sales as well as lower revenue from certain valued-added services transactions (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 and cost of sales, while only earning a relatively small margin. This significantly depresses the Segment Adjusted EBITDA margins shown by the business. Our Segment Adjusted EBITDA margin (calculated as Segment Adjusted EBITDA divided by revenue) for Q2 2024 and Q2 2023 was 6.8% and 7.6%, respectively.

Consumer

Consumer Division revenue was $16.7 million in Q2 2024, 16% higher in ZAR compared to Q2 2023. Segment revenue increased primarily due to more transaction fees generated from the higher EPE (“EasyPay Everywhere”) 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. Our Segment Adjusted EBITDA margin for Q2 2024 and 2023 was 17.6% and 3.7%, 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 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.

Cash flow and liquidity

As of December 31, 2023, our cash and cash equivalents were $44.3 million and comprised of U.S. dollar-denominated balances of $4.5 million, ZAR-denominated balances of ZAR 688.5 million ($37.6 million), and other currency deposits, primarily Botswana pula, of $2.2 million, all amounts translated at exchange rates applicable as of December 31, 2023. 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.

Outlook for the Third Quarter 2024 (“Q3 2024”) and Full Fiscal Year 2024 (“FY 2024”)

While we report our financial results in USD, we measure our operating performance in ZAR, and as such we provide our guidance accordingly.

For Q3 2024, the quarter ending March 31, 2024, we expect:

• Revenue between ZAR 2.7 billion and ZAR 2.8 billion.
• Group Adjusted EBITDA between ZAR 170 million and ZAR 190 million.

We re-affirm our outlook for FY 2024, the year ending June 30, 2024. We expect:

• Revenue between ZAR 10.7 billion and ZAR 11.7 billion.
• Group Adjusted EBITDA between ZAR 680 million and ZAR 740 million.

Our outlook provided does not include the impact of the acquisition of Touchsides or any mergers and acquisitions that we conclude.

Management has provided its outlook regarding Group Adjusted EBITDA, which is a non-GAAP financial measure and excludes certain charges. Management has not reconciled this non-GAAP financial measure to the corresponding GAAP financial measure because guidance for the various reconciling items is not provided. Management is unable to provide guidance for these reconciling items because they cannot determine their probable significance, as certain items are outside of the company's control and cannot be reasonably predicted since these items could vary significantly from period to period. Accordingly, reconciliations to the corresponding GAAP financial measure is not available without unreasonable effort.

Earnings Presentation for Q2 2024 Results

Our earnings presentation for Q2 2024 will be posted to the Investor Relations page of our website prior to our earnings call.

Webcast and Conference Call

Lesaka will host a webcast and conference call to review results on February 7, 2024, at 8:00 a.m. Eastern Time which is 3:00 p.m. South Africa Standard Time (“SAST”). A replay of the results presentation webcast will be available on the Lesaka investor relations website following the conclusion of the live event.

Webcast Details

• Link to access the results webcast: https://bit.ly/3NNYu2I
• Webcast ID: 986 4107 6448

Participants using the webcast will be able to ask questions by raising their hand and then asking the question “live.”

Conference Call Dial-in:

• US Toll-Free: +1 346 248 7799
• South Africa Toll-Free: + 27 21 426 8190

Participants using the conference call dial-in will be unable to ask questions.

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, Group Adjusted EBITDA margin, fundamental net (loss) income, fundamental (loss) earnings per share, and headline (loss) earnings per share are non-GAAP measures.

Non-GAAP Measures

Group Adjusted EBITDA is net loss before interest, taxes, depreciation and amortization, adjusted for non-operational transactions (including loss on disposal of equity-accounted investments), loss from equity-accounted investments, stock-based compensation charges, lease adjustments and once-off items. Lease adjustments reflect lease charges and once-off items represents non-recurring expense items, including costs related to acquisitions and transactions consummated or ultimately not pursued. Group Adjusted EBITDA margin is Group Adjusted EBITDA divided by revenue.

Fundamental net earnings (loss) and fundamental earnings (loss) per share

Fundamental net earnings (loss) and earnings (loss) per share is GAAP net loss and loss per share adjusted for the amortization of acquisition-related intangible assets (net of deferred taxes), stock-based compensation charges, and unusual non-recurring items, including costs related to acquisitions and transactions consummated or ultimately not pursued.

Fundamental net earnings (loss) and earnings (loss) per share for fiscal 2024 also includes an impairment loss related to an equity-accounted investment, unrealized currency loss related to our non-core business which we are in the process of winding down and a reversal of allowance for doubtful loan receivable. Fundamental net loss and loss per share for fiscal 2023 also includes a net gain on disposal of equity-accounted investments, unrealized currency loss related to our non-core business which we are in the process of winding down and an impairment loss related to an equity-accounted investment.

Management believes that the Group Adjusted EBITDA, fundamental net earnings (loss) and fundamental earnings (loss) per share metrics enhance its own evaluation, as well as an investor’s understanding, of our financial performance. Attachment B presents the reconciliation between GAAP net loss attributable to Lesaka and these non-GAAP measures.

Headline (loss) earnings per share (“H(L)EPS”)

The inclusion of H(L)EPS in this press release is a requirement of our listing on the JSE. H(L)EPS basic and diluted is calculated using net (loss) income which has been determined based on GAAP. Accordingly, this may differ to the headline (loss) earnings per share calculation of other companies listed on the JSE as these companies may report their financial results under a different financial reporting framework, including but not limited to, International Financial Reporting Standards.

H(L)EPS basic and diluted is calculated as GAAP net (loss) income adjusted for the impairment losses related to our equity-accounted investments and (profit) loss on sale of property, plant and equipment. Attachment C presents the reconciliation between our net (loss) income used to calculate (loss) earnings per share basic and diluted and H(L)EPS basic and diluted and the calculation of the denominator for headline diluted (loss) earnings per share.

About Lesaka (www.lesakatech.com)

Lesaka Technologies, (Lesaka™) is a South African Fintech company that utilizes its proprietary banking and payment technologies to deliver superior financial services solutions to merchants (B2B) and consumers (B2C) in Southern Africa. Lesaka’s mission is to drive true financial inclusion for both merchant and consumer markets through offering affordable financial services to previously underserved sectors of the economy. Lesaka offers cash management solutions, growth capital, card acquiring, bill payment technologies and value-added services to formal and informal retail merchants as well as banking, lending, and insurance solutions to consumers across Southern Africa. The Lesaka journey originally began as “Net1” in 1997 and later rebranded to Lesaka (2022), with the acquisition of Connect. As Lesaka, the business continues to grow its systems and capabilities to deliver meaningful fintech-enabled, innovative solutions for South Africa’s merchant and consumer markets.

Lesaka has a primary listing on NASDAQ (NasdaqGS: LSAK) and a secondary listing on the Johannesburg Stock Exchange (JSE: LSK). Visit www.lesakatech.com for additional information about Lesaka Technologies (Lesaka ™).

Forward-Looking Statements

This press release contains certain statements that may be considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and such statements are subject to the safe harbor created by those sections and the Private Securities Litigation Reform Act of 1995, as amended. Such statements may be identified by their use of terms or phrases such as “expects,” “estimates,” “projects,” “believes,” “anticipates,” “plans,” “could,” “would,” “may,” “will,” “intends,” “outlook,” “focus,” “seek,” “potential,” “mission,” “continue,” “goal,” “target,” “objective,” derivations thereof, and similar terms and phrases. Forward-looking statements are based upon the current beliefs and expectations of our management and are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, which could cause future events and actual results to differ materially from those set forth in, contemplated by, or underlying the forward-looking statements. In this press release, statements relating to future financial results and future financing and business opportunities are forward-looking statements. Additional information concerning factors that could cause actual events or results to differ materially from those in any forward-looking statement is contained in our Form 10-K for the fiscal year ended June 30, 2023, as filed with the SEC, as well as other documents we have filed or will file with the SEC. We assume no obligation to update the information in this press release, to revise any forward-looking statements or to update the reasons actual results could differ materially from those anticipated in forward-looking statements.

Investor Relations Contact:
Phillipe Welthagen
Email: phillipe.welthagen@lesakatech.com
Mobile: +27 84 512 5393

FNK IR:
Rob Fink / Matt Chesler, CFA
Email: lsak@fnkir.com

Media Relations Contact:
Janine Bester Gertzen
Email: janine@thenielsennetwork.com

(A) Derived from audited consolidated financial statements.

Lesaka Technologies, Inc.

Attachment A

Operating segment revenue, operating (loss) income and operating (loss) margin:

Three months ended December 31, 2023, and 2022 and September 30, 2023

(1 ) – This information shows what the change in these items would have been if the USD/ ZAR exchange rate that prevailed during Q2 2024 also prevailed during Q2 2023 and Q1 2024.

Six months ended December 31, 2023 and 2022

(1 ) – This information shows what the change in these items would have been if the USD/ ZAR exchange rate that prevailed during the first half of fiscal 2024 also prevailed during the first half of fiscal 2023.

Loss from equity-accounted investments:

The table below presents the relative loss from our equity-accounted investments:

Lesaka Technologies, Inc.

Attachment B

Reconciliation of GAAP loss attributable to Lesaka to Group Adjusted EBITDA loss:

Three and six months ended December 31, 2023 and 2022