10-Q: Lesaka Technologies Reports Improved Q2 Results Driven by Growth in Merchant and Consumer Divisions

Lesaka Technologies saw improved financial performance in Q2 2024, with revenue and profitability gains in both its Merchant and Consumer divisions.

Summary

• Lesaka Technologies reported a revenue of $143.9 million for the second quarter of fiscal year 2024, which was within their guidance range.
• The company achieved an operating income of $2.3 million, a significant improvement from the operating loss of $2.2 million in the same quarter of the previous year.
• Group Adjusted EBITDA reached $9.6 million, exceeding the upper end of their guidance and representing a 38% increase in ZAR compared to the same period last year.
• The Merchant division saw a 23% year-on-year growth in deployed devices, reaching approximately 79,000, and a 21% increase in VAS throughput.
• The Consumer division experienced a substantial increase in gross account activations, reaching approximately 122,000, and a net active account growth of approximately 92,000.
• The total active EPE transactional account base stood at approximately 1.4 million at the end of December 2023.
• The consumer loan book increased by 26% to ZAR 503 million, and the portfolio loss ratio remained at approximately 6% on an annualized basis.
• ARPU for the permanent client base in the Consumer division increased to over ZAR 85, up from approximately ZAR 74 in the same quarter of the previous year.
• The company announced the acquisition of Touchsides, a data analytics company, which is expected to close in March 2024.

Sentiment

Score: 8

Explanation: The document presents a positive outlook with strong growth in key areas and a return to profitability. The strategic acquisition and improved B-BBEE rating further enhance the positive sentiment. However, some challenges remain, such as the economic environment and interest rate pressures.

Positives

• The company achieved operating profitability after years of losses.
• Both the Merchant and Consumer divisions showed strong growth in key metrics.
• The Consumer division's turnaround is evident in the increased account activations and ARPU.
• The acquisition of Touchsides is expected to expand Lesaka's footprint in the informal market.
• The company's B-BBEE rating improved to level 4, a key strategic priority.

Negatives

• The net interest charge increased due to higher interest rates.
• The U.S. dollar was stronger against the ZAR, which negatively impacted U.S. dollar reported results.
• The merchant credit offering saw a 17% decrease in disbursements due to stricter credit criteria.
• The company's loan book as of December 31, 2023 was R253 million compared to R290 million as of December 31, 2022.

Risks

• The trading environment in South Africa remains challenging with high interest rates and unemployment.
• Power disruptions (load-shedding) continue to negatively impact merchant customers.
• The company's ability to sell airtime is dependent on prevailing conditions in the airtime market.
• The company's merchant credit offering is impacted by the deteriorating financial strength of many merchants.

Future Outlook

The company expects to continue to focus on growing its active EPE account numbers, increasing ARPU through cross-selling, and cost optimization. The acquisition of Touchsides is expected to expand Lesaka's footprint in the informal market. The company expects its cost of borrowing to remain stable, or even to decline moderately, in the foreseeable future.

Management Comments

• The continued resilience of our business model in a challenging environment for our merchant and consumer customers demonstrates the value they 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.

Industry Context

The results reflect the ongoing trends of financial inclusion, cash management, and digitalization for MSMEs in South Africa. The company's focus on the informal market aligns with the growing need for financial services in this sector. The challenges faced by the South African Post Office have created opportunities for Lesaka to attract more grant beneficiaries to its platform.

Comparison to Industry Standards

• Lesaka's growth in device deployments and transaction volumes in the Merchant division is comparable to other fintech companies focused on the informal sector in emerging markets.
• The increase in ARPU and active accounts in the Consumer division indicates a successful strategy in a competitive market for financial services for grant recipients.
• The company's loan portfolio loss ratio of 6% is within the expected range for microlending in South Africa, but the decrease in loan disbursements indicates a more cautious approach to lending.
• The acquisition of Touchsides is a strategic move to expand Lesaka's data analytics capabilities, similar to other fintech companies that are leveraging data to improve their services and offerings.

Management Changes

Stakeholder Impact

• Shareholders will benefit from the improved financial performance and strategic acquisitions.
• Employees will be impacted by the management changes and ongoing cost optimization efforts.
• Customers will benefit from the expanded product and service offerings.
• Suppliers will be impacted by the company's growth and expansion.

Next Steps

• The company will focus on integrating Touchsides into its operations.
• Lesaka will continue to grow its active EPE account numbers and increase ARPU.
• The company will continue to optimize costs and improve operational efficiency.

Key Dates

Keywords

fintech, financial inclusion, merchant services, consumer finance, digital payments, South Africa, microfinance, EPE accounts, VAS, B-BBEE