10-Q/A: Lesaka Technologies Restates Q3 2025 Results, Cites Revenue Error

Lesaka Technologies, Inc. filed an amended quarterly report for Q3 2025, restating financial statements due to a revenue classification error and disclosing multiple material weaknesses in internal controls.

Summary

• Lesaka Technologies, Inc. (the Company) filed an Amendment No. 1 to its Quarterly Report on Form 10-Q for the quarter ended March 31, 2025, to reflect a restatement of its unaudited condensed consolidated financial statements.
• The restatement corrects an error in accounting for revenue, where the Company incorrectly classified and recorded revenue from the sale of certain vouchers on an agent basis instead of as a principal.
• This error resulted in an understatement of revenue and cost of goods sold, IT processing, servicing and support by $25.8 million for the three months ended March 31, 2025, and $63.2 million for the nine months ended March 31, 2025.
• The correction did not impact the Company's basic and diluted loss per share, condensed consolidated balance sheet, statements of comprehensive (loss) income, statement of changes in equity, or statements of cash flows for the affected periods.
• Additionally, the Company revised its June 30, 2024, balance sheet to reclassify $11.841 million from long-term borrowings to current portion of long-term borrowings, related to its CCC Revolving Credit Facility.
• Management concluded that material weaknesses existed in its internal control over financial reporting as of March 31, 2025, rendering it ineffective.
• Key acquisitions during the period include Adumo (October 1, 2024, for $96.2 million) and Recharger (March 3, 2025, for $27.0 million), along with smaller acquisitions of IVAS Nam, Genisus Risk, and Master Fuel.
• The Company completed a ZAR 4.5 billion ($245 million) debt refinance at the end of February 2025, reducing its weighted average borrowing rate by approximately 1.3% per year.
• The Lesaka Employee Share Ownership Plan (ESOP) Trust was launched in March 2025, holding an effective 3% of the Company's issued shares (approximately ZAR 220 million).
• Net loss attributable to Lesaka for the three months ended March 31, 2025, was $(22.058) million, compared to $(4.047) million for the same period in 2024.
• Net loss attributable to Lesaka for the nine months ended March 31, 2025, was $(58.734) million, compared to $(12.405) million for the same period in 2024.
• Revenue for the three months ended March 31, 2025, was $161.450 million (restated), an increase of 17% from $138.194 million (restated) in the prior year.
• Revenue for the nine months ended March 31, 2025, was $491.234 million (restated), an increase of 17.5% from $418.176 million (restated) in the prior year.
• A non-cash fair value loss of $20.4 million for Q3 2025 and $54.2 million for YTD Q3 2025 was recorded related to the investment in MobiKwik.
• Group Adjusted EBITDA (non-GAAP) increased by 32% to $12.797 million for Q3 2025 and by 27% to $33.970 million for YTD Q3 2025.

Sentiment

Score: 3

Explanation: The restatement of financial results and the disclosure of multiple material weaknesses in internal controls are significant negative events that undermine financial reliability and operational integrity. While there are positive operational growths and strategic acquisitions, these are overshadowed by the control deficiencies and increased net losses. The debt refinance is a positive, but the underlying issues are concerning.

Positives

• Revenue increased by 17% in USD (14% in ZAR) for Q3 2025, driven by the inclusion of Adumo and Recharger, increased Alternative Digital Payments (ADP) throughput in Merchant, and higher transaction, insurance, and lending revenues in Consumer.
• Group Adjusted EBITDA (non-GAAP) increased by 32% to $12.797 million for Q3 2025 and by 27% to $33.970 million for the nine months ended March 31, 2025, indicating improved operational profitability before certain adjustments.
• The Company successfully completed a ZAR 4.5 billion ($245 million) debt refinance, reducing its overall weighted average borrowing rate by approximately 1.3% per year, reshaping the repayment profile, diversifying funding sources, and increasing debt facility headroom.
• The launch of the Lesaka Employee Share Ownership Plan (ESOP) Trust is designed to align employee interests with long-term growth objectives and improve the Company's Broad-Based Black Economic Empowerment (BBBEE) rating.
• The Merchant Division experienced significant growth, with merchant acquiring throughput increasing by 154% year-over-year to ZAR 9.9 billion and credit disbursed increasing by 52% year-over-year to ZAR 332 million.
• The Consumer Division grew its total active EasyPay Everywhere (EPE) transactional account base by 16% year-over-year to 1.7 million, originated approximately 320,000 loans (up 20% year-over-year), and increased active insurance policies by 27% to 528,000.
• Average Revenue Per User (ARPU) for the permanent client base in the Consumer Division increased to approximately ZAR 106 per month for Q3 2025, up from ZAR 90 in Q3 2024.
• The acquisition of Recharger provides an entry point into the South African private utilities space and augments the Enterprise Division's alternative payment offering.

Negatives

• The Company restated its Q3 2025 financial statements due to a material error in revenue classification (agent vs. principal), indicating a lapse in financial reporting accuracy.
• Multiple material weaknesses in internal control over financial reporting were identified, including in consumer lending, payroll, goodwill impairment, business combination processes, revenue recognition, and journal entry processes, as well as an insufficient number of experienced and trained resources.
• Net loss attributable to Lesaka significantly increased to $(22.058) million for Q3 2025 (from $(4.047) million in Q3 2024) and to $(58.734) million for the nine months ended March 31, 2025 (from $(12.405) million in the prior year).
• A non-cash fair value loss of $20.4 million for Q3 2025 and $54.2 million for the nine months ended March 31, 2025, was recorded related to the investment in MobiKwik.
• Operating income decreased by 28% to $569 thousand for Q3 2025 and by 61% to $1.301 million for the nine months ended March 31, 2025.
• The net interest charge increased due to higher overall borrowings, despite a reduction in the weighted average borrowing rate.
• The Enterprise segment's revenue decreased by 17% for Q3 2025 and 7% for the nine months ended March 31, 2025, primarily due to fewer ad hoc hardware sales and lower prepaid airtime voucher sales, partially offset by the Recharger acquisition.

Risks

• Inability to successfully integrate Adumo and Recharger operations, which may require significant management attention and could lead to material impairments if key personnel are not retained or integrated effectively.
• Dependence on a limited number of third-party suppliers for smart cards, ATMs, electronic payment and POS devices, and components, making the Company vulnerable to supply shortages, price fluctuations, and geopolitical shocks.
• Lack of a South African banking license, requiring reliance on a third-party bank (African Bank) for the EasyPay Everywhere (EPE) solution, which limits control and creates risk if the arrangement terminates.
• Failure to comply with payment scheme rules (e.g., VISA, Mastercard) or maintain necessary regulatory licenses and registrations could result in significant fines, loss of licenses, or inability to provide payment services.
• Proposed regulatory changes to the national payments system by the South African Reserve Bank (SARB) could substantially impact business operations, lead to increased operating costs for compliance, and require significant investment in resources, systems, and processes.
• Material weaknesses in internal control over financial reporting could result in material misstatements of financial statements, failure to meet reporting obligations, adverse impact on stock price, and potential sanctions or investigations by regulatory authorities.
• The restatement of prior quarterly financial statements may affect shareholder and investor confidence, harm the Company's reputation, and subject it to additional risks, including increased costs and potential legal proceedings.
• Equity price and liquidity risk associated with investments in exchange-traded equity securities, such as MobiKwik, due to market volatility and potential lack of liquidity.
• Currency exchange risk due to significant revenues and expenses being denominated in South African Rand (ZAR) while the Company's reporting currency is the U.S. dollar (USD).
• Interest rate risk on short and long-term borrowings in South Africa, which fluctuate based on changes in the South African prime and 3-month JIBAR interest rates.
• Credit risk in consumer microlending activities and merchant lending activities, where additional allowances may be required if customers' ability to make payments deteriorates.

Future Outlook

The Company expects its cost of borrowing to decline moderately in the foreseeable future due to anticipated reductions in the South African repurchase rate. It anticipates short-term equity price volatility for its MobiKwik and Cell C shares. The Social Relief of Distress (SRD) grant has been extended until March 2026. The South African Reserve Bank (SARB) is expected to publish revised payments regulations later in 2025, which could significantly impact the Company's business operations.

Management Comments

• We believe the Lesaka offering is the most comprehensive in the market in meeting the needs of microand medium-size businesses in the region, empowering merchants and micro-merchants to transact efficiently and fulfill their potential.
• Our cash business remains a vital product in our merchant offering and is a key differentiator for us in the digitalization of cash.
• Our priority is to grow our permanent grant recipient customers base, where we can build deeper relationships by offering products such as insurance and lending.
• 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.
• The acquisition [Recharger] to act as an entry point for us into the South African private utilities space while augmenting the Enterprise divisions alternative payment offering.
• The benefits of the debt refinance include: consolidating most of the Groups legacy senior debt facilities at the centre, reducing the Groups overall weighted average borrowing rate by approximately 1.3% per year, reshaping the repayment profile of our senior debt, diversifying our funding sources and increasing debt facility headroom, thereby creating flexibility and capacity for organic and inorganic growth.
• Our ESOP is designed to create alignment with our long-term growth objectives.
• Through the creation of a broader base of employee ownership, we are helping to promote economic inclusion and contribute to transformation in the broader South African economy.

Industry Context

The Company operates within the dynamic Southern African fintech sector, focusing on expanding its integrated multi-product platform for both consumers and merchants, including those historically underserved by traditional financial services. Its recent acquisitions of Adumo and Recharger signify a strategic move towards consolidation within the region's payments and commerce enablement platforms. The Company's active participation in the Association of South African Payment Providers (ASAPP) underscores its commitment to influencing the regulatory landscape for non-bank payment participants, particularly concerning critical issues like settlement of funds and interchange pricing. The ongoing discussions around proposed regulatory changes by the South African Reserve Bank (SARB) highlight a rapidly evolving environment that could necessitate significant operational adjustments and increased compliance costs for payment service providers. The Company's growth in microlending and insurance products reflects a strong demand for tailored financial solutions in its target markets, especially among permanent grant recipients.

Comparison to Industry Standards

• The Company states its Lesaka offering is 'the most comprehensive in the market' for microand medium-size businesses in the Southern African region, though this is a self-assessment.
• GAAP, an Adumo business, is identified as 'the leading provider of integrated point-of-sales software and hardware to the hospitality industry in Southern Africa,' serving major clients like KFC, McDonalds, Pizza Hut, Nandos, and Krispy Kreme.
• The Company's credit risk policies for financial instruments involve transacting only with South African and European financial institutions with a credit rating of B (or equivalent) or better, as determined by agencies like Standard & Poor's, Moody's, and Fitch Ratings, which aligns with industry best practices.
• The Company's consumer microlending and merchant lending credit risk management procedures, including credit bureau checks and affordability tests, are stated to be in line with local regulations and proprietary lending criteria, but no direct comparison to industry-wide loss ratios or lending standards is provided beyond internal stability.

Management Changes

Corporate Governance

Legal Proceedings

• 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 believes the resolution of these matters, individually or in aggregate, will not have a material adverse impact on the Company's financial position, results of operations, or cash flows.

Related Party Transactions

• The acquisition of Adumo involved the issuance of 17,279,803 shares of the Company's common stock to the Sellers, including Crossfin Apis Transactional Solutions (Pty) Ltd and Adumo ESS (Pty) Ltd.
• Lesaka SA purchased 2,601,410 shares of the Company's common stock from Crossfin Holdings (RF) Proprietary Limited for ZAR 207.2 million ($12.0 million).
• Certain IFC Investors, who were investors in Adumo, received an aggregate of 1,989,162 additional shares of the Company's common stock, which are covered by an amended put right under the Amended and Restated Policy Agreement.
• The Recharger acquisition involved Imtiaz Dhooma (Recharger's former chief executive officer) and Ninety Nine Proprietary Limited (the Seller), with post-combination services from the former CEO being contingent on future payments.
• The Lesaka ESOP Trust is controlled and consolidated by the Company, with the Company providing notional vendor funding for the acquisition of shares by the Trust.

Stakeholder Impact

• Shareholders are negatively impacted by the restatement of financial results, the disclosure of multiple material weaknesses in internal controls, and the significant increase in net loss, which could lead to decreased investor confidence and potential share price volatility.
• Employees benefit from the launch of the Lesaka ESOP Trust, which aims to create alignment with long-term growth objectives and promote economic inclusion through broader employee ownership, though some employees incurred reorganization and retrenchment costs.
• Customers (merchants and consumers) benefit from expanded product offerings through the Adumo and Recharger acquisitions, increased lending activities, and improved customer service, but may face changes due to potential new SARB regulations.
• Lenders benefit from the ZAR 4.5 billion debt refinance, which diversified funding sources, reshaped the repayment profile, and increased debt facility headroom, improving the Company's financial flexibility.
• Regulatory authorities, including the SEC and SARB, are likely to increase scrutiny due to the restatement and identified material weaknesses, and the Company is actively engaging with SARB on proposed payment system reforms that could impact its operations.

Next Steps

• Continue to refine certain inputs to the calculation of acquired intangible assets and the valuation of non-controlling interest for recent acquisitions.
• Renegotiate terms for the CCC Revolving Credit Facility, which was extended to June 30, 2025.
• Assess the impact of new FASB guidance on Income Taxes (Topic 740) for its effective date of July 1, 2025.
• Assess the impact of new FASB guidance on Income StatementReporting Comprehensive IncomeExpense Disaggregation Disclosures (Subtopic 220-40) for its effective date of July 1, 2027.
• Implement a comprehensive remediation plan to address identified material weaknesses in internal control over financial reporting, including enhancing control owner understanding, mandating improved risk assessment procedures, recruiting skilled resources, and increasing automation.
• Monitor the effectiveness of the remediation plan and adjust efforts as needed.
• Adapt business practices in response to revised payments regulations expected to be published by the SARB later in 2025.
• Qualifying employees for the Lesaka ESOP Trust received invitation and allocation notices on or around April 1, 2025.
• The Company legally issued 1,061,693 shares of its common stock in April 2025, representing the third tranche of the Connect acquisition.
• The second and final tranche payment for the Recharger acquisition is due on March 3, 2026, contingent on the former CEO's ongoing service.
• Expect capital spending for the fourth quarter of fiscal 2025 to primarily include acquisitions of POS devices, vaults, computer software, computer and office equipment, as well as for ATM infrastructure and the branch network in South Africa.

Key Dates

Recommendation

The restatement of financial results due to a material revenue classification error, coupled with the disclosure of multiple pervasive material weaknesses in internal controls, represents a severe blow to the Company's financial credibility and operational integrity. These issues, particularly in critical areas like revenue recognition and business combinations, indicate a high risk of future misstatements and operational inefficiencies. While the Company reports revenue growth and strategic acquisitions, these positives are significantly overshadowed by a substantial increase in net loss and a non-cash fair value loss on the MobiKwik investment. The debt refinance, while a necessary step, does not mitigate the fundamental governance and reporting concerns. A seasoned investor would view these issues as highly detrimental to shareholder confidence and the Company's long-term stability, warranting a 'strong sell' recommendation until these material weaknesses are fully remediated, and sustained, verifiable improvements in financial reporting and internal controls are demonstrated over multiple reporting periods.

Keywords

Lesaka Technologies, SEC filing, 10-Q/A, financial restatement, internal controls, material weaknesses, Adumo acquisition, Recharger acquisition, debt refinance, ESOP, South Africa, fintech, payment processing, consumer lending, merchant services, MobiKwik, equity investment, SARB regulations, financial reporting, corporate governance