10-Q: Lesaka Technologies Reports Improved Q3 Results, Announces Strategic Acquisition of Touchsides and Adumo

Lesaka Technologies reports a 9% revenue increase in ZAR and improved profitability in Q3 2024, driven by growth in both Merchant and Consumer divisions, and announces the strategic acquisitions of Touchsides and Adumo.

Summary

• Lesaka Technologies reported a 9% increase in revenue in ZAR for the third quarter of fiscal year 2024, driven by growth in both the Merchant and Consumer divisions.
• The company's operating income improved significantly, reaching $0.8 million compared to a loss of $1.9 million in the same period last year.
• Group Adjusted EBITDA increased by 47% in ZAR, reaching $9.7 million in the third quarter of fiscal 2024.
• The Merchant division saw a 12% year-on-year growth in deployed devices, reaching approximately 80,250.
• VAS throughput, excluding low-margin money transfers, increased by 36% year-on-year.
• Supplier payment throughput volumes increased approximately 100% year-on-year and now accounts for approximately 35% of our VAS throughput volumes.
• Card-enabled POS devices increased to approximately 50,200, a 21% year-on-year growth.
• The Consumer division saw approximately 63,000 gross account activations in the third quarter, compared to approximately 38,000 in the third quarter of fiscal 2023.
• Net active account growth for the quarter was approximately 28,000 accounts, compared to approximately 1,000 in third quarter of fiscal 2023.
• The total active EPE transactional account base stood at approximately 1.46 million at the end of March 2024.
• The consumer loan book increased 28% to ZAR 509 million as of March 31, 2024.
• The portfolio loss ratio remained at approximately 6% on an annualized basis.
• The company's funeral insurance product saw a 34% growth in active policies, reaching approximately 414,000 policies as of March 31, 2024.
• ARPU for the permanent client base increased to approximately ZAR 90 for the third quarter of fiscal 2024, from approximately ZAR 78 in the third quarter of fiscal 2023.
• Lesaka announced the acquisition of Touchsides, a data analytics company, for ZAR 42.4 million, which closed on April 30, 2024.
• Lesaka also announced a definitive agreement to acquire Adumo for a combination of 17,279,803 shares of Lesaka common stock and a ZAR 232 million cash payment, subject to shareholder and regulatory approvals.

Sentiment

Score: 8

Explanation: The document presents a positive outlook with strong financial results, strategic acquisitions, and growth in key business areas. The company is showing strong growth and profitability, and is making strategic moves to expand its market presence. The risks are well-defined and the company is taking steps to mitigate them.

Positives

• The company experienced a significant improvement in operating income, moving from a loss to a profit.
• The Merchant division is showing strong growth in device deployment and throughput.
• The Consumer division is experiencing a significant increase in account activations and loan originations.
• The funeral insurance product is showing strong growth and contributing to increased ARPU.
• The strategic acquisitions of Touchsides and Adumo are expected to expand Lesaka's market presence and service offerings.

Negatives

• The U.S. dollar was 5% stronger against the ZAR during the third quarter of fiscal 2024 compared to the prior period, which adversely impacted our U.S. dollar reported results.
• The company's POS hardware distribution business experienced lower revenue due to the lumpy nature of bulk sales.
• Money transfers currently comprise approximately 5% of VAS throughput, compared to approximately 25% a year ago, due to a change in the regulatory environment impacting the industry as a whole.

Risks

• The completion of the Adumo acquisition is subject to shareholder and regulatory approvals, and there is no guarantee that the transaction will be completed.
• The integration of Adumo may present challenges and may not result in the anticipated benefits.
• The company is exposed to currency exchange risk due to fluctuations between the South African rand and the U.S. dollar.
• The company is exposed to interest rate risk due to fluctuations in South African interest rates.
• The company is exposed to credit risk in its consumer microlending activities.

Future Outlook

The company expects to continue its growth trajectory, driven by its strategic focus areas and the integration of Touchsides and Adumo. The company expects to incur a further $2.2 million in transaction costs over the remainder of the 2024 calendar year related to the Adumo acquisition.

Management Comments

• 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 Africas 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 announcement reflects a trend of consolidation in the Southern African fintech sector, with Lesaka positioning itself as a leading player through strategic acquisitions. The company is leveraging secular trends in financial inclusion, cash management, and digitalization for MSMEs.

Comparison to Industry Standards

• Lesaka's growth in deployed POS devices and transaction volumes is in line with the broader trend of increasing digital payments adoption in emerging markets.
• The company's focus on serving the underserved consumer segment aligns with the global push for financial inclusion.
• The acquisition of Touchsides and Adumo is similar to other strategic acquisitions in the fintech space aimed at expanding market reach and service offerings.
• The company's loan portfolio loss ratio of 6% is within the expected range for microlending in emerging markets, but requires continued monitoring.
• The company's ARPU growth is a positive indicator of its ability to cross-sell products and services to its existing customer base.

Management Changes

Stakeholder Impact

• Shareholders will benefit from the company's improved financial performance and strategic acquisitions.
• Employees will benefit from the company's growth and expansion.
• Customers will benefit from the company's expanded service offerings and improved financial inclusion.
• Suppliers will benefit from the company's increased scale and market presence.
• Creditors will benefit from the company's improved financial stability.

Next Steps

• The company will focus on integrating Touchsides and Adumo into its operations.
• The company will continue to grow its active EPE account numbers and increase ARPU through cross-selling.
• The company will continue to optimize its cost structure.
• The company will seek shareholder and regulatory approvals for the Adumo acquisition.

Key Dates

Keywords

fintech, financial inclusion, payment processing, value-added services, microlending, insurance, acquisitions, South Africa, mobile payments, POS devices