Lesaka Technologies, Inc. (NASDAQ:LSAK) Q2 2025 Earnings Call Transcript

Lesaka Technologies, Inc. (NASDAQ:LSAK) Q2 2025 Earnings Call Transcript February 6, 2025

Operator: Hello, everyone, and welcome to the Lesaka Technologies webcast and conference call for the second quarter of fiscal 2025. As a reminder, the webcast is being recorded and the presentation can be accessed through the webcast link as well as dialing into the Zoom conference call, dial-in numbers provided. Management will address any questions you may have at the end of the presentation. For those joining us via the webcast, you can ask your question by typing into the Q&A function. The webcast link, Zoom conference call, dial-in numbers, as well as our press release and supplementary investor presentation are available on our Investor Relations website at ir.lesakatech.com. Additionally, Lesaka Technologies, Inc. filed its Form 10-Q after the US market closed yesterday.

This is also available on our investor relations website. During this call, we will be making forward-looking statements and I ask you to look at the cautionary language contained in our Form 10-Q regarding the risks and uncertainties associated with forward-looking statements. As a domestic filer in the United States, we report results in US dollars under US GAAP. However, it is important to note that our operational currency is South African Rand, and as such, we analyze our performance in South African Rand. In this presentation, we will discuss our results in South African Rand, which is non-GAAP. This helps investors understand the underlying trends in our business. As you know, the company’s results can be significantly affected by the currency fluctuations between the US dollar and the South African Rand.

I will now turn the call over to Ali Mazanderani.

Ali Mazanderani: Good morning, good afternoon, and welcome. It’s been a year since I assumed the role of Executive Chairman at Lesaka Technologies, Inc. And so I thought it appropriate this quarter to slightly amend the way we presented our quarterlies. Accordingly, I will start by representing the opportunity as we see it, and highlight key events of the quarter. Dan Smith will then present on the group’s financial performance. Steven Heilbron will represent the merchant division, Lincoln Mali the consumer division, and Naeem Kola, the enterprise division. Which we are separating out for the first time as a third pillar to our business. I will then conclude with the outlook for FY2025, and also guidance for FY2026. We have framed the opportunity for Lesaka Technologies, Inc.

and our strategic positioning before, but I am conscious that we haven’t presented the size of our serviceable addressable market in dollar terms. Given an indication of our perception of market share, and the competitive environment. We will start by doing so for South Africa. Today, we believe our existing products in our three divisions operating in South Africa represent an addressable market net revenue pool of more than $4 billion. We believe the underlying market that we are addressing is growing by 10% to 15% and that through organic and inorganic product and geographical expansion, the addressable market will grow to more than $12 billion in five years’ time. Comparable business models to ours at maturity routinely achieve EBITDA margins of north of 30%, and high free cash flow generation from that.

We expect our experience will be no different. We believe we will grow revenue faster than the market as we increase market share and we believe our EBITDA growth will be faster than the revenue growth as we experience operational leverage. It’s worth double-clicking on the merchant and consumer division’s addressable markets to give more color. Today, we estimate we represent 7% of the serviceable addressable net revenue pool in the merchant division in South Africa. A key component of our strategy is to differentiate ourselves by being a customer-led rather than product-led company. By evolving our product offering to meet the various needs of our customers, no single competitor offers the range of solutions we do in the market and addresses as many subsegments.

In this respect, we face a different competitive environment depending on the specific product. For example, while banks may still dominate the core merchant acquiring market, we face a different universe of competitors offering software products and a different one offering alternative digital payment solutions, which we have previously referred to as VAS. Today, we address the merchant market with three brands, depending on the type of merchant. For micro merchants, we use the Kazan brand. For QSR and hospitality, we use the GARP brand. For other types of merchants, it’s worth noting each brand historically has had a different hero product for their customer subsegment but now sells other products. For example, in the case of Kazan, that product was alternative digital payments.

In the case of GARP, it was point of sale software. However, both brands now offer a fast-growing merchant acquiring product. The continued integration of these respective units within Lesaka Technologies, Inc. will allow us to not only offer more products to more segments but also improve the product offering and the efficiency of the route to market, materially improving our value proposition and unit economics over time. We expect to grow substantially faster than the market, and as the leading fintech in the country, we should be targeting more than 10% market share in the medium term as market share continues to move from traditional banks to fintechs. In the last quarter presentation, I showed how this has happened in the rest of the world.

The regulatory environment in South Africa and the rate of digitization here have been one of the core impediments to the speed of this evolution. Lesaka Technologies, Inc. has been at the forefront of spearheading the case for the regulatory environment to evolve in line with other markets and for the benefit of the country as a whole. We are delighted that regulators and stakeholders are taking note and that substantial movements are afoot in the industry. Last week, the Association of South African Payment Providers or ASAP, launched in Johannesburg with Lesaka Technologies, Inc. as a founding member and with our own Lincoln Mali taking the role of president. The presence of the South African Reserve Bank there and the public pronouncements they made to the media were encouraging for the industry and the country.

The consumer market we address is focused today on South African grant beneficiaries and other payout customers. We believe we have 6.5% market share of the revenue of the market. Again, we face a different subset of competitors depending on the product offering. While banks are the principal competitors for transactional accounts, the lending market is dominated by microfinance companies, and the insurance market by insurance companies. We are confident that we can grow our market share well above 10%. Indeed, our share of transactional accounts is already above that. The immediate opportunity we have is to continue to expand our base of customers, especially as they switch from competitors who have experienced well-publicized challenges and to grow our ARPU by cross-selling into the base as we have been doing.

The longer-term opportunity in the consumer market is to increase our addressable market by expanding our product offering and moving out of the grant and payout market into other underserved niches of scale that the traditional banks have ignored. There are scale ones, and I’m excited about our ability to compete and win there as we have been doing in the grant market. While we organize the business around the customer and are prioritizing the customer unit economics, we ultimately make our money by those customers buying our products. Different products we sell have different margins associated with them. Indeed, there are different economics when sold as a bundle with other products or individually. However, it is worth noting that by EBITDA contribution, the top three products at Lesaka Technologies, Inc.

today are merchant acquiring, alternative digital payments, and transactional accounts. Together, these represent more than 50% of our EBITDA, and within each, there was no material customer concentration. It is also worth noting our key products have revenue drivers that benefit from the digitization of the economy as they make money as a percentage of the digital transaction value or volumes they process. For the same reason, they also have the benefit of some hedge against inflation. There is a lot that we can unpack here, but given that the predominant focus of this presentation is on the quarterlies, I will leave you with that teaser and move on for the moment. I will revert on when we will unpack this further at the end of this presentation.

I’d now like to hand over to Dan Smith to talk to the group’s last quarter’s financial performance.

Dan Smith: Thank you, Ali. Good day, everyone. Before I start, as a reminder, Lesaka Technologies, Inc. is a domestic filer in the United States. We report results in US dollars, and the US GAAP. However, our operational currency is South African Rand, and as such, we analyze our performance in South African Rand. Q2 has been a quarter of continued strong and consistent performance representing robust growth compared to the prior year and delivering on what we committed in terms of group adjusted EBITDA, revenue, and net revenue guidance, as well as a focus on balance sheet optimization and continued M&A activity. We exceeded the upper end of our guidance at an EBITDA level delivering ten successive quarters of achieving our EBITDA guidance.

We have also grown our fundamental earnings and fundamental earnings per share, which we believe is the most appropriate measure of our performance. We have reduced our net debt to group adjusted EBITDA ratio. We achieved a number of key milestones in the quarter as we grow and shape our business. These have, however, impacted the comparability of our results, our balance sheet makeup, and net debt position when compared to the prior year. Firstly, we welcome Adumo into the Lesaka Technologies, Inc. Group with the completion of the acquisition on October 1, 2024. To remind you, we paid an effective purchase consideration of 1.67 billion Rand comprising a combination of cash and the issuance of 17.2 million shares. Adumo has also given rise to a large increase in the goodwill and intangible assets we carry on our balance sheet.

Intangible assets are amortized being a charge to our income statement, and you will see a large increase in this charge in our results going forward. Note that this is a non-cash item. Adumo has now been integrated into the group with its payments and technologies businesses incorporated into our merchant division and Adumo Payouts into our consumer division. Adumo is material to our merchant operations and has led to a large uplift in net revenue and group adjusted EBITDA. Steven Heilbron and Lincoln Mali will provide more detail on these businesses in their respective divisional overviews. As a reminder, we have already incorporated the impact of Adumo into our guidance when we set out our FY2025 guidance last quarter. Following the completion of the Adumo acquisition, we anticipate closing Recharger in Q3 2025.

Our acquisition activity complements our organic growth and we continue to optimize operating structures, extract revenue synergies, and eliminate cost duplications. As we move forward, for comparative purposes, we will not be tracking each individual acquisition’s contribution to net revenue and group adjusted EBITDA separately as these lines quickly become blurred as the businesses are combined, and it is fundamentally not how our management and reporting structures are set up in the group. Lesaka Technologies, Inc. is not a fintech holding company, and it is not our strategy to hold a basket of separate investments. Our acquisitions are disciplined and aligned to the vision communicated in 2020, growing and augmenting Lesaka Technologies, Inc.’s integrated multiproduct fintech platform organized around our customers.

Secondly, we had a significant increase in short-term gearing in the period as we funded the acquisition and related costs with a short-term bridge of 665 million Rand. We also raised further facilities to fund the growth in our consumer loan book with the enhanced loan offering to our EPE customers. As mentioned in our Q1 FY2025 investor call, we are undertaking a comprehensive refinance of all our debt facilities in order to optimize our debt across the group and reduce our considerable interest charge. We expect to complete this in the current quarter. Thirdly, during the quarter, MobiKwik, a non-core investment in an Indian fintech listed on the Stock Exchange of India. Prior to this listing, MobiKwik did not have readily determined fair value, and we valued the investment on the basis of cost plus or minus changes in observable price equity securities.

This gave rise to a carrying value of ZAR1.31 billion. Post MobiKwik’s listing, we now measure this investment applying the closing price reported on the NSE at quarter-end, representing a carrying value of 802 million Rand. This has resulted in a pre-tax write-down of 615 million Rand on the investment and an associated tax benefit of 117 million Rand. This was the primary contributor to our overall net loss of 584 million Rand for the period. MobiKwik has now become a liquid investment and our intention is to monetize it in a disciplined manner once the lockup expires in mid-May this year. We are now reflecting it as listed securities held for sale in our net debt position, and we have a clear path to reduce gearing in the group. Finally, during the quarter, we have moved to analyzing the group’s profitability into three operating lines, with our enterprise business now being reported as a standalone division, whereas in previous quarters, we reported its results within the merchant division.

This division has been restructured and a platform for growth established. Naeem Kola will provide more perspective on the enterprise division in his overview. At a group level, revenue slightly exceeded the upper end of our guidance provided, decreasing 2% to 2.6 billion Rand. The decrease was driven by merchant revenue decreasing 5%. However, this was as expected as a result of the changes in airtime sales mix between agency and principal sales. We measure top-line performance on a net revenue basis, which eliminates the volatility caused by the agency and principal sales mix, and it has no impact on overall profitability. Group net revenue increased by 42% year on year. At a divisional level, merchant net revenue was up 68%, mainly attributable to the inclusion of Adumo from October 1.

Consumer continued its strong growth with revenue increasing 31% to 411 million Rand, attributable to a larger EPE account base and a higher ARPU on the back of continued cross-selling success. In the enterprise division, net revenue retracted 29% as we build this platform, focusing on profitable business in conjunction with rightsizing the cost base. We have eliminated a number of unprofitable contracts over the last twelve months. Group adjusted EBITDA grew by 26% to 212 million Rand, exceeding the upper end of our guidance of 210 million Rand. Merchant adjusted EBITDA grew by 52% to ZAR185 million, primarily driven by the inclusion of Adumo for the quarter, offset by significant cost investment in our platform and a change in sales mix towards lower-margin products.

Consumer delivered strong EBITDA growth increasing by 29 million Rand or 61% on last year, including Adumo Payouts. The underlying performance of the consumer division compared to the prior year is skewed by the inclusion of 13 million Rand of interest expense charges directly related to the consumer loan book this period, whereas we did not allocate such interest costs in FY2024 in prior years. Had this not been included, consumer adjusted EBITDA would have been 90 million Rand, an increase of 88%. As mentioned, the enterprise is going through a year of building and repositioning with cost overhangs and investment in our technology leading to a reduction in enterprise adjusted EBITDA for the quarter, to a loss of 0.5 million Rand. Group costs increased to 50 million Rand for the quarter due to higher employee costs with more team members now being allocated to the group function, including an additional executive position, base salary adjustments, and higher consulting and legal fees.

Group costs have, however, reduced 6% from last quarter. On our GAAP income statement, we would like to highlight a few items before moving on to fundamental earnings commentary. Under GAAP, we incurred a net loss attributable to shareholders of 584 million Rand for the period. Included in this is the 615 million Rand charge related to the change in fair value of equity securities relating to the downward adjustment to the fair market valuation of our non-core MobiKwik investment. This adjustment is non-cash. Linked to this is a deferred tax benefit of 117 million Rand raised a net impact of 484 million Rand on our overall net loss attributable. Our net interest expense has increased year on year to 98 million Rand, due to higher borrowing levels than last year, primarily due to the debt taken on in respect of the Adumo acquisition.

Our selling, general administration expenses increased by ZAR250 million compared to Q2 FY2024, due to a combination of the inclusion of Adumo in our cost base, higher employee-related expenses and stock-based compensation charges, increased transaction costs, costs related to the investment in the growth of our business, and year-on-year inflationary increases on certain expenses. Depreciation and amortization increased by ZAR38 million largely due to the acquisition of Adumo. We believe that fundamental earnings is the most appropriate measure of our performance. It adjusts for once-off items such as change in fair value of equity securities net of tax, intangible asset amortization, net of tax, stock-based compensation charges, transaction costs, indirect taxes provisions released, net loss on disposal of equity accounted investments, income recognized related to the closure of legacy businesses, and other such items.

Fundamental earnings for the quarter increased 35% to ZAR23 million, leading to an increase in fundamental earnings per share of 12% to 29 South African cents. As a reminder, we issued 17.2 million shares to Adumo shareholders as part of the acquisition, increasing the weighted average number of shares in issue. Cash generated from business operations increased to R263 million, supported by the inclusion of Adumo for the quarter. Net cash generated from operations after accounting for interest payments increased to 193 million Rand, up from the 138 million Rand last quarter and 89 million Rand last year. Cash utilized in working capital reduced from 193 million Rand in Q1 to 81 million Rand this quarter, due to the unwind of higher than usual accounts payables in respect to the micro merchant settlements arising in Q1, offset by increased investment in working capital with the take on of Adumo this quarter.

The growth in the consumer loan book in the period was funded through short-term banking facilities with an outflow of 149 million Rand. Kazan took the opportunity to do a bulk airtime purchase with a net investment in inventory of 69 million Rand in the period. We also made provisional tax payments in the quarter of 56 million Rand resulting in net cash utilized by operating activities of 164 million Rand. We spent 113 million Rand on CapEx leaving net cash utilized before financing activities of ZAR277 million for the quarter. Our gross debt increased by just over ZAR1 billion in the quarter to 3.8 billion Rand. This is due to the Adumo acquisition adding ZAR65 million of debt, funding utilized from short-term facilities for the growth of the consumer loan book, and net funding of 69 million Rand utilized to purchase prepaid airtime.

Cash on hand increased from 854 million Rand to 1.1 billion Rand in the quarter as a result of the cash brought on from the acquisition of Adumo. With its listing on the NSE, MobiKwik has now become a liquid investment and our intention is to monetize it in a disciplined manner once the lockup expires. We are now reflecting it as listed securities held for sale. This differs from prior periods when a stake was not readily monetizable, at or near fair value. Liquidity in MobiKwik stock is high, and we anticipate being able to convert our position into cash and pay down debt once our lockup expires. In principle, this could effectively reduce our net debt to 1.8 billion Rand at the end of Q2 FY2025, and our net debt to group adjusted EBITDA ratio to 2.4 times.

Using the reported last twelve months group adjusted EBITDA of 754 million Rand which only includes Adumo for three months. This is lower than the 2.6 times at the end of Q1 FY2025. If one were to include Adumo for a full twelve months in the EBITDA run rate, our effective net debt to EBITDA ratio on this basis would be closer to 2.1 times. We have communicated to the market that we are looking to continue bringing our net debt to group adjusted EBITDA ratio down with a medium-term objective of 2 times, which we believe is comfortably serviceable and is the appropriate capital structure for the business. Capital expenditure for the quarter amounted to 213 million Rand, of which 56 million Rand related to investment in growth. We invested 25 million Rand in merchant acquiring POS devices, including Kazan and Adumo, 26 million Rand in cash vaults as we continue to invest in this business in line with our growth initiatives.

Maintenance CapEx increased to ZAR57 million including Adumo and GARP. The balance of our maintenance CapEx was primarily driven by software and server upgrades. In close, I’m encouraged by our overall performance and the progress we have made this quarter. I will hand over to Steven Heilbron to take you through the merchant division’s performance.

Steven Heilbron: Thank you, Dan. Good afternoon, everyone. Today, I will be taking you through the strategy, operational KPIs, and performance of our merchant division, which comprises the solutions we have for micro merchants operating in informal markets plus small and medium merchants in the formal markets. Naeem Kola will talk you through the enterprise division in more detail than we have previously done, which has a different solution set targeting enterprise-level businesses. Ali Mazanderani has taken you through the sizable opportunity that is presented by the secular trends of cash to digital migration, growth of informal markets through financial inclusion, and the changing regulatory landscape supporting fintech disruption and market share growth.

We are building a platform to take advantage of this opportunity and have made material progress over the past twelve months with three acquisitions bringing scale and new technologies to Lesaka Technologies, Inc. In the merchant division, we believe we are well-positioned with a comprehensive offering to micro, small, and medium merchants. Our solution set has expanded and now covers merchant acquiring across both formal merchants and micro merchants, software and data solutions, alternative digital payments including prepaid solutions and supplier-enabled payments, cash management solutions, including vaults and ATMs, and lending. The solution set and added scale put us in a favorable position to offer value to our merchants by solving for their pain points.

These pain points include limited access to digital payments and growth capital, poor cash management solutions, and having to use multiple and disparate service providers. We estimate the share of the addressable market will increase for fintechs, in line with trends witnessed in international and other African markets. We have invested significantly over the past two and a half years, and will continue to invest, innovate, and build our fintech platform to deliver on the opportunity in front of us. Inclusive of Adumo, we now have a leading position in both the informal and formal sectors of the economy, servicing approximately ninety thousand micro merchants and thirty thousand small and medium-sized merchants. Our merchant acquiring offering encompasses CardConnect, Adumo, and Kazanpay.

CardConnect and Adumo are being integrated and will operate under the Adumo brand in the formal merchant sector. Kazanpay is focused on micro merchants in the informal sector. We now have over eighty thousand card-enabled POS devices demonstrating the additional scale Adumo has brought to our merchant customer base. This acquisition enhanced our product set both in terms of hardware and software integrations further strengthening our ability to compete. Throughput on these devices jumped by 7.2 billion Rand, to 11.3 billion Rand for the quarter, up from 4.1 billion Rand in Q2 2024. The inclusion of Adumo for the full quarter accounted for the majority of this growth, however, it was well supported by Kazanpay, which saw a 19% year-on-year growth in throughput.

GARP is our primary software solution and is the leading hospitality software offering in Southern Africa with on-the-ground operations in five countries and servicing clients in twenty-six countries across Africa. GARP offers restaurants advanced technologies that improve efficiency and enhance customer experience, allowing restauranteurs to streamline their operations, improve service quality, and ultimately increase profitability. Customers include global brands such as KFC, McDonald’s, Pizza Hut, Nando’s, and Krispy Kreme. GARP has nine thousand seven hundred and five sites operating its hardware and software solutions with a monthly ARPU of three thousand three hundred Rand. GARP operates a subscription model with over 60% annual recurring revenues.

Turning to our cash KPIs, which include cash vaults and ATMs. We effectively put the bank in our merchants and micro merchant stores. Merchants can digitize their cash takings immediately, making it available for working capital as well as transferring the cash holding risk to us from the moment the cash enters our vault or ATM. Cash will continue to play a large role in the South African economy for the foreseeable future, our vaults playing an important and differentiating part of our offering. Cash is at the nexus of the transformation to digitalization for the micro merchant and a critical component enabling us to approach customers with digital and cash solutions. Relationships with our vault clients are deeply entrenched and sticky and position us well to sell additional solutions to these clients.

Devices grew 4% to almost four thousand seven hundred with throughput growing 2% to thirty comma four billion Rand. We anticipate single-digit growth from this business and it remains an important aspect of our offering. We have seen encouraging growth in vaults with our Kazan customers as we build out our vaults in the ecosystem in informal markets. Efficiency gains to micro merchants include immediate availability to funds and cashless payments on supplier routes. Kazan Vault cash settlements increased over 100% year on year, and now contribute over 10% of our cash settlement throughput compared to 5% a year ago. Our Capital Connect lending business has been through a challenging period as our formal sector merchants suffered under challenging macroeconomic conditions over the past two years.

This resulted in fewer customers meeting our credit criteria leading to lower disbursements and book size. Whilst the cessation of load shedding has been welcomed, we need to see further interest rate reductions and consumer financial health improvements before some buoyancy returns to the sector and improves our merchant credit scores. Whilst we have noted a small uptick in activity of late, we think it may take a while longer for merchant scores to recover. Lending is one of the real cross-sell opportunities which we have with the Adumo and GARP acquisition, and we expect to see growth in this respect as we continue to benefit from integration. Included in our lending business from this quarter is a 50/50 joint venture between Adumo and Retail Capital.

Credit disbursements for Q2 were 178 million Rand, including 39 million Rand from Adumo Capital, our net loan book at quarter-end was 343 million Rand which includes 91 million Rand from Adumo Capital. Alternative digital payments offering covers supplier-enabled payments including international money transfers, with prepaid solutions, including electricity, airtime, data, and gaming. Our supplier payments platform has grown rapidly since its introduction at the end of 2021 and now has over one thousand two hundred registered suppliers. It forms an essential value add to micro merchants as they journey to digital, de-risk their operations through cashless routes, and reduce the burden of administration. Onboarding additional suppliers into the ecosystem attracts more merchants to our card and cash acquiring solutions.

This front-loaded investment into the supplier payment and wallet ecosystem is made to attract and drive growth in throughput in quarters to come. We disclose supplier payments separately as it is now a material contributor to device throughput and similar to international money transfers, it has a lower commission rate than solutions. Our Kazan devices in the field grew 13% year on year, to over eighty-nine thousand at the end of Q2. This includes devices in the tavern vertical, not yet been enabled for alternative digital payments which presents a revenue opportunity as these are converted. Prepaid solution throughput increased 7% year on year to 4.9 billion Rand. Throughput on our supplier-enabled payments platform increased 63% year on year.

In Kazan, we are focused on high turnover sites with greater revenue potential. ARPU increased 12% year on year to nine hundred and seventy Rand per month. Turning to the financial performance of the merchant division. Net revenue was up 68% to eight hundred and fifty-four million Rand, with segment adjusted EBITDA up 32% to one hundred and eighty-five million Rand for Q2 2025. This performance is a function of both organic and inorganic activity. The inclusion of the Adumo acquisition had a positive impact on this quarter’s performance. From an organic perspective, over the past twelve months, we have made a significant investment in our Kazan business. This has resulted in a material increase in operating expenditure which is front-loaded and enhances the platform and targets future revenue opportunities.

These investments will need to deliver on their respective business cases. As is evident in this quarter, throughput is materially up but a change in the product mix has had a negative impact on margins attributable to this throughput. We do expect a pull-through of higher margin throughput in future quarters as a function of the investment that has been made. As communicated, we will target our guided returns and continue to build and enhance our platform through organic, and inorganic disciplined investments crafted to position our platform for the opportunity presented. Thank you. Lincoln Mali will now take you through the consumer performance.

Lincoln Mali: Thank you, Steven. Quarter two is traditionally our busiest quarter with festive season and holiday spend spiking which benefits our transactional volumes as well as loan originations, as our consumers plan for holidays, travel home, attend cultural events, and plan to spend for the New Year’s back to school. This has translated to another successful set of results for the consumer business. The Adumo Payouts team joined on the first of October 2024, and the results are included for the full quarter. We have started exploring potential opportunities and synergies which we will develop over time. These will include delivering a digital offering where these customers can have access to their accounts but can also buy other products like prepaid solutions, loans, and insurance.

There are approximately twelve million permanent grant recipients in South Africa, which is our core target market for our EasyPay Everywhere platform. Based on our active account numbers, our share is 12%. But at a revenue level, we estimate that our share to be approximately 6.5%, leaving significant room for growth in the current beneficiary market. Our EasyPay offering is especially focused on the needs of South Africa’s grant beneficiaries. And we believe we can add significant value to their lives through our tailored products, distribution, and service capabilities when legacy providers are not ideally equipped to do the same. Some examples of the pain points for grant beneficiaries include lower smartphone penetration, and expensive data preventing easy use of digital channels, expensive and opaque pricing structures, limited access to financial services, and long wait at traditional branch networks.

We have invested heavily in understanding these pain points of our clients, and are continuously designing and adjusting our products and distribution to align with their needs. We continue to see an encouraging increase in account activation and uptake of our loan and insurance products. Our core products include transactional accounts, microloans, funeral insurance, and the recently added Adumo payout offering, which provides corporate card services, supporting payroll, incentive, rewards, and expense management. Our relationship with grant recipients starts with an EasyPay Everywhere transaction account, and then we deepen this relationship through specially tailored lending and insurance products for this end of the market. We recently upgraded our loan product for qualifying consumers where the maximum loan and repayment term increases from two thousand and six months to four thousand and nine months.

We increased the capital and term due to demand but remain committed to ensuring that our customers can afford the monthly installments. The research we commissioned showed that many of our customers were resorting to additional loans often on significantly worse terms, and often from unregistered lenders. Our decision was also supported by the consistent and low loss ratio we have experienced in our book over the past two years. We will be applying the same affordability criteria to the new product and expect our average loan size to increase from one thousand five hundred and eighty Rand to two thousand six hundred Rand over time. Our research also led to an enhanced insurance product to allow policyholders to cover up to six additional dependents to the funeral policies.

Since launch, this has been very well accepted, boosting gross premiums and cross-sell initiatives. Our active EPE customer base increased to 1.6 million year on year, an 11% increase. Within this, our permanent grant base increased 16% to 1.4 million. These are the customers we have an opportunity to cross-sell to and this is our target market. To continue to deliver value to our consumers, we have kept our monthly account fees stable for three years now at seven hundred and fifty per month. Our lending product continues to be successful for us and importantly is a compelling part of our value proposition to consumers. With our gross advances increasing 38% year on year, to six hundred and seventeen million Rand and our book increasing by 41% to seven hundred and nine million Rand at quarter-end.

We’ve managed to maintain our loss ratio at approximately 6% through the challenging economic environment for consumers and the increased lending activity highlighting the value these loans have in our consumers’ lives. Our EasyPay insurance product continues to perform very well with active policies increasing 29% year on year and gross premiums increasing 38% year on year, to ninety-seven million Rand. Again, the quality of our book demonstrates the value to our consumers, with a collection rate of 96% and an annual lapse rate below 20% which is well below the market norm at this end of the market. Our average revenue per user, our ARPU continues to improve, and is now ninety-four Rand per month on EPE permanent grant consumers up from eighty-five Rand one year ago.

Adumo Payouts currently has approximately a hundred and eighty corporate clients, and two hundred thousand cardholders. Quarter two load value was a hundred and seventy million Rand, which is the Rand value loaded onto the cards. This can be in respect of incentive payments, or performance payment for meeting health and safety or compliance targets. Our contractual relationship exists with the corporate client, and we receive revenue based on the number of cards loaded as well as based on the value of the load on the cards. The strong performance across all KPIs has led to an increase in revenue of 31% year on year, to four hundred and eleven million Rand and segment adjusted EBITDA growing 61% to seventy-seven million Rand for the quarter.

It is worth noting that this result includes an interest charge of fourteen million Rand in respect of dedicated funding lines for our micro-lending book. Previously, the book was funded using group facilities with the interest charge at group level and not reflected in consumer cost of sales, which is now accounted for. This is another extremely pleasing set of results for the consumer business. We’ve had a very encouraging start to our third quarter, registering record monthly activations of EPE accounts, record monthly loan originations, and record insurance policy sales placing us in a strong position to continue our growth trend. Our cross-sell initiatives continue to show excellent results. Our cross-sell potential starts with our EPE permanent grant base.

Net activations for quarter two were approximately sixty-five thousand which continues the step change in activations we’ve seen since revamping our brand and distribution network. The high net activation seen in quarter two of 2024 was an anomaly created by the postbank suffering from internal system and card renewal issues, which led to a large number of its clients migrating to alternative service providers, which EasyPay benefited from. In terms of cross-sell, we continue to see very positive results with increasing loan originations and policy sales into our EPE base. Supported by a new single view platform, effective digital channels, improved branding, and productivity in our Salesforce. Our loan penetration increased to 43% from 40% and insurance up from 31% to 35%.

Consumers with a full suite of products are up more than 35% compared to a year ago. As our distribution evolves and improves and as we tailor our products we anticipate our loan and insurance penetration to continue to improve. I’m very proud of the team as we continue to deliver against our strategic focus areas including enhancing product and service delivery and cross-selling and upselling. Whilst the consumer division has delivered excellent results over the past eighteen months, we are not slowing down and still have many areas where we can continue to enhance our product and customer experience. We are focused on the launch of our new products in the loans and insurance business as well as improving our distribution through digital channels, branches, as well as pop-up kiosks, which are proving very popular.

Our USSD transactions continue to show extremely encouraging growth as our customers realize the ease and convenience of using our digital channel. These channels complement our national network of six hundred and fifty sales and service consultants and over a hundred flexi consultants. We have a large opportunity to grow our consumer base which we plan to execute on by continuing our focus on our consumer needs delivering value, convenience, and exceptional service. Thank you, and with that, I’d like to hand over to Naeem Kola for an update on the enterprise division.

Naeem Kola: Thank you, Lincoln. FY2025 is a build and restructuring year for the enterprise business as we lay solid foundations on which to grow this division and realize its potential, in addition to exiting unprofitable business activities. We have a well-established business which we are investing in and upgrading our technology. We have new products which we have recently launched. The acquisition of the Recharger business is expected to close in early March 2025, and soon thereafter, we will commence integrating the business into the group. Within the enterprise division, we expect Recharger to contribute approximately forty million Rand for our FY2025 group adjusted EBITDA for four months of consolidation. We’re developing our enterprise division as a material group adjusted EBITDA contributor in the coming years, which is why we are investing behind it and separating it as a standalone division.

Recharger is a South African prepaid electricity submetering and payments business with a base of over four hundred and sixty thousand registered prepaid electricity meters. We’re excited by this opportunity as it expands our enterprise offerings and enables us to drive a significant strategy in electricity voucher vending through our platforms. As mentioned earlier, FY2025 is very much a build year for enterprise with a significant amount of uncapped development expenditure impacting EBITDA this quarter as well as a cost overhang from the termination of unprofitable contracts as we eliminate associated overheads. The result this quarter was a loss of half a million Rand down from seventeen million profit last year. I would like to give you a quick overview of our products and solutions.

EasyPay is a payment aggregator enabling B2B connections. The EasyPay platform is embedded in major retail businesses across South Africa, as well as smaller retailers. EasyPay was a pioneer in bill payment services and prepaid solutions in South Africa and is a well-known brand, processing well over three billion Rand per month for payments and utility payments combined. The hardware security modules HSM business, operating under the Prism brand, sells very specialized high-end data security devices that are used in data centers processing sensitive information. For example, payment switching, and PIN encryption, decryption on ATMs, and POS terminals, and voucher numbers generated for prepaid electricity, data, and airtime. It uses hardware as opposed to software cryptography, making it more secure for the most sensitive data elements.

This business generates revenue on sales of the units as well as annual maintenance contracts. In June 2024, we launched our revitalized Prism switch which we have been developing over the past eighteen months. Our Prism switch enhances our go-to-market strategy and is strategically important as we see this as a significant opportunity to continue to release synergies across the group and internalize transaction flows. We believe this unique expertise will enable the business to compete much more effectively. Turning to our KPIs. In EasyPay per payments, we processed 8.3 billion Rand in throughput this quarter, which is up 13% on last year. On utility payments, we saw a 16% pullback in throughput, which was primarily attributable to the termination of a large contract that was no longer strategic for us.

Despite the loss of throughput, there is no impact on profitability. HSM units sold in the quarter increased 7% compared to FY2024 Q2. With the anticipated closing of the Recharger acquisition, we are looking forward to welcoming the team to Lesaka Technologies, Inc. and integrating it with our enterprise operation, which will make a significant impact on the reported performance going forward. Ali Mazanderani will now take you through the group’s outlook.

Ali Mazanderani: Thanks, Naeem. Moving to Outlook. We are reaffirming our revenue guidance of ten billion Rand to eleven billion Rand, net revenue guidance of five point two billion Rand to five point six billion Rand, and group adjusted EBITDA guidance of nine hundred million Rand to a billion Rand. For the quarter ending March 31, 2025, we expect revenue of between two point four billion Rand and two point six billion Rand, net revenue of between one point three billion Rand and one point five billion Rand, and group adjusted EBITDA of two hundred and thirty million Rand to two hundred and sixty million Rand. We are also pleased to be able to provide, for the first time, group adjusted EBITDA guidance for the year ending June 30, 2026.

The guidance range we are providing is ZAR1.25 billion to one point four five billion Rand. This includes Recharger, but excludes any unannounced acquisitions. We also expect to deliver not only positive fundamental earnings per share but also positive profit after tax in FY2026. We will give revenue guidance and further details in due course. Stepping back, it is pleasing to see the evolution of the group adjusted EBITDA over time. From midpoint to midpoint of the range, we are giving guidance of 42% year-on-year growth in group adjusted EBITDA from this year to next. The FY2026 EBITDA guidance implies a one point seven billion Rand swing in profitability over four years and a 45% year-on-year CAGR over the last three years. It’s a decent start on our mission, but it really is just a start.

We don’t expect our growth trajectory to slow, and we expect our best years to be ahead of us. We have outlined at a high level the enormity of the opportunity before us, but I am conscious that given the evolution of the platform, the time is now right for Lesaka Technologies, Inc. to host a Capital Markets Day to unpack our opportunity in more detail. Accordingly, we will shortly schedule a Capital Markets Day next month open to the investment community. This will provide us the opportunity to communicate our underlying drivers as touched on earlier, in more detail, as well as our competitive positioning and provide greater clarity on what we are building. Over the coming years, we expect to be the reference fintech success story on a continent of one and a half billion people.

We are looking forward to showing you why. Thank you. We will now take your questions on our Q2 results.

Q&A Session

Operator: With the Lesaka Technologies, Inc. management team. Please remember that if you have any questions, you can enter them into the chat function and we will address them at this forum. So, Ali, first question coming through from Frank Geng at Briarwood Capital. And he says last quarter, FY2025 guidance did not include any unannounced M&A. Now your reaffirmed FY2025 guidance includes Recharger. Can you please talk us through this?

Ali Mazanderani: The FY2025 EBITDA guidance range is around having a slight technical issue. We are live with the Lesaka Technologies, Inc. management team at the Q&A for the second quarter of FY2025. We are just taking a short break on technicals as we understand what the situation is. Ladies and gentlemen, as we are in a live broadcast, always anticipate that technicals can get the better of us, and there are always gremlins in the system. So we’ll just take a second before we can resume, and we are live. We are live with the executive management team at Lesaka Technologies, Inc. As I said, some gremlins in the system as we go into that live broadcast, but I’m going to start with the first question to Lincoln Mali, and Lincoln on the consumer side. We have a question from Ross Critter at Investec Securities. And he is saying in the consumer growth specifically, we’ve seen very buoyant performance. Is this sustainable, sir?

Lincoln Mali: Thanks, Ross. I think it is sustainable. Our first immediate opportunity is to continue to grow our customer base. As we indicated earlier, we are only at 12% market share in that base, so there’s an opportunity to take on more customers from our competitors. And from all indications, we are taking more customers than our competitors from those competitors that are struggling. So we are going to grow our customer base. Secondly, we need to cross-sell into that base. We are only penetrated 43% with our loans. We think we can do more in that base, and we can also penetrate more from an insurance point of view where we’re only penetrated 35%. So both growing our customers and cross-sell will give us room to grow. But also, we’ve mentioned something both Ali and I have touched base on the fact that we can start to think about growing beyond just a grant base.

And I think the Adumo Payouts two hundred thousand accounts give us that opportunity to start to step away from the grant base and do more beyond the grant base. And thirdly, as Ali pointed out earlier, we will look at other pockets of underserved customers. So in a nutshell, we still see huge growth opportunities in this consumer business, both with our existing customer base and other customer bases that we look at in the future.

Operator: Dan Smith, Theo O’Neill at Litchfield’s Hills Research is asking, can you please elaborate further on the group’s debt position, the outlook, and refinancing as you referred to earlier? And additionally, could you also provide some color on cash outflows in the quarter?

Dan Smith: Thanks, Ronald. So our gross debt was… This really comprises a mix of short-term and long-term facilities. Remind everyone the debt arose partially in the acquisition of the Connect Group, partially on the acquisition of Adumo. There is quite detailed disclosure in our 10-K. You’re gonna stand down there.

Operator: Always laugh at. Okay. We are live, and this is third time lucky. And I’ve been in many broadcast studios, and I can assure you that live television does have these gremlins that come to the fore. So welcome again to the Lesaka Technologies, Inc. Executive Management live Q&A. I’m Bronwyn Nielsen, and I’m hosting this session this morning. Got a number of questions coming through from the audience. I’m gonna remind you please, if you have any questions, put them into the chat function, and we will address them in this session. Ali, I’m gonna come to you with that question from Frank Geng at Briarwood Capital. He says last quarter, FY2025 guidance did not include any unannounced M&A. Now you’re reaffirmed FY2025 guidance includes Recharger. Can you please talk us through this? Thanks, Bronwyn, and thanks, Frank, for the question.

Ali Mazanderani: So as Naeem says, our expectation is that Recharger would be contributing about forty million Rand to our EBITDA in FY2025. Our guidance just to remind you, is nine hundred to a billion Rand. And, the guidance we would be providing would be exactly the same and our reaffirming would be exactly the same irrespective of whether Recharger was included or not included. So you can drive your inference from that.

Operator: We’re staying with Outlook, and I’m staying with you, Ali. In terms of PonteMat Capital coming through, congrats on the impressive results and even more impressive FY2026 EBITDA guidance. Can you discuss the drivers for the strong growth?

Ali Mazanderani: Thanks again for the question. So at the midpoint of our range, we have an FY2025 EBITDA of nine hundred and fifty million Rand. In FY2026, it’s one billion three hundred and fifty million Rand. That’s a 42% year-on-year increase. The contribution excluding Adumo and Recharger from that is roughly speaking a 25% year-on-year growth. Obviously, we are expecting to include Recharger for about four months of this financial year, and we expect to have included Adumo for nine months. And there’s about a hundred and fifty million Rand attributable to the difference between their expected contribution then in FY2025 and FY2026. I would like to say that I think that this exclusion in this distinction is gonna become increasingly artificial because the business is, as Dan said, integrating into the collective.

We’re not running a collection of separate fintech companies. We’re running an integrated whole and there’s obviously synergies also associated with that. However, for the sake of the question, it’s a 25% year-on-year organic growth expectation implied by our guidance. In terms of what is actually driving that growth in our guidance, as we articulated, we expect to be growing faster than the market. So there’s a certain market growth there. And really the products that we’re expecting to grow faster than the market in the merchant division is the acquiring product. There we’ve got some cyclical drivers through the digitization of the society and also the software product where we have a strong leadership position. But the growth is also expected to come meaningfully from the consumer division.

And a continuation as Lincoln has alluded to. There, it’s really quite balanced from a product perspective between transactional accounts and lending and insurance.

Operator: Just to remind you that we are with the Lesaka Technologies, Inc. executive team. This is a live Q&A. And, Dan, I’ve got a question coming through here from Theo O’Neill, and he’s from Litchfield’s Hills Research. He’s saying, can you please elaborate further on the group’s net debt position, the outlook, and refinancing as you referred to earlier? And additionally, could you also provide some more color on the cash outflows in the quarter. Dan?

Dan Smith: Thanks, Brendan. Theo, our gross debt at the end of the quarter was 3.8 billion Rand. Just unpack how that arose. Some of it was from the acquisition of the Connect Group three years ago. Some of it arose from the acquisition of the Adumo Group. Some of it relates to recent facilities we’ve put in place to enable growth in our consumer loan book and then there’s an element of day-to-day banking, general working capital facilities, and asset-backed facilities. There’s a lot of detail in the borrowings note in our 10-Q, which unpacks the different facilities, the tenor, and the rates we pay. So I refer you to that. That’s accessible on our website. We are in the process of effecting a comprehensive refinance of our capital structure, our debt facilities in particular.

This will optimize the tenure, the repayment profile, and the cost of our facilities and it will also help offset some of our interest costs against the significant cash pile we have in the group so we achieve a netting effect. We have credit approved from our funding banks, and we’re deep into the legals. I expect us to complete this in the current quarter. We’ve highlighted that our target debt to EBITDA ratio is roughly two times in the long term. If I take into account the readily monetizable stake we have in a non-core investment, MobiKwik, we should be able to reduce our debt significantly to a leverage ratio of about 2.4 times. I note that this is based on the last twelve months of earnings, which only includes three months of Adumo’s earnings.

If I were to annualize that and bring in Adumo for a full twelve months into our earnings, our net debt to EBITDA ratio would be approximately 2.1 times. In other words, not very far from our target ratio. If I turn to our cash flows, I appreciate that this quarter in particular has been quite difficult to compare this quarter’s cash flows to prior quarters’ cash flows, largely as a result of the inclusion of Adumo for the first time. A key driver of our cash flows is strong underlying cash generation of roughly two hundred and seventy million Rand. We do pay a high-interest charge which comes off each quarter. Instead of addressing our desire to our ambition to reduce our overall gearing and interest cash interest cost in the business. I do note we are an investing and growing business, which does require funding.

The consumer loan book required one hundred and fifty million for the last quarter to enable the growth. We took advantage of a bulk airtime purchase which required additional funding of roughly seventy million for the quarter. And then there is some seasonality in our working capital, which largely plays through at the end of December as a traditional holiday period. So there’s some elevated receivables and debtors balances at this quarter-end, which unwind or did unwind over the coming days of the next quarter. The last point I wish to flag is in the Capital Markets Day that Ali outlined, we will look to unpack our working capital, our free cash flow generation, and other cash metrics of our business in more detail to the investor community.

Thanks, Bronwyn.

Operator: Thank you, Dan. And, again, just reminding everybody that we are fielding questions live with the Lesaka Technologies, Inc. management team. It is the Q&A for the second quarter FY2025. Lincoln Mali, I have you in my sight, sir, and so does Ross Critter from Investec Securities. He says that consumer growth is incredibly buoyant. It has been incredibly buoyant. Is this growth sustainable?

Lincoln Mali: Thanks, Ross. I think it is sustainable. We have three key levers to pull. All the investment we’ve made in our products, invested in our people, technology, distribution are all paying off. In the sense that we’ve seen incredible growth in our account numbers. We think that’s the first lever that we’ll pull. We have a sense that we will continue to grow our account numbers. We’ll be able to take more market share from other market participants, and we think that that’s the first lever of growth. And we can see a runway on that. The second lever of growth that gives us confidence is our cross-sell ability. We’ve seen ourselves growing in terms of our cross-sell. You’ve seen our ARPU grow now to ninety-four Rand, and it’s because of the strength of that cross-sell capability in our teams.

We are only penetrated at 43% when it comes to loans, which means that there is still room to grow. We are only penetrated at 35% when it comes to insurance, which means there’s still room to grow. The third lever is in the medium term. I think Ali alluded to the fact that we’ll start to think about other pockets of customers of underserved consumers beyond the social grant network. Our first area of that is with Adumo Payout, we will start to experiment about what is possible with that core customer base, and then we’ll start to think of other underserved pockets of customers. So generally, I would say that there’s still room for us to grow in this business.

Operator: So still room to grow in the consumer business. Raj Sharma, he asks Steven Heilbron, has growth slowed in the merchant division if you strip out Adumo?

Steven Heilbron: Thanks, Bronwyn. Firstly, I think if you have a look at our FY2026 guidance, it’s indicative of considerable growth in the merchant division. We are constructing a platform in the merchant division to take advantage of a sizable opportunity that Ali communicated. An addressable revenue pool of north of $2.8 billion in which we have a very small market share. This bodes well for growth. We will meet our guided returns through both organic and inorganic levers. Now if you have a look at our performance over Q2 2024 to Q2 2025, we grew revenue by 68% to eight hundred and fifty-four million Rand. And we grew EBITDA by 32% to a hundred and eighty-five million Rand. Now this result was impacted positively by the Adumo acquisition, but at the same time, we invested significantly in our platform, in our Kazan business, where we incur operating expenditure, which was significantly up based on these investments, and these investments and initiatives will result in a pull-through in increased earnings in quarters to come.

Operator: Right. And, again, you are here with the Lesaka Technologies, Inc. management team. This is the live Q&A for the second quarter FY2025. Naeem Kola, another question coming through from Ross Critter. And, again, Ross from Investec Securities. He’s saying, enterprise has not moved forward in the past eighteen months. You say there is a clearer path looking forward. Can you elaborate?

Naeem Kola: Thanks, Bronwyn. Thanks, Ross, for the question. I think you look at our enterprise division, we’ve intentionally separated this into a separate division because we see the enterprise division as strategic as well as it will become a material contributor to our EBITDA from FY2026 onwards. If you just look at FY2025, it’s been a year of investing into our technology platform as well as our product suite to service our customers better. We have also taken the decision to exit unprofitable contracts and products. The cost overhang of this exit obviously impacts the FY2025 results negatively. But the investment in the platform is strategic and will help us grow our revenues going forward. I think the key area to think about as well is that the Recharger acquisition is super exciting about this acquisition.

It basically moves us along the electricity value chain. In addition, it gives us around four hundred and sixty thousand customer touchpoints that we can leverage going forward. So overall, I think, you know, we’re investing in a platform to really grow revenues in the future. You know, we have not outlined in the investor presentation the market opportunity and the competitive landscape, but as Ali has indicated, we will be doing this in the Capital Markets Day as well.

Operator: Well, there we go alluding to the Capital Markets Day, and I’m sure we will hear more of this from the management team as the story gains traction and certainly an exciting one. Ali Mazanderani, coming back to you in terms of Potomac Capital. Can you discuss any regulatory changes you see on the horizon and how they may help the fintech sector and Lesaka Technologies, Inc. in particular?

Ali Mazanderani: Thanks, Bronwyn. I mean, we see the potential for quite a lot of regulatory changes, especially as South Africa follows the path that Brazil and Europe and India have followed empowering non-bank fintechs to help drive digitization in those respective economies, and Saba’s been pointing to that for some time. It’s noteworthy that at the ASAP launch, the Saab did commit to putting forward an exemption to the Banks Act, which they are expecting to be gazetted in the coming months. That’s a very, very meaningful evolution of the market. It would allow nonbanks to be regulated by activity and remove the gatekeeping relationships that we currently have to endure with banks. This would substantially improve our ability to disrupt and also our ability to accelerate revenue and reduce cost.

I should say that we would expect to be then regulated by activity rather than just, you know, the sort of blanket bank and TPP environment that exists today. How much would that impact? It’s really very difficult to say. I think it’ll be dependent on the detail of what’s evolved in that context. But we’re hopeful and our engagement is through ASAP with the Saab, gives us confidence that the right thinking and the right type of decision-making is happening there.

Operator: You’ve been here for a year. Where to for the business from here?

Ali Mazanderani: Thanks, Bronwyn. Well, I hope we managed to improve the technology capabilities of our video broadcasting on our core list. I think that’s gonna be helpful, but more seriously, there are some things that I think we do well we need to continue to do. You know, we’ve done well at keeping our commitments, at saying where we’re going and then delivering on that. And it’s critically important that we maintain our commitments, that what we say, we deliver on. I think there’s other things that we have not done so well. And one of them is telling our story in a simple way and the truth is it is actually quite a simple story. We are not reinventing the wheel. We are just taking it to the frontier. And the reality of our business is if we have the right people in the right places, gravity will take care of the rest.

And that’s what is both exciting and, to be honest, should be relatively easy to explain. And I’m looking forward to the Capital Markets Day and giving us the opportunity to simplify the message for the investing community so that they can really understand how we’re positioning ourselves against the evolution of the market and the digitization of the economy.

Operator: Thank you very much to the Lesaka Technologies, Inc. executive management team, and thank you to all of you who have tuned in and have allowed us to navigate these technical challenges in this session. We do have a couple of additional questions in the chat box, and investor relations will ensure that those are answered on an individual basis. It stands just for me to say thank you to everyone joining us and thank you to the Lesaka Technologies, Inc. executive management team. Until next time. That’s it for our Q2 Q&A.