Lesaka Technologies, Inc. (NASDAQ:LSAK) is emerging as a leading fintech platform in Southern Africa, consolidating the region's fragmented financial services landscape. With a strategic focus on serving consumers, micro-merchants, merchants, and enterprise clients, Lesaka is uniquely positioned to capitalize on the significant growth opportunities in this underserved market.
The company's recent financial performance showcases its transformation. For the fiscal year ended June 30, 2023, Lesaka reported annual revenue of $527.97 million and a net loss of $35.07 million. While the net loss reflects the company's ongoing investments in its strategic initiatives, Lesaka's annual operating cash flow of $0.41 million and free cash flow of -$16.17 million demonstrate its improving liquidity position.
In the third quarter of fiscal 2024, Lesaka continued its positive momentum, reporting revenue of $138.19 million, up 3.2% year-over-year. The company's operating income for the quarter was $0.79 million, a significant improvement from the $1.85 million operating loss in the prior-year period. Lesaka's group adjusted EBITDA, a non-GAAP metric, increased 40% year-over-year to $9.70 million.
Business Overview
Lesaka operates through two key divisions: Merchant and Consumer. The Merchant division provides a comprehensive suite of products and services to increase consumer convenience and purchases in merchant stores, as well as physical and fintech solutions to assist merchants in reducing cash risks and improving working capital and business efficiencies. The Consumer division focuses on improving the lives of South Africa's grant beneficiaries by providing access to innovative financial technology and value-creating solutions.Merchant Division Highlights
The Merchant division continued its strong performance, with revenue increasing 8% year-over-year in the third quarter of fiscal 2024. The division's Kazang brand, which offers value-added services (VAS) and supplier payments, saw a 12% year-over-year growth in the number of devices deployed, reaching over 80,250 devices. Excluding international money transfers, which are a low-margin product, Kazang's VAS throughput grew 36% year-over-year.The division's card acquiring business, operated through Kazang Pay and Card Connect, also demonstrated robust growth, with the number of card-enabled POS devices increasing 21% year-over-year to over 50,200. Throughput on these devices grew 21% to ZAR 3.9 billion.
Lesaka's digital cash management offerings, Cash Connect and Kazang Vaults, continued to gain traction, with the number of merchant stores using these services increasing by 2% year-over-year to approximately 4,455.
The company's merchant lending business, Capital Connect, disbursed ZAR 219 million during the third quarter, a 13% increase compared to the prior-year period. However, the tough economic environment has resulted in more merchants not meeting the company's credit criteria, leading to marginal growth in the lending book since 2022.
Consumer Division Highlights
The Consumer division also delivered a strong performance, with revenue increasing 19% year-over-year in the third quarter of fiscal 2024. The division's EasyPay Everywhere (EPE) account activations showed significant improvement, with approximately 63,000 gross account activations during the quarter, compared to 38,000 in the prior-year period. After accounting for churn, the division's net active account growth for the quarter was approximately 28,000.The division's total active EPE transactional account base stood at approximately 1.46 million at the end of March 2024, of which approximately 1.28 million (or approximately 87%) are permanent grant recipients.
Lesaka's cross-selling initiatives, including the EasyPay Loans and EasyPay Insurance products, have been successful, with the loan book increasing 28% year-over-year to ZAR 509 million and the number of active insurance policies growing 34% to approximately 414,000.
The division's average revenue per user (ARPU) for the permanent client base increased to approximately ZAR 90 for the third quarter of fiscal 2024, up from approximately ZAR 78 in the prior-year period.
Strategic Acquisitions
Lesaka has been actively consolidating the fintech landscape in Southern Africa, with two recent strategic acquisitions:1. Touchsides (Pty) Ltd: In April 2024, Lesaka acquired Touchsides, a leading data analytics and insights company with a strong presence in the licensed tavern market. The acquisition significantly expands Kazang's footprint in the informal market and provides valuable data and insights that can be monetized through relationships with various clients.
2. Adumo RF (Pty) Ltd: In May 2024, Lesaka announced the acquisition of Adumo, subject to shareholder and regulatory approvals. Adumo serves approximately 23,000 active merchants, primarily in card acquiring, integrated payments, and reconciliation services. The acquisition will further strengthen Lesaka's merchant-facing capabilities and expand its geographic reach.
Guidance and Outlook
For the full fiscal year 2024, Lesaka reaffirmed its revenue guidance of between ZAR 10.7 billion and ZAR 11.7 billion. However, due to the mix of PIN and PIN-less data and airtime sales differing from the company's forecast, Lesaka anticipates coming in at the lower end of the revenue guidance range.Regarding group adjusted EBITDA, Lesaka has raised its guidance. Previously, the company had guided for group adjusted EBITDA, excluding the impact of lease expenses, to be between ZAR 680 million and ZAR 740 million. On the same basis, Lesaka now expects group adjusted EBITDA to be higher, between ZAR 740 million and ZAR 760 million.
Inclusive of lease expenses, Lesaka expects its group adjusted EBITDA for fiscal 2024 to be between ZAR 685 million and ZAR 705 million, representing more than a 50% growth year-over-year.
This guidance excludes the impact of the anticipated completion of the Adumo acquisition. Lesaka plans to provide guidance for fiscal 2025 when it reports its results for the year ended June 30, 2024.
Financial Position and Liquidity
Lesaka's financial position has continued to strengthen, with the company reporting a net debt-to-group adjusted EBITDA ratio of 2.6x as of March 31, 2024, compared to 4.2x a year ago. The company's cash on hand at the end of the third quarter was ZAR 1 billion, with an additional ZAR 244 million related to working capital settlement on Kazang Pay.Lesaka's net cash provided by operating activities for the third quarter of fiscal 2024 was ZAR 362 million, a significant improvement from the net cash used in operating activities of ZAR 92 million in the prior-year period. The company's operating cash flow before interest, tax, and working capital-related items was ZAR 175 million, up 24% year-over-year.
Risks and Challenges
While Lesaka has demonstrated impressive operational and financial progress, the company faces several risks and challenges:1. Macroeconomic Conditions: The challenging economic environment in South Africa, including high inflation, interest rate hikes, and volatile currency, could impact the company's merchant and consumer customers, affecting their ability to access credit and utilize Lesaka's services.
2. Regulatory Changes: Lesaka operates in a highly regulated industry, and any changes in regulations governing financial services, payments, or lending could adversely affect the company's business model and operations.
3. Integration Risks: The successful integration of recent and future acquisitions, such as Touchsides and Adumo, will be crucial to realizing the anticipated synergies and benefits. Failure to effectively integrate these businesses could impact Lesaka's financial and operational performance.
4. Competition: The fintech industry in Southern Africa is becoming increasingly competitive, with both local and global players vying for market share. Lesaka's ability to maintain its competitive edge and continue innovating its product offerings will be critical to its long-term success.