Lesaka Technologies, Inc. Q2 FY2025 earnings call

Key Points - Ali Mazanderani: Assumed role of Executive Chairman a year ago, amended quarterly presentation, introduced different divisions and outlook for FY2025 and guidance for FY2026. - Dan Smith: Group revenue slightly exceeded upper end of guidance, net revenue increased 42% y-o-y. Adumo acquisition completed, impacting goodwill, intangible assets, and EBITDA. MobiKwik investment had a write-down. Restructured reporting into three operating lines. - Steven Heilbron: Merchant division performance, including growth in merchant acquiring, cash vaults, and lending (with challenges in formal sector). - Lincoln Mali: Consumer division performance, growth in EPE accounts, loan and insurance products, cross-selling success, and potential to grow beyond grant base. - Naeem Kola: Enterprise division as a standalone pillar, investment in technology and product suite, Recharger acquisition expected, and focus on profitable business.

Merchant division: Net revenue was up 68%, mainly attributable to the inclusion of Adumo from October. Consumer division: Revenue increased 31% to 411 million Rand, attributable to a larger EPE account base and higher ARPU due to cross-selling success. Enterprise division: Net revenue retracted 29% as the platform was being built, focusing on profitable business and rightsizing the cost base. In terms of revenue contribution, merchant net revenue contributed significantly due to Adumo's inclusion, consumer showed strong growth, and enterprise was in a rebuilding phase.

FY2025 - Revenue guidance: 10 billion Rand to 11 billion Rand. - Net revenue guidance: 5.2 billion Rand to 5.6 billion Rand. - Group adjusted EBITDA guidance: 900 million Rand to 1 billion Rand. ### Q2 2025 - Revenue slightly exceeded upper end of guidance, decreasing 2% to 2.6 billion Rand. - Group net revenue increased by 42% y-o-y. - Group adjusted EBITDA grew by 26% to 212 million Rand, exceeding upper end of guidance. ### FY2026 - Group adjusted EBITDA guidance: 1.25 billion Rand to 1.45 billion Rand. - Implies a 42% year-on-year growth in group adjusted EBITDA from FY2025 to FY2026.

Risks - Currency fluctuations between US dollar and South African Rand can significantly affect company results. - MobiKwik investment valuation risk due to market fluctuations. - Debt-related risks, including refinancing challenges and maintaining appropriate debt to EBITDA ratio. - Macro-economic challenges affecting certain divisions like the formal sector in the merchant division.

Q: 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?

A: The FY2025 EBITDA guidance range is around having a slight technical issue. Our guidance would be exactly the same irrespective of whether Recharger was included or not. The expectation is that Recharger would be contributing about forty million Rand for our FY2025 group adjusted EBITDA for four months of consolidation.

Q: In the consumer growth specifically, we've seen very buoyant performance. Is this sustainable, sir?

A: I think it is sustainable. Our first immediate opportunity is to continue to grow our customer base. We are only at 12% market share in that base, so there's an opportunity to take on more customers from our competitors. 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%. Also, we can start to think about growing beyond just a grant base. And thirdly, we will look at other pockets of underserved customers.

Q: 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?

A: Our gross debt comprises a mix of short-term and long-term facilities. We are in the process of effecting a comprehensive refinance of our capital structure. Our target debt to group adjusted EBITDA ratio is roughly 2 times. Strong underlying cash generation of roughly 270 million Rand. The consumer loan book required 150 million for the last quarter to enable growth. We took advantage of a bulk airtime purchase which required additional funding of roughly 70 million for the quarter. There is seasonality in our working capital.