Lesaka Technologies, Inc.

Hello everyone and welcome to Lysaka's fiscal first quarter 2023 webcast and conference call. As a reminder to everyone that 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 the questions you may have at the end of the presentation. For those joining us via webcast, you can ask your questions live by raising your hand in Zoom. For those joining via the Zoom teleconference line, you cannot ask your questions live. 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.lasakatech.com. Additionally, the company filed its Form 10-Q after the U.S. market closed on Tuesday, November 8, 2022, which is also available on our investor relations website. As a reminder, during the 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. Also, we will be discussing our results in South African RAND, which is non-GAAP. We analyze our results of operations and our press release in RAND to assist investors' understanding of the underlying trends in our business. As you know, the company's results can be significantly affected by the currency fluctuations between the U.S. dollar and the South African RAND. I would now like to turn it over to Chris Meyer, Group CEO.

Good morning and welcome to our first quarter 2023 earnings webcast and conference call. Taking a quick look at today's agenda, I will start with performance highlights for the first quarter of 2023, and then provide a brief business overview. Steve will provide an update on our merchant business, Lincoln will provide an update on the consumer business, and Naeem will present details of our financial performance for the three months ended September 30, 2022. I will then conclude the results presentation with our outlook for Lusaka. Before we open up for Q&A, we would welcome any questions you may have. First, let me say that Q1 FY 2023 marks the start of our first full quarter as Lasaka incorporating the Connect Group. And I'm pleased to report that execution on our strategic imperatives has translated into solid financial performance, including strong revenue growth and improved profitability. We are delivering on our objectives and we are well positioned to continue doing so. We have significantly expanded our merchant offering through the transformative acquisition of the Connect Group, which brings together two businesses with complimentary product and customer sets. This is a growth story. Connect fills the gaps in our MSME offering and completes the end-to-end financial ecosystem that underpins Lysaka's mission. On a standalone basis, Connect continues to perform ahead of expectations and the strong underlying fundamentals that underpin the business remain intact. Integrating our pre-existing merchant businesses and Connect has been very encouraging and the synergistic benefits have exceeded our initial expectations. The organic turnaround of the consumer business continues to deliver improved performance and remains on track to reach a monthly breakeven adjusted EBITDA during the second quarter of fiscal 2023. As such, our merchant and consumer businesses are both very well positioned to scale and grow in their respective target markets, while at the same time benefit from the synergies and opportunities created by our dual-sided ecosystem. Turning to our funding and capital structure, we have previously highlighted that as part of the Connect acquisition, we took on a bridge of 1.1 billion Rand maturing in April, 2024. And I'm pleased to update the market that we are in the final stages of agreeing a conversion of this facility into a three-year term loan that will bring greater flexibility, increased liquidity, and sufficient capacity for us to deliver on our guidance and growth plans over the medium term. And once in place, this facility provides real evidence of the progress made in the turnaround of our consumer business and the strong ongoing performance of the Connect Group. So as you know, in early September, we provided forward earnings guidance for the first time since the transformation and repositioning of Lusaka. This was a bit of a milestone for us as it further illustrates the progress we've made and the clarity we are building in our business. Our guidance was for revenue to be in the range of 2.015 billion rand to 2.062 billion rand for FY23Q1. and we are pleased to be able to report revenue of R2.1 billion, which exceeds the upper end of our guidance. We also guided for Group Segment Adjusted EBITDA to be in the range of R106 million to R112 million for Q1 FY2023. and we have delivered 111 million rand in group segment adjusted EBITDA for the quarter, which is at the upper end of the guidance provided, and is a significant improvement on the loss of 106 million rand in Q1 2022. Revenue growth was driven predominantly by the inclusion of the Connect Group for the full quarter, with the momentum in the Connect business continuing, and as I've said, the drivers underpinning the growth remaining intact. The consumer business continues to deliver improved performance, evidencing the positive turnaround, and it remains on track to reach breakeven during the second quarter of fiscal 2023. Along with the primary focus on rightsizing the business, the net active account base grew by 3% in the quarter, with transaction volumes and revenue remaining in line. This is testament to the consumer team's ability to grow and serve our client base while at the same time managing a fundamental transformation of our consumer distribution model. The consumer business reported revenue for the quarter of 257 million rand. Segment adjusted consumer EBITDA improved to reduce loss of 24 million rand for the quarter compared to a loss of 137 million in Q1 2022. And this improved profitability was driven by a combination of realized cost savings as a result of project spring together with a marginal improvement in revenues. We have previously provided a detailed strategic overview of the soccer in each of the last three result presentations. And therefore I intend to only touch on this briefly today. As Lusaka, we strive to improve people's lives by bringing financial inclusion to South Africa's underserved consumers and by helping small businesses access the financial services they need to prosper. We are constantly innovating so as to help merchants grow, manage, and digitize their business while enabling our large consumer customer base to easily access their money and the financial services they need in their daily lives. And as we've previously pointed out, there are real challenges to delivering financial inclusion and digitization in the South African market. The challenges stem from a deep distrust in and a lack of understanding of cash alternatives. which is driven by low levels of financial literacy in our country. And adding to this challenge are the relatively high connectivity costs in South Africa. Airtime and data are expensive and prized commodities. And smartphone penetration remains relatively low, where many South Africans still use older style feature phones. And taken together, this all means that although over 80% of South Africans may have a bank account, many treat them as post boxes, withdrawing their money in one transaction. And solving these issues for our customers is our mission. And we have shown that Lusaka is very well placed to meet those challenges and deliver for our customers. Lasaka's addressable market is large and it offers multiple levers for expansion. Our platform serves micro and small merchants together with the consumers who would typically shop in their stores. We estimate there to be approximately 1.4 million informal merchants and approximately 700,000 formal merchants in our target market, along with the approximately 26 million consumers in LSMs 1 to 6 who form our target addressable market in the consumer division. Our strategy is to build our ecosystem where our consumers are. And this often means in the townships and the rural areas of South Africa, creating points of presence that are convenient and accessible for our customers. As such, we have over 68,000 points of presence in the form of branches, retailer pay points, ATMs, satellite kiosks, and merchant devices. This compares to approximately 58,000 disclosed previously. The Lusaka platform offers growth and broader reach in an under-penetrated market. And we believe there is tremendous scope for both our merchant and consumer businesses to grow and scale in their respective target markets in their own right, while at the same time also benefiting from the synergies and opportunities created by the dual-sided ecosystem and self-reinforcing business model we are building as part of Lasaka's value proposition. As post-COVID travel has started to open up again, we have been fortunate in recent times to host a number of investor visits, showcasing the Lusaka platform and allowing our investors to gain firsthand experience of our merchant and consumer offering. One thing that has become evident through these visits is that our offering and growth potential in the formal sector seems to be well understood. However, it is often seeing the size and scale of the informal sector together with our leading offering therein that is invaluable to our investor base and allows them to conceptualize the growth opportunity and the need for financial inclusion in our country. And as such, I thought it would be useful to spend a little more time looking at the informal sector as part of today's presentation. So South Africa's informal economy is highly cash-driven, and while information is imperfect, estimates are that the GDP of the informal sector is well above 300 billion rand, and it continues to grow. We estimate 60% of total transactions in South Africa are cash-based. We also estimate that approximately 90% of transactions in South Africa's informal economy are cash-based. Anecdotal evidence is that over 70% of fresh fruit and vegetables in South Africa are sold in the informal economy. And so it is highly evident that the size and nature of South Africa's cash-driven informal economy necessitates financial inclusion and digitization in the informal market. And it is through our ability to efficiently digitize the last mile of financial inclusion, providing a full service FinTech platform across cash and digital, serving the needs of both, while also facilitating the secular shift to digital that is currently taking place that positions us so well to deliver on our mission. And with that, I'd like to turn over to Steve to provide an update on the merchant business, as well as progress made on the integration of the Connect Group.

Thank you, Chris. At the outset, let me reiterate that the Connect acquisition was an essential building block in expanding and transforming Lasaka's merchant offering to what it is today. It has served the purpose of introducing new products, services, and customers while establishing Lusaka as a leading player in South Africa's merchant sector. Getting straight into the financial performance of the merchant division, for Q1 2023, the merchant business reported total revenue of 1.9 billion rand, driven by the inclusion of Connect Group for the full quarter from July 01 to September 30, 2022. This compares to 1.6 billion in the prior quarter Q4 2022, a quarter in which Connect was included for most of the quarter. Similarly, segment adjusted EBITDA for the merchant business increased to 134.5 billion compared to 124.4 million in Q4 2022. In Connect, Throughput is one of the fundamental measures of how the business is performing and it supports ongoing growth. Compared to Q1 2022, Kazang's cumulative transactional throughput grew 29% to 5.8 billion rand. This continued momentum demonstrates the value that we bring to our informal merchants through this offering. I will go into more detail on this when I talk to operational metrics. We saw robust growth in our CashConnect business with cash settlements up 19% to R27.5 billion despite the challenging environment for retailers over this period. In Connect's card acquiring business, cumulative transactional throughput continued its exceptional growth of 115% to R2.3 billion due to further traction in penetrating the informal market through Kazang Pay. As indicated previously, we believe there should be a strong growth potential in this product. Finally, we saw great traction in Capital Connect, which focuses on providing merchants quick access to working capital, dispersing approximately R190 million in Q1 2023, up 77% compared to Q1 2022. We previously mentioned that we anticipate strong growth in this arena which certainly has been the case with two record lending months in the first quarter of 2023. We're also seeing good momentum in Kazang Pay Advance, which was launched a year ago off the back of Kazang Pay in the informal market. Now, in our easy pay business, as expected, we see a decrease in VAS value processed for prepaid electricity as a result of load shedding. It's important to clarify that this decrease is not due to a loss of customers. VAS value processed for prepaid airtime increased by 8% and our bill payment volumes declined by 2%. We remain focused on the repositioning of our easy pay business and on prioritizing commercial revenue streams in relation to existing and new clients. In NUETS, our point of sale terminal business, Revenue generated from the sale of point of sale devices can be lumpy given the seasonality of bulk sales. We have therefore reflected a 12-month rolling average and will do so going forward for Q1 2023 compared to Q1 2022, this being a more meaningful metric in tracking the performance of this business. The 12-month rolling average for FY23 Q1 was 7,761 terminals sold, compared to 3,365 terminals in the first quarter of 2022. We are excited about many of the opportunities in our merchant business. Asaka today has a comprehensive offering to SME merchants in Southern Africa and now has a distinct dual-sided ecosystem driving financial inclusion and serving both merchants and consumers. As Chris mentioned, The integration work between the pre-existing merchant business and Connect has been extremely encouraging and synergies to date have exceeded the expectations that we had going into the acquisition. Our vault business effectively puts the bank in approximately 4,200 merchant stores. Historically, we've been placing our vaults into formal SME merchant stores, but are now also penetrating the informal sector under the Kazan Connect vault brand. This has provided significant operational and risk benefits for our Kazang informal merchant base. We are also pleased with the progress made in integrating Lasaka's ATM business into Cash Connect and the beginning, the rollout of our new ATMs and recyclers as part of a holistic cash management solution. This is in pilot phase. What we envisage here is an ATM product that is a cash vault with cash dispensing capability. This integration will also increase traffic across Lusaka's ATM infrastructure. In our card acquiring business, we saw excellent growth during the quarter with more than 5,000 new merchants being added. We extended our offering into the informal space last year under Kazan Pay, and the pace of growth continues to exceed expectations. This is a profitable revenue stream as we leverage our existing infrastructure to grow this offering, a clear competitive advantage in this space. Growth was supported by broadening our product set for merchants, enhancing functionality, and corporate partnerships. Card-enabled point-of-sale devices is up more than 100% from a year ago with approximately 27,700 card devices deployed at the end of Q1 2023. The card-acquiring opportunity in the informal market is nascent, and a large portion of this market is still to be captured. In our VAS and bill payments business, We added approximately 6,300 merchants in the quarter, ending Q1 2023 with approximately 57,000 devices in the field. This was driven by organic customer acquisition and also supported by corporate partnership initiatives. The EasyPay money market pilot is proceeding according to plan, and we are very pleased at the swift pace in which this initiative has been implemented. All basic vending functionality, including ticketing, has been completed and has been installed at numerous pilot sites. The ARPU in these pilot sites are materially larger than in the informal sector. Rolling out more easy pay money market offers an exciting growth opportunity and is a significant synergy of the Connect acquisition. This slide is an example of the partnership initiatives that continue to support growth by positively impacting customer acquisition, and operational efficiencies, as well as improving value for our merchants. This image is twofold, highlighting that a merchant can take card payments from his customers at this tavern via Kazang Pay, and the merchant can also sell a bouquet of VAZ products to consumers off the same device for cash or card tender. Off the same platform, the merchant is able to settle South African breweries AB and BEV for stock purchases directly from his e-wallet, as opposed to making cash payments for stock. In conclusion then, we are incredibly pleased with what has been delivered in the merchant business. The Connect business has continued to grow in line with expectations and in sync with historical achievements, and the team has executed on new growth initiatives in a short timeframe. This is certainly the early stage of what is potentially a large growth opportunity. I would now like to hand over to Lincoln, CEO of Southern Africa, to discuss the consumer business.