Lesaka Technologies, Inc.

Hello everyone and welcome to the Lissaka Technologies webcast and conference call for the second quarter of fiscal 2024. 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 questions live by raising your hand in Zoom. For those joining via the Zoom teleconference line, you cannot ask your question live. The webcast link, Zoom conference call dial-in numbers, as well as the press release and supplementary investor presentation are available on the investor relations website at ir.lasakatech.com. Additionally, LASAKA filed its Form 10-Q after the U.S. market closed yesterday, which is also available on the LASAKA Investor Relations website. As a reminder, 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. Also, as a domestic filer in the United States, LISACA reports results in U.S. dollars under U.S. GAAP. However, it is important to note that the operational currency is the 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 assists investors' understanding of the underlying trends of our business. As you know, the company results can be significantly affected by the currency fluctuations between the U.S. dollar and the South African Rand. Taking a look at today's agenda, Chris Meyer, Group CEO of LASAKA, will start with an overview of performance highlights for the second quarter of fiscal 2024 and review of LASAKA's progress against its key strategic objectives. Steve Halbron, CEO Connect Group and head of Merchant Division, will provide an update on the Merchant Division, followed by Lincoln Mollie, CEO of Lusaka Southern Africa, who will take us through the Consumer Division's performance this quarter. Naeem Kola, Group CFO, will present a detailed overview of our financial performance for the three months ended December 31st, 2023, and update you on the Q3 and full year guidance. Chris will then provide some closing remarks, after which Lissaka's incoming executive chairman, Ali Mazenderandi, will introduce himself and outline his thoughts on Lissaka's mission and strategy. Thereafter, we will open the floor for any questions you may have. I'd now like to turn the call over to Chris.

Good morning, good afternoon, and welcome to our second quarter 2024 earnings webcast and conference call. Today we are pleased to present another quarter of continued growth and improvement in financial performance. The second quarter is characterized by higher volumes in our merchant and consumer divisions over the festive season, which has buoyed performance. Full marks to the whole team who have all worked so hard over this period to make sure our customer needs were met and as a result have delivered an excellent set of results. The economic environment in South Africa remains a challenge for our merchant and consumer customers. Encouragingly, inflation has come back into Saab's target range, but interest rates are still at 14-year highs. We will hopefully see a reduction in rates during 2024, which will alleviate some pressure on consumers. Load shedding, or power cuts, which disrupt our merchants' trading, improved marginally during the past two quarters, However, we cannot as yet count on this being a long-term improvement in power supply. Overall, we do not anticipate any major change in the economic outlook for South Africa, but are optimistic that our business model will remain resilient and that we will continue to deliver on both growth and profitability. Naeem will talk to the numbers in more detail, but I would like to note one or two highlights in our group performance. As noted, Q2 is typically our biggest quarter of the year due to the festive season, and we were very pleased to see a number of volume records achieved in the month of December and for the quarter as a whole. In particular, Kazang VAS delivered over 3 billion rand in VAS throughput for the first time ever in the month of December, contributing to a VAS throughput record of 8 billion rand for the quarter. Kazang paid card monthly throughput volumes, exceeded 1 billion Rand for the first time in December, achieving 1.2 billion Rand for the month and exceeding 3 billion Rand for the quarter for the first time. The fundamental transformation of the consumer division into a customer-oriented and sales-focused business is really starting to pay off, and we are seeing record number of account activations, loan disbursements, and insurance policy sales since the turnaround of this business began. We have made great strides towards our vision to build the leading FinTech platform, providing cash and digital solutions to small merchants and consumers in Southern Africa. M&A will play a role in achieving this vision, and we continue to evaluate opportunities that will enhance our market positioning. This includes bolt-on acquisitions that will provide scale to our existing offering, as well as those that will help us broaden our product offering to our clients. Our M&A focus is primarily in our merchant business. During the quarter, we made an interesting and exciting acquisition in the Kazang business, TouchSides. which Steve will talk to shortly and which will broaden our offering to merchants. From a balance sheet perspective, leverage ratios improved as we focus on reducing debt and growing group adjusted EBITDA. I am pleased to report that we continue to see improvement in our net debt to EBITDA ratio, which reduced to 2.7 times at quarter end, compared to 3.6 times a year ago and 3.1 times at the end of quarter one, 2024. We have exited our shareholding in Finbon during the quarter through a specific repurchase program and received a net cash flow of 64 million Rand in December, 2023, which was used to pay down debt. So turning to our revenue and group adjusted EBITDA for the quarter, we grew revenue at 13% year on year from 2.4 billion Rand to 2.7 billion Rand, which is at the midpoint of our guidance range. On a quarterly basis, revenue increased 6%, partly due to seasonality. Group-adjusted EBITDA came in slightly ahead of our guidance at R181 million for the quarter and strongly up compared to R130 million in Q2 2023. That's a year-on-year increase of 38%. And on a quarterly basis, group-adjusted EBITDA was up 11%. In our first quarter, we achieved an important milestone in delivering a profit at an operating income level for the first time in five years. In quarter two, operating income has continued to grow, delivering 43 million Rand for the quarter. This quarter saw another important milestone being achieved. Net income before tax, but excluding the non-operational and non-cash PPA charge, turned positive for the first time since we initiated our restructure, coming in at 29 million Rand, which we are extremely proud of. And this is further evidence that our strategy is paying off and that we are quickly moving towards our goals as we deliver continued improvement in our quarterly results. Overall, in the context of the operating environments in South Africa, I am very pleased with our Q2 results and the momentum we are taking into Q3. These are exciting times for Lusaka, with our customers continuing to demonstrate the value they see in our products and services, which underpins the resilience of our business model. And with that, I would like to hand over to Steve to take you through the performance of our Merchant Division.

Thank you, Chris. Quarter two is a very busy period for us and our merchants. This is driven by the increased spending during the festive season, which benefits our card acquiring, our supplier payments, and cash digitalization businesses in particular. Our portfolio covers products and services, increasing consumer convenience and purchases in our merchant stores, as well as physical and fintech solutions to assist our merchants reduce cash risk and improve working capital and business efficiencies. This comprehensive solution helps us understand our merchants' businesses and cash flows better, which in turn helps us drive an improved value proposition solving for our merchants' pain points as they grow and compete. This is the source of our competitive advantage. Our merchants use our Kazang devices to sell a range of value-added services to their customers, including data, airtime, gaming, and electricity. They can also use these devices for our supplier payments platform allowing them to make electronic payments to approximately 700 active suppliers, greatly reducing both their and their suppliers' cash risk. We ended the second quarter with over 79,000 devices deployed in the informal markets, representing a 23% year-on-year and a 3% quarter-on-quarter growth rate. As mentioned last quarter, we have seen a significant change in product mix, with international money transfers reducing due to a change in the regulatory environment which affected the industry and can be clearly seen in this graph. Fortunately, this is a lower margin product for us, limiting the impact on profitability. Excluding IMTs, we saw a 51% growth in throughput year-on-year and 16% quarter-on-quarter. Our supplier payments platform continued its excellent growth on the back of partnerships with major FMCG suppliers, which we discussed at our last quarterly results briefing. We continue to bring new suppliers onto our platform. Our card acquiring business is operated through our Kazang Pay business in the informal markets and through Card Connect in the formal market. Our installed card-enabled devices increased to over 48,100, representing a 40% year-on-year growth and 3% quarter-on-quarter growth, now of a significantly higher base. This growth is primarily driven by Kazang Pay and demonstrates the continued adoption of card payments in the informal economy. From a throughput perspective, we saw a 31% increase year on year. Quarter two is seasonally our best quarter and we saw throughput grow 15% compared to quarter one of 2024. We are pleased with these numbers considering the economic challenges our merchants and their customers are facing. Our cash vaults or cash digitalization business is primarily exposed to the formal SME market, which has been impacted by load shedding, interest rates and consumer pressures more so than the informal market. Year on year, we saw a 1% increase in throughput on our vaults, with the number of cash vaults increasing by 4% to over 4,450 On a quarterly basis, we saw better growth in Q2 with throughput up 8%, primarily due to seasonality. We had a more than 30% year-on-year growth in Kazang Bolts. This is of a low base as we extend our offering into the informal market, where we believe we can make a real difference in our informal merchants' operations as we build Kazang merchant communities, enhance risk management, and facilitate immediate cash availability for working capital. Our credit business has been negatively impacted by high interest rates and the challenging economic environment. There is demand for this credit product from our merchants. However, the deteriorating performance and financial strength of many of our merchants means that they do not meet our credit criteria, resulting in fewer and smaller extensions. While strict application of our credit criteria has led to negative growth, it has protected and maintained the quality of our book through the cycle. We are cautiously optimistic that we may have reached the bottom of the cycle and we anticipate a more favorable operating and trading environment for our merchants, which may allow for a resumption in credit growth later in the year. In February, we announced the acquisition of TouchSides from Heineken, which we anticipate closing in March 2024. TouchSides is a leading data analytics and insights merchant service business and is highly complementary to Kazak. It has a client base of over 10,000 active points of sale terminals across South Africa's informal licensed taverns and processes more than 1.5 million transactions per day. The business provides platform-as-a-service and software-as-a-service solutions to licensed tavern outlets, enabling the measurement of sales activity in real-time, management of stock levels, and informed commercial decisions, such as pricing and promotional offers. The rich data and insights amassed from these terminals carry substantial value and can be monetized through relationships with a range of clients, including FMCG companies, retailers, wholesalers, route-to-market suppliers, and financiers. TouchSides is an exciting acquisition and aligns with our strategy of adding scale and broadening our service offering in our merchant division. Our EasyPay enterprise market solution, which offers VAZ, switching and bill payments in the formal merchant market through our retail partners, experienced pressure over 2022 and 2023. Despite this, we deem this platform to be strategically important and we are investing in the technology and have improved our management structures. With over 600 builders on the platform, which are embedded into all major retail systems, EasyPay has an extensive footprint that would be very difficult to replicate. The recent performance of this business is encouraging and it's becoming a meaningful contributor to our merchant group adjusted EBITDA as our interventions start paying off. We saw a 9% year-on-year improvement in throughput and 14% quarter-on-quarter. We strengthened our market position in formal market VAS distribution with throughput increasing more than 30% year-on-year driven mainly by electricity sales volumes. The merchant division revenue for the quarter was $2.4 billion, representing a 13% increase year-on-year and 6% quarter-on-quarter. This reflects the seasonality in our business in quarter 2. Considering the headwinds our merchants and their customers faced over this period, we are very pleased with this result. From a segment-adjusted perspective, we reported a 2% increase year-on-year with an 8% increase quarter-on-quarter. We mentioned in our Q2 results last year that the merchant group adjusted EBITDA included $22.1 million related to a bulk order not expected to repeat in our terminal hardware sales business, Newitz. Excluding the impact thereof, our merchant division year-on-year revenue growth is 17%, and adjusted EBITDA growth is 18%. In conclusion, we are very pleased with the top line growth and profitability achieved in Q2, especially considering the challenging environment we are operating in and the stronger comparative quarter last year. I would like to hand over to Lincoln to take you through the consumer division results and strategy.