Lesaka Technologies, Inc.

Hello everyone, and welcome to the Lasaka Technologies webcast and conference call for the third 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 dial and the numbers provided. Management will address any questions you may have at the end of this presentation. For those joining us via the webcast, You can ask your question 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 irlasaketat.com. Additionally, Lasaka filed its Form 10-Q after the U.S. market closed yesterday, which is 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. Also, as a domestic filer in the United States, we report results in U.S. dollars under U.S. GAAP. However, it is important to note that our operational currency is the South African Rand, and as such, we analyze our performance in the 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 in our business. As you know, the company's results can be significantly affected by the currency fluctuation between the dollar and the Rand. Taking a quick look at today's agenda, Ali Mazumdarami, the chairman of LASAKA, will give an update of the key developments and progress on strategic objectives. Steve Halbron, head of the Merchant Division in Corporate Development, will provide an update on the Merchant Division, followed by Lincoln Mollies, CEO of LASAKA Southern Africa, who will take us through the Consumer Division's performance this quarter. My name is Colo, Group CFO. We present a detailed overview of our financial performance for the three months ended March 31st, 2024, and update you on the Q4 and full year guidance. With all that said, I'd now like to turn the call over to Ali.

Good morning and good afternoon, and welcome to the third quarter 2024 earnings webcast and conference call. Today, we report another quarter of growth and improvement in financial performance. Lusaka is not recognizable from two years ago when we announced the closing of the Connect acquisition and introduced our consumer turnaround plans. Our nine-month year-to-date revenue of R7.8 billion is up 14% year-on-year in constant currency terms, and our EBITDA of R501 million is up 69% in constant currency terms. In the last quarter, we've achieved revenue of 2.6 billion rand and EBITDA of 183 million rand. We have reduced our net debt to group adjusted EBITDA to 2.6 times this quarter from 4.2 times in Q3 2023. And we now have two successive quarters of positive fundamental earnings per share. We have consistently delivered on the expectations set and indeed exceeded our EBITDA guidance for the period and revised upwards that guidance for the full financial year. With the signing and announcement of the Edumo transaction yesterday, which remains subject to shareholder vote and regulatory approvals, we anticipate continuing to consolidate the market and cement our position as the leading independent fintech platform in Southern Africa. Our primary market is currently South Africa, with its 62 million population and $381 billion economy. But with Edumo, we augment our presence in Namibia, Botswana, and Zambia, and expand into Kenya. Together, this represents 140 million population addressable market, larger than that of Mexico or Japan. Post completion, Lissaka will be a company with over 3,300 employees across these five countries. We'll be processing more than 40 billion rand in card, 100 billion rand in VAS, and 110 billion rand in cash throughput. We will have over 1.7 million active consumers, 89,000 micro merchants or informal traders, as they have previously been referred to, and 29,000 traditional merchants, along with 100 enterprise clients. We have developed a rich and broad product suite that provides us with a distinctive competitive advantage in serving each of these customer segments. Indeed, it is through the lens of building out of the customer value proposition that we will be representing the business going forward. We see the business as having four broad customer types, consumers, micro-merchants, merchants, and enterprise clients. The business leadership will be organized around those verticals, and it is through the lens of the unit economics of those customers that we will guide our capital allocation decisions. Each vertical operates different brands with their own value proposition, although there is overlap and mutually reinforcing dynamics. We are unique in the market in addressing this range of customers, and that position will allow us to take advantage of economies of scale and deliver not just best-in-class product, but also value through the flywheel of our platform and interconnected product offering. The economic environment in Southern Africa remains a challenge, and we do not anticipate any major change in the economic outlook. However, Lusaka is not an index on the economy, and we are not bound by national economic growth forecasts. We are an index on disruption. Inefficiency is our competitor, and inefficiency is rife in our markets. With most service providers targeting narrow segments with monoline products, we have underserviced merchants and consumers, poor in legacy provision to corporates, and expensive and unreliable transaction processing in the country. Through innovation, we will continue to pioneer and deliver growth in both revenue and profitability. It is exciting times for LASAKA. I'll now hand over to Steve, who will talk to the merchant segment. Thank you, Ali.

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 risks 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 risks. We ended the third quarter with over 80,250 devices deployed in the micro merchant market, representing a 12% year-on-year growth rate. Core to our device placement strategy is the decision to focus on quality business by retaining high volume and profitable clients and optimizing our existing fleet, which is reflected in a healthy throughput and margin per device. At a throughput level, excluding international money transfers, we experienced a 36% year-on-year growth rate. We saw pleasing growth in our traditional VAERS products of electricity, airtime, and gaming, and strong growth driven by our continued momentum in the uptake of our supplier payments platform by micro merchants. As we continue to populate our supplier platform, we should see these volumes continue to outperform. Whilst a lower margin product, it's a key value add to our merchants and their suppliers as it significantly reduces their cash risks. Further, it drives our Kazang Vaults cash business as merchants use their cash to top up their wallets to pay their suppliers. We are now processing over 2 billion per quarter on our supplier payment platform. Supplier payment throughput volumes increased approximately 100% in the third quarter compared to a year ago and now accounts for approximately 35% of our various throughput volumes compared to approximately 25% a year ago. As mentioned last quarter, we've 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. This is a very low margin product for us, limiting the impact on profitability. Our card acquiring business is operated through Kazang Pay in the micro merchant market and through Card Connect in the merchant market. Our installed card enabled devices increased by 20% year on year to over 50,200, primarily driven by Kazang Pay and demonstrates the continued adoption of card payments in the informal economy. Kazang Pay accounts for the majority of card acquiring throughput, which grew 22% year-on-year to $3.9 billion for the quarter, implying an improved average revenue per device as our cleanup of the installed base, addressed in the last two results, takes effect. These growth rates are excellent and should be seen in the context of the economic challenges that our merchants and their customers are facing. Our digital cash management offerings, Cash Connect and Kazang Vaults, effectively puts the bank in approximately 4,455 merchant stores. This cash digitization business saw a 3% year-on-year increase in throughput, with the number of cash vaults increasing by 2%. This business is primarily exposed to the mid-market SME sector, which has experienced challenges over the past 24 months. Our research shows that power outages have been the single biggest challenge for the retail sector. Significant numbers of retailers see high price inflation, a slowdown in consumer spending and Rand dollar volatility as major challenges for their businesses. This impacts the merchants we serve in this sector, resulting in increased bankruptcy and hence vault upliftments, which affected the net growth in the vault estate. Our Kazang Vaults business servicing micro-merchants continues to see good growth in throughput, and we anticipate this momentum to continue. We believe we can make a real difference in our micro-merchants operations as we build Kazang merchant communities, enhance risk management, and facilitate immediate cash availability for working capital. Our cash business remains a vital product in our merchant offering and is a key differentiator for us in the digitization of cash. Whilst there is a trend towards digital payments, cash remains as the most significant portion of retail transactions, especially in the informal markets. Having a holistic offering through which we can deepen our customer relationship is key to our strategy. Over the past two years, our credit business has been impacted by higher interest rates and a challenging economic environment. There is demand for our credit product from our merchants, and our credit proposition is an important component in enabling our merchants who we serve to compete and grow. Quick access to affordable and flexible opportunity capital is vital in every stage of a retailer's life cycle, enabling them to never miss an opportunity. Many merchants find that traditional lenders are reluctant to approve loans for business growth and that the underwriting process takes so long that the opportunity is often gone by the time a retail loan is approved. As a FinTech lender, we are addressing this gap by offering fast access to capital. Our connected app and leading data-driven FinTech platform enables our retail merchants to access capital and expect funds in their bank accounts within 24 hours. The tough economic environment has resulted in many more of our merchants not meeting our predetermined credit criteria during this period. While this has led to marginal growth since 2022, it has protected us from credit losses with our book performing better than expected. We are cautiously optimistic that we may see a resumption in credit growth later this year. This is supported by the fact that the Capital Connect business dispersed 219 million during this quarter compared to 194 million in the comparable period last year, representing a 13% increase. In both these offerings, cash and capital, we are innovating at a product level with exciting solutions planned and aimed at solving for our merchants pain points. Our EasyPay enterprise market solution, which offers VAERS, switching and bill payments through our retail partners experienced pressure over 2022 and 2023. We see this platform to be strategically important and continue to enhance our technology and management structures. With over 600 billers on the platform embedded into all major retail systems, EasyPay has an extensive footprint that would be very difficult to replicate. The performance of this business has improved and is contributing to our merchant segment adjusted EBITDA. We saw a 6% year on year improvement in throughput overall and throughput from bill payments, the more profitable component of our enterprise offering, increasing 13% year on year. In this slide, we show the progression of the Merchant Division revenue for the past two years. We delivered an 8% year-on-year revenue growth, which is impacted by the mix of airtime product sold in the quarter, which Naeem will explain in more detail, and the change in product mix with international money transfers reducing due to a change in the regulatory environment. On pinless airtime and data bundles, where we act in an agent capacity, only the commission earned is reported as revenue. Whereas for pin-based airtime, where we act as a principal, we recognize the total face value as revenue. At a gross profit level, we saw double digit growth year on year from airtime product sold. As mentioned previously, international money transfers is a very low margin product for us, limiting the impact on profitability. Also note that quarter two is our strongest quarter due to seasonality. It includes the December holiday period where trading activity is higher than in other months. Merchant-adjusted EBITDA increased 7% year-on-year to R159 million. The year-on-year growth is impacted by the prior year base effect. The prior year Q3 2023 included R6 million of EBITDA, which related to hardware sales in our newest business, compared to R1 million this quarter. This business is dependent on client capex cycles. In addition, FY23Q3 included $6 million of EBITDA related to Kazang Pay Advance, our credit offering to micro-merchants, which remains under development with our aim to relaunch in fiscal 25. Excluding the impact of NUITs and Kazang Pay Advance, year-on-year merchant-adjusted EBITDA growth is 16%. We are pleased with the continued momentum in our merchant division, delivering growth in revenue and profitability. The Kazang brand is increasingly recognized and respected across the Southern African economy and was awarded the most disruptive FinTech in shaping the informal economy at the APSA Commercial Payment Summit in April 2024. Last quarter, I spoke about our Touchsides acquisition from Heineken, which closed on the 30th of April, 2024. Touchsides is a leading data insights business with a dominant presence in the licensed tavern vertical. This is an important merchant segment targeted for growth and is highly complimentary to Kazak. To date, the integration plan and work between Touchsides and our merchant division has been extremely encouraging. Earlier this week, we announced the ADUMA acquisition, which is subject to shareholder and regulatory approval. This will significantly bolster our merchant offering. This acquisition deepens our market penetration and broadens our product offering in the merchant division. We are very excited by the opportunity that lies ahead of us as we leverage our fintech platform to innovate and disrupt in the pursuit of serving our targeted customer segments. The acquisition of TouchSides and the announced definitive agreement to acquire Adumo are significant milestones for Lusaka as we build the leading fintech platform in Southern Africa. The augmentation of these product offerings allows for material cross-sell opportunities and further efficiencies in our payments ecosystem. I would now like to hand over to Lincoln, CEO of Southern Africa, to discuss the performance of the consumer division.