Lesaka Technologies, Inc.

Hello everyone and welcome to the Lissaka Technologies webcast and conference call for the first quarter of fiscal 2025. 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 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.lissakatech.com. Additionally, Lesaka filed its Form 10-Q after the US market closed yesterday, which is also available on our 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, we report results in U.S. dollars under U.S. GARP. However, it is important to note that our operational currency is 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-GARP. This assists investors understanding the underlying trends in our business. As you know, the company's results can be significantly affected by the currency fluctuations between the US dollar and the South African rand. Taking a look at today's agenda, Ali Mazandarani, Chairman of Lesaka, will give an overview of the quarter. Steve Heilbronn, Head of Corporate Development, will provide an update on the Merchant Division, followed by Lincoln Marley, CEO of Lesaka Southern Africa, who will take us through the Consumer Division's performance. Dan Smith, Group CFO, will present an overview of our financial performance for the three months ended September 30, 2024, and provide an update on guidance. Thereafter, we will open the call for Q&A. I'd like to now turn the call over to Ali.

Good morning and good afternoon. FY 2025 is another transformative year for Lusaka. And I'm pleased that in the first quarter, we have delivered on our representations by meeting the midpoint of our guidance at both the revenue and EBITDA level. We achieved revenue of 2.6 billion rand and EBITDA of 168 million rand and excluding transaction costs for Modumo operating income of 30 million rand compared to 4 million in Q1 2024 and fundamental earnings of 43 million rand from a loss of 5 million rand in Q1 2024. We signposted last quarter that we would introduce in this quarter a new measure to help augment gross revenue as a representation of top-line growth. In this respect, we are disclosing for the first time net revenue, which we believe will achieve the objective better than gross profit. Net revenue is defined as gross revenue, less the cost of prepaid airtime sold by us and commissions paid to third parties selling our VAS products. Our net revenue for Q1 2025 was 1 billion and 56 million rand, representing organic growth of 16% from Q1 2024. This indicates an average EBITDA to net revenue margin across the group of approximately 16% in Q1 2025. We see considerable opportunity to increase that margin over time as we further scale the platform, increase our competitive moat, and evolve the multi-product offering. we are building a multi-product platform that is organized around the customer. As a reminder, we have two segments of customers, consumers and businesses. And within the business segment, we now further differentiate between micro merchants, merchants and enterprises. In FY 2025, we expect the consumer segment to contribute approximately one third of segmented adjusted EBITDA and the business segment, approximately two thirds. Today we serve 1.7 million consumers and 122,000 merchants. And while there is an enormous opportunity for us to grow the base of customers materially in both, given the total addressable market in the markets we operate in, there is also an enormous opportunity to increase the value we provide to our customers by delivering an integrated multi-product offering. Today, we don't just provide consumers with transactional accounts. We also offer loans and insurance, as an example. We don't just provide merchants with card acceptance. We also offer cash management, credit, software, and VAS services. The more integrated our product offering is to our customers, the more successful we will be. And the consequence of successfully executing on a multi-product strategy organized around the customer will be to provide a truly differentiated service that disrupts an already scale and profitable market, enabling us to compete on value rather than price. It will allow us to transform unit economics and return on capital by reducing the cost of customer acquisition, increasing the take rate we generate, and reducing customer churn. Within the Lissaka stable, we already had a range of products that addressed a number of customer needs. With the completion of the ADUMO acquisition, that suite of products has substantially increased. Thus, in FY 2025, our operational focus is on integration. It is about ensuring we have the right foundation to deliver on our potential. It is about ensuring we are providing a standout value proposition with best-in-class economics rather than rapidly scaling the base, although that time is coming. We are truly fortunate that in a year when we are focused on integration, product offering, and unit economics, we can still provide guidance for FY 2025 net revenue and EBITDA growth that is more than 30% year on year, as Dan will talk to in our guidance section. We are in the enviable position of being able to grow profitably while investing for our future. And the future is bright. Africa represents the fastest growing fintech opportunity in the world, and we are also wonderfully positioned to benefit from secular tailwinds and structural advantages. We are positioning the business to benefit from the continued digitization of the economies in which we operate. Cash is still a pervasive medium of exchange in Africa with a higher utilization than anywhere else in the world. Our bet is that it will decrease, and that this will increase the need for merchant solutions which traditional banks are poorly equipped to address. The combination of banks being generally product-centric organizations who have built their technology on legacy architecture, where they will cannibalize existing profit pools by disrupting the market, and where they rely on generic rather than specialized distribution channels, poorly positions them to solve the needs of merchants in a digitizing world. This is the global experience. In 2011, 97% of the 50 largest merchant acquirers in the world were banks. By 2022, this number reduced to 43%. These are themes which we have seen happen time and time again in market after market, whether in the developed markets like the US, the UK, or the European Economic Area, or in emerging markets like Mexico, Brazil, or Egypt. The story is the same. Seismic shifts have occurred in the industry globally, and we do not believe Southern Africa will be a unique outlier. While there is some uncertainty on the velocity of travel, the trajectory is clear. The markets we operate in will digitize. They are forecast to digitize faster than other parts of the world, and traditional bank incumbents will capture an increasing share of that market. In South Africa, where there are already scaled and very profitable players, there is the opportunity to not just grow the market by providing augmentative products, but there is also the opportunity to disrupt an existing profit pool. As the leading independent FinTech in Southern Africa with the broadest product offering, our destiny should be to be at the vanguard of this transformation. Over to you, Steve.

Thank you, Ali. Firstly, I'd like to again formally welcome Paul Kent and the Adumo and GARP teams to Lusaka. The transaction closed on October 1, 2024. Adumo will form part of the group for the second quarter and will be reflected in our Q2 results presented in February next year. We have already held numerous sales and product workshops and leadership interactions, including having Paul join our group Exco. We are encouraged by these initial engagements and look forward to further developing our formal market merchant offering. I'd like to support what Ali has spoken to in a merchant context. We operate in a large and growing market within which we believe global FinTech trends will play out in Southern Africa. We have invested significantly over the past two and a half years into building our platform comprising a unique, comprehensive offering across the merchant spectrum. We continue to invest, innovate, and evolve to position ourselves to optimize on the opportunities ahead of us. We operate in an estimated SAM of almost 900,000 merchants who experience daily pain points and inefficiencies in running their businesses. This includes limited access to digital payments, poor cash management solutions, limited access to capital and the lack of availability to an holistic offering. Our comprehensive merchant solutions solve for these pain points and we are making a real difference in the lives of our merchants. Critical to our strategy is the broad offering we have for our merchants. We have competitors on an individual product basis, but our comprehensive solution is proving to be both durable and an effective differentiator. With the closing of the Adumo transaction, Lusaka now has a leading position in both the micro merchant sector in the informal market and in the small to medium merchant sector in the formal market. This is complemented by a growing presence in the enterprise market. We now serve over 122,000 merchants processing in excess of 270 billion annually across Southern Africa. Success in FinTech is predicated on capturing scale at compelling growth rates. Through continuous innovation and investment in our ecosystem, we believe our platform is well positioned to take advantage of the secular FinTech trends. As a FinTech company, this comprehensive approach is unique and disruptive. From cash vaults and immediate digitalization, quick access to capital for growth opportunities, a comprehensive VAAS product suite to attract customers to merchant stores, supplier payments, and industry-leading payment technologies, we offer innovative solutions that make a meaningful difference to our merchants' daily trading, risk management, and business administration. We will entrench and extend our position in the informal and formal micro and small to medium merchant markets by continuing to embed ourselves as their partner. Turning to our KPIs, this quarter we have split the throughput on our Kazang devices into traditional VAS, supplier payments and international money transfers, given that supplier payments have become a major contributor to our throughput and we expect continued growth. We offer a wide range of VAZ products through our Kazang devices. These are aimed at attracting customers into our merchant stores. These products include airtime, data, electricity, gaming, lotto, money transfers, and bill payments. Our devices in field increase 16% year on year. This includes the touch side space of approximately 5,400 devices that we have not yet converted onto the Kazang platform. This presents an immediate opportunity. We have successfully converted approximately 1,500 touch-side sites to Kazang devices in Q1. In addition to rolling out our traditional VAS offering, the more significant opportunity in the touch side sites is in card acquiring and data monetization. Our total throughput increased 38% year on year, driven largely by our supplier payments and international money transfer offerings, each growing throughput by over 1 billion year on year. Our supplier payments throughput increased 60% to 3.2 billion for the quarter. We have over 1,000 suppliers on our platform, allowing our micro merchants to significantly reduce time-consuming administration and the inherent risks of dealing in large amounts of cash in their environment. Although attracting a lower margin than traditional VAS sales, this forms a key part of our strategy to attract merchants and increase their utilization of a broader spectrum of our product set, driving growth and increased flows in quarters to come. Investment into growing our supplier payments ecosystem and vaulting infrastructure is integral to the strategy and facilitates the pull through from cash to card. VAS throughput, excluding supplier payments and international money transfers, increased 10% year-on-year to 5.4 billion rand. We have seen increased competition in this space, as expected, given that South Africa's merchant market remains under-penetrated with a meaningful addressable opportunity. Banks and other fintechs have been more active in the market. However, we remain agile and responsive to these changes, protecting our base and continuing to grow. Card-enabled devices grew 15% year-on-year to over 53,450 devices. Having switched on a large portion of our back book of Kazang devices for card acceptance during FY23 and 24, this is now a factor of new-to-platform merchants as opposed to backfilling the existing VAS base. throughput grew 18 to 4.2 billion for the quarter and is reflective of the opportunity going forward we are also continuing our focus on higher rpus per device with many poorer performing sites being uplifted and deployed into higher turnover more profitable merchants We do see a significant opportunity in the tavern space as we bring the TouchSides sites onto our Kazang Pay service and further penetrate this vertical. As mentioned earlier, we are seeing good results in switching TouchSides taverns onto our platform. For our card business, the introduction of the Adumo business brings exciting opportunities with the scale and solution sets that this brings to our platform. Our cash offering is an important part of the ecosystem that we are building in both the formal and informal markets. Our vaulting solution brings significant efficiency gains to informal merchants as they don't have to travel to banks to deposit cash. They can go to the closest merchant in the community with a Kazang vault and drop their cash. This is immediately available in their wallets for working capital, supplier payments or VAS purchases. We believe we make a real difference in our micro merchants operations as we build Kazang merchant communities, enhance risk management and facilitate immediate cash availability. Cash vaults in the field grew 2% year on year, driven by stronger growth in the Kazang vaults in the informal market, offset by muted growth and upliftments due to bankruptcies in the formal small to medium merchant market, which continues to experience challenging conditions. Throughput increased 4% year-on-year, driven by Kazang Vaults in the informal market, which saw cash settlements doubling and now contributes approximately 10% of our cash settlements compared to 5% a year ago. Our credit business is primarily exposed to the formal small to medium merchant sector. As our merchants faced economic headwinds, their credit scores have suffered, leading to many not meeting our credit criteria in respect of relands. This has resulted in lower advances and book size. However, this has maintained the quality of the book. With the commencement of a down cycle in interest rates and a more positive economic outlook, we have seen an increase in lending activity. Disbursements in Q1 were R166 million, with our loan book at R273 million. This represents an 8% increase in disbursements over the previous quarter. As a reminder, last year we suspended Kazang Pay Advance, which focused on micro-merchants. We are currently in the pilot phase of a relaunch, which we will hopefully be in a position to start commercial rollout in the second half of the year. With new lending products in the formal and informal markets, and the cross-sell opportunities into the acquired merchant base that Abdoomo and GARP present, supported by an improving interest rate environment, we anticipate an enhanced lending performance in FY 2025. Our enterprise market solution is strategically important to us and completes our merchant offering. Our nascent enterprise business brings an opportunity to leverage larger corporate customer relationships across our broader consumer and merchant ecosystems. We continue to invest in and enhance our technology and believe this will be an important contributor in future years. The new operating model with enterprise as a distinct pillar will increase our focus and improve performance of this business. We have a network of over 620 integrated billers and are one of the largest in the country, enabling enterprise clients to offer value-added services to their customers. We have seen a strengthening in our position in the formal VAERS distribution market with healthy growth in throughput led by prepaid electricity purchases increasing by 36% year-on-year and bill payments up 18%. Our PRISM solution is one of only a few providers of proprietary security technologies and opens a revenue opportunity with finance, retail, telecom and utility clients. This presents a meaningful growth opportunity which we are looking to further invest in over the coming quarters. Turning to the financials, our revenue for the quarter was flat year-on-year. As Ali mentioned, the sales mix between pin and pinless airtime impacts our gross revenue growth rate. This change in mix is now captured in our net revenue metric. On a net revenue basis, we delivered a 9% year-on-year growth. At the adjusted EBITDA level, after normalising for newets, we recorded a 1% increase to R142 million for the quarter. We have not presented normalised figures for two additional line items which are meaningful but intermittent. These include the bulk VAS opportunities which impact our results from time to time. In addition, this year we changed allocations of South African support costs. Normalizing for these items would result in a 10% increase in adjusted EBITDA. Our Q1 2025 performance reflects a scenario in which we have further invested organically and inorganically in the construction of our platform. This has resulted in increased expenditure this quarter compared to a year ago. In addition to this, when comparing the two relevant quarters, the sales mix in this quarter is skewed towards lower margin products, contributing to a result that is not reflective of our forward-looking merchant division performance. As mentioned at the outset, we see a significant opportunity in the segments we serve, supported by the secular trends of digitalization and the resultant market share shift from banks to non-bank providers. The merchant division has evolved and reflects a very different construct today than when compared to our point of departure. We are excited to continue on this trajectory. In MicroMerchant, we are entering our busiest quarter with South Africa's festive season upon us. In the Merchant Pillar, we have commenced the ADUMO and GARP integrations and are encouraged by engagements amongst our management and sales teams to date. As mentioned, there are new initiatives in the pipeline in our Enterprise Pillar. In closing, we are providing a view of the merchant division outlook for FY 2025. We expect segment-adjusted EBITDA between R725 million and R745 million, which at the midpoint represents a 23% growth for the year. As Ali addressed in his introduction, we are building the leading fintech platform in Southern Africa with a broad solution set and significant scale opportunities in a market which is ripe for innovation and disruption. Thank you. Lincoln will take you through the consumer results and outlook. Thank you, Steve.