Lesaka Technologies, Inc. Q1 FY2025 earnings call

Management Statement and Operational Highlights

• Integration Focus: FY 2025 operational focus is on integrating the Adumo acquisition to enhance product offering and unit economics.
• Product Offerings: Consumer segment provides loans, insurance, and transactional accounts. Merchant segment offers card acceptance, cash management, credit software, VAS services, etc.
• Innovation: Launched new front-end platform for consumer business, working on an enhanced learning product, and a new loan product for consumers. Also, focusing on bundling products and improving unit economics in both segments.
• Distribution: Consumer segment has a national network of 220 branches, 450 ATMs, etc. Merchant segment has over 122,000 merchants and processes significant throughput across various services.

Segment Performance

• Consumer Segment: Revenue increased 30% year on year to 378 million rand. Serves over 1.5 million EPE customers, with 1.3 million being permanent grant beneficiaries. Segment adjusted EBITDA expected to be between 325 million and 345 million rand for FY 2025, contributing approximately one-third of segmented adjusted EBITDA in FY 2025. Key KPIs include 14% growth in EPE customer base, 34% growth in gross lending book, and 30% increase in active insurance policies.
• Merchant Segment: Revenue was flat year on year, but net revenue grew 9% year on year. Serves over 122,000 merchants, processes over 270 billion annually. Adjusted EBITDA for the quarter was 142 million rand, with guidance of 23% growth for FY 2025 at the midpoint (725-745 million rand segment adjusted EBITDA), contributing approximately two-thirds of segmented adjusted EBITDA in FY 2025. Key KPIs include 9% net revenue growth, 38% increase in throughput, and 60% growth in supplier payments throughput.

Guidance

• FY 2025: Reaffirms net revenue guidance of 5.2-5.6 billion rand (35% year-on-year growth midpoint) and group adjusted EBITDA guidance of 900 million-1 billion rand (37% year-on-year growth midpoint).
• Q2 2025: Revenue expected to be between 2.4-2.6 billion rand, net revenue between 1.2-1.4 billion rand, group adjusted EBITDA between 190-210 million rand, inclusive of Adumo from October 1, 2024.

Risks

• Currency Fluctuations: Results significantly affected by fluctuations between US dollar and South African rand.
• Competition: Increased competition in the merchant space, particularly in VAS products.
• Economic Headwinds: Impact on credit business due to economic conditions affecting merchant credit scores.

Question and Answer

• Q: Unpack the huge pool of profits in payment space with banks and disruption timeline in SA A: Ali Mazanderani mentioned existing profit pool in merchant acquiring and ancillary services (~$1B annual contribution from SA banks), expects digitization to drive growth, similar to global trends where non-banks capture 1/3-1/2 market over time.
• Q: Merchant business organic growth rate A: Ali and Steven Heilbron stated midpoint guidance for merchant division FY 2025 is 23% growth, achieved midpoint of guidance for Q1, and emphasized focus on bundling products and unit economics.
• Q: Consumer segment new products pipeline A: Lincoln Mali mentioned ongoing research led to considering loan product increase to 4,000 rand over 9 months, and leveraging Adumo payout business to expand into new consumer bases beyond grant beneficiaries.
• Q: Enterprise business examples A: Naeem Kola noted enterprise division provides VAS and co-payment services, tokenization solutions for telcos, municipalities, etc., aiming to shift from cost center to profit center.
• Q: Group costs, once-off items, working capital outflow A: Dan Smith explained group costs include new hires, Sarbanes-Oxley compliance, etc., once-off items include Adumo transaction costs and smaller M&A costs, working capital outflow due to timing of staff bonuses and payables settlement.
• Q: M&A strategy A: Ali Mazanderani said M&A is lever for growth, focused on accretive deals, principal market SA with neighboring geographies, flexible funding options including debt, shares, shareholder capital.