Lesaka Technologies, Inc. Q1 FY2027 earnings call

• Consumer Growth & Strategy: Active consumers grew 11% to 2.1 million, with market share rising to 15.6%. Lending originations surged 39% to R1.14 billion, driven by new longer-term products (e.g., R5,000 over nine months) and USSD channels. Insurance premiums grew 46%, though collection ratios are moderating toward 90% as the book broadens.
• Merchant Turnaround: The segment is undergoing a strategic reset. Community transactions are growing strongly (cash volumes +58%), creating a flywheel effect for acquiring. Corporate lending originations rose 67% to R272 million, focusing on repeat customers. Costs are being reshaped via restructuring, with benefits expected from Q3 onwards.
• Enterprise Expansion: ADP volumes grew 15%, supported by new partners including major banks and insurers. Prepaid solutions were consolidated into Enterprise for better procurement leverage. Digital voucher distribution expanded through fintech and banking partners.
• Bank Zero Progress: Regulatory approvals are in the final stage. Management expects completion by end of January 2027. This will allow migration of lending books to deposit funding, significantly reducing net debt and interest costs.
• Operational & Organizational Changes: Office consolidations and brand rollouts are underway, contributing to higher group costs. New board members (Carolina Lacerda, James Oates) and executive appointments (Karen Wood, Atang Matabisi) strengthen risk, compliance, and consumer operations. Graduate program applications reached nearly 5,000 for 20 spots.

The company reports financial results in South African Rand (ZAR). Note: The transcript uses 'Lusaka' and 'LASAKA'; the following summary reflects the operational entities described.

1. Consumer:

   • Net Revenue: R668 million (+24% YoY).
   • Segment Adjusted EBITDA: R206 million (+38% YoY), with a margin of 31% (up from 28%).
   • Revenue Contribution: ~42% of Group Net Revenue.

2. Enterprise:

   • Net Revenue: R263 million (+19% YoY).
   • Segment Adjusted EBITDA: R29 million (+28% YoY), with a margin of 10.9%.
   • Revenue Contribution: ~17% of Group Net Revenue.

3. Merchant:

   • Net Revenue: R675 million (-7% YoY). Excluding exited ATM/data services (~R45m), revenue was flat YoY.
   • Segment Adjusted EBITDA: R77 million (down from R158 million YoY). Run-rate EBITDA is estimated at ~R120 million excluding exceptional restructuring costs.
   • Revenue Contribution: ~43% of Group Net Revenue.

• Q2 FY2027 Guidance:
  • Net Revenue: R1.62 billion – R1.72 billion.
  • Group Adjusted EBITDA: R280 million – R320 million.
  • Adjusted EPS: R1.00 – R1.40.
• Full Year FY2027 Guidance (Reiterated):
  • Net Revenue: R7.0 billion – R7.7 billion.
  • Group Adjusted EBITDA: R1.45 billion – R1.6 billion.
  • Adjusted EPS: R7.50 – R8.50.
• Outlook Notes: Management expects sequential improvement from Q1 lows, particularly in Merchant EBITDA (>R130m in Q2). Full-year guidance includes the impact of Bank Zero. Higher group costs due to risk/control investments and integration activities are expected to be front-loaded but decrease as a percentage of earnings in H2.

• Lending Credit Risk: Merchant lending book has tightened provisioning to ~19% coverage, with only 85% classified as performing. Consumer lending quality remains sound, but the introduction of longer-term loans carries slightly elevated risk, addressed by pricing adjustments.
• Funding & Liquidity: Net debt increased to R2.73 billion, pushing leverage to 2.2x. Leverage is expected to rise temporarily to ~3.0x in Q2 due to festive season lending peaks. Cash conversion remains under pressure until H2.
• Regulatory & Execution Risk: Bank Zero approval timeline uncertainty could delay funding model improvements. Operational risks include cyber resilience challenges as AI sophistication increases.
• Competitive Pressure: Intense competition in corporate merchant acquiring and wallet interoperability issues in community segments impacting ARPU and fee structures.

Q: Ross Krige asked about the trajectory of Merchant net revenue growth and EBITDA margins in H2, the drivers behind increased arrears/provisions in Merchant lending, and the rationale for raising consumer simple interest rates from 12% to 15%.

A: Ali Mazanderani stated that Merchant EBITDA is expected to exceed R130 million in Q2 and reach record highs in Q4, implying robust net revenue growth (>20%) in H2. Margins should revert above 20%. Dan Smith explained that Merchant provisioning tightened to ~19% because 15% of the book is non-performing or underperforming, reflecting a mature, runoff-heavy book requiring stricter models. Lincoln Mali clarified that the rate hike applies specifically to the new R5,000/9-month loan product to price in modestly higher risk, while the blended effective cost for customers may remain lower due to larger loan sizes.

Q: Ross Krige followed up on the competitive dynamics in Merchant, asking how Lusaka incentivizes wholesalers who currently use competitors to switch to Lusaka’s network.

A: Ali Mazanderani explained that Lusaka is an insurgent player in this specific wholesale segment, meaning it does not cannibalize existing high-margin corporate acquiring revenue. Therefore, Lusaka can offer more profitable incentives to wholesalers than established competitors, allowing them to gain market share by attracting supplier payments onto the Lusaka network, which then drives merchants into acquiring.

Q: Analysts asked about the accounting treatment causing a large gap between gross and net revenue in Enterprise, the status of Bank Zero regulatory approvals, and current provision coverage ratios for Consumer and Merchant books.

A: Dan Smith clarified that Enterprise now integrates directly with Mobile Network Operators (MNOs), recognizing airtime as principal revenue with corresponding costs, increasing gross/net disparity but not affecting overall margin. Ali Mazanderani noted Bank Zero approvals are in the final stage, with a base case completion by Jan 2027. Dan Smith confirmed Consumer coverage is stable at 5.5% (revised down from 6.5% based on experience) and Merchant coverage is ~19.3%, with 99% of Consumer and 85% of Merchant books performing.