Hello, everyone, and welcome to the Lesaka Technologies Fiscal Third Quarter 2023 Webcast and Conference Call. As a reminder, the webcast is being recorded and the presentation can be accessed through the webcast link as well as dialling 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 webcast, you can ask your questions by using the "raising your hand" button in zoom, and for those joining via the zoom conference line, you cannot ask your questions live today. 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.lesakatech.com. Additionally, Lesaka filed its Form 10-Q after the U.S. market close yesterday, Tuesday May 9, 2023, 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. GAAP. 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-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 fluctuations between the U.S. dollar and the South African rand. Taking a quick look at today's agenda: Chris Meyer, Group CEO of Lesaka, will start with performance highlights of the third quarter of fiscal year 2023 and a review of Lesaka's progress against its key strategic objectives; Steve Heilbron, CEO Connect and Head of Merchant Division, will provide an update on the Merchant Division, which has produced a stellar set of results; Lincoln Mali, CEO of Lesaka Southern Africa, will provide an update on the Consumer Division, which has passed another key milestone this quarter; and then Naeem Kola, Group CFO, will present an overview of our financial performance for the three months ended March 31, 2023; Chris will then conclude the results presentation with a discussion on the outlook for Lesaka, before the team opens up for Q&A, where we welcome any questions you may have. With that, Chris, the call is yours.

Good morning, good afternoon, and welcome to our third quarter earnings webcast and conference call. I am pleased to report that Q3 represents another excellent quarter. We are excited by the Merchant Division's outperformance, driven by the Connect Group, and another quarter of continued improvement and profitability in the Consumer Division where we have delivered on our turnaround strategy and are moving strongly on to the front foot. Our mission at Lesaka is to enable small merchants to compete and grow, and to improve the lives of South Africa's grant beneficiaries by providing access to innovative financial technology and value creating solutions. We will achieve this through our vision to build and operate the leading full-service fintech platform in Southern Africa, offering cash management, payment processing, value added services, capital and financial services to small merchants and underserved consumers. We have a comprehensive product and service offering, tailored for the markets in which we operate. Lesaka's strategy is supported by the secular trends which support fintech disruption. South Africa's economy is dominated by cash, especially in the informal MSME market and the consumer space, where our operations are focused, with up to 90% of transactions still being cash based. Globally, digitalization is advancing at a rapid pace and South Africa is also experiencing this secular shift. The market opportunity to extend digitalization to the informal economy is exponential as it is both under serviced and untapped, and Lesaka is uniquely positioned with our comprehensive product offering and deep national footprint with over 80,000 points of presence across the consumer and merchant divisions. With our portfolio of cash and digital solutions serving both merchants and consumers we believe Lesaka is well positioned for significant growth. In the Merchant Division, or B2B sector, we offer innovative solutions to both informal and formal…

Thanks, Chris. As Chris touched on in his opening remarks, South Africa's evolution from a cash-based to a digital payments economy is at a relatively early stage and there is a significant growth opportunity as digitalization gains momentum. This creates space for disruption, which Lesaka is well placed to achieve. In our Merchant Division, we offer innovative solutions focusing on formal and informal merchants and we continue to build a leading position in a growing and underserved market. We often get asked how large we think this opportunity is. The following high-level data points provide guidance in answer to this question. Like many developing economies, some 60% of total transactions in South Africa are cash based. Less than 8% of merchants have access to formal credit and less than 4% of informal merchants can accept digital payments. South Africa's future prosperity lies with small businesses. Our focus is to resolve the pain points that both formal merchants, and primarily informal merchants experience, by using financial technology as an enabler. Experts agree that cash will remain a key component in the choice of payment in the South African economy, particularly in the informal sector, and that is why it is important to have a holistic offering that spans across both cash and digital. Many players in this market are either focused on cash or digital, not both. In summary, the market opportunity attendant to the digitalization of South Africa's informal economy is significant and untapped. Made up of merchants and consumers underserved by incumbents and with limited access to traditional financial services, this sector is large; with an estimated GDP of well above ZAR300 billion. Within the informal sector, 90% of transactions are cash based and only 10% of informal sector flows are digital payments. We are excited about our holistic…

Thank you, Steve. Our quarter two 2023 results reported in February 2023 marked a watershed moment for Lesaka with the successful transformation of the Consumer Division into a positive segment adjusted EBITDA contributor. This was through the efforts of our staff and leadership team's focus to deliver on our commitments. Today, I am so proud to present a further improvement in segment adjusted EBITDA for Q3 to ZAR30 million. This represents a 192% improvement from the last quarter and a ZAR167m positive turnaround from last year. I am hugely encouraged by the continued solid positive trend in segment adjusted EBITDA performance and pleased that January, February, and March were all strongly positive. Our Consumer Division is starting to normalise. It's starting to be a positive contributor to the Lesaka Group and importantly there is an increasing consistency and predictability in the numbers being reported. Our improved performance has been driven largely by our three-pronged strategy, namely: one, the rightsizing of the business; two, increasing ARPU through cross-selling; and three, growth in active EPE accounts, particularly in the permanent grant recipient space. I would like to address each of these levers. Firstly, on right sizing, we identified opportunities that would result in cost savings of approximately ZAR350 million per annum for financial year '23. I'm pleased to say that we have completed about 90% of the work that will allow us to deliver on these savings. There are however some optimization initiatives where we have experienced delays especially in the restructuring of the branch network through exiting some leases and the repositioning of our branch ATM estate. These rightsizing initiatives have been very difficult and delicate as we have had to sensitively balance the needs of our customers with the long-term sustainability of our business, yet we remain proud of the…

Thank you, Lincoln. I am very pleased with the strong financial performance achieved in this quarter across group revenue, group adjusted EBITDA and the group debt restructure. Merchant Division outperformed guidance, and the Consumer Division continued an EBITDA positive trajectory. As a reminder, Lesaka is a domestic filer in the United States. We report results in U.S. dollars, under U.S. GAAP. However, our operational reporting currency is South African rand, which is a non-GAAP measure. This assists investors' understanding of the underlying trends in our business. As you know, our results can be significantly affected by the currency fluctuations between the U.S. dollar and the South African rand. Q3 2023 includes pre-existing Lesaka and Connect Group for the full quarter, as was the case for Q2 2023, however compared to Q3 2022, this quarter only includes the pre-existing Lesaka business and thus, the Q3 2023 vs. Q3 2022 comparison is not a meaningful, especially within our Merchant Division. We will provide sequential quarter comparisons, which we believe is a more accurate representation of growth and profitability. I will note that for next quarter, the fourth quarter of fiscal 2023, year-over-year comparability of results will be more meaningful, as the 2022 fourth quarter included Connect for most of that quarter. This slide illustrates the significant positive turnaround of revenue, group adjusted EBITDA, and operating loss before PPA. Over the last four quarters, we have seen a ZAR250 million improvement in our quarterly group adjusted EBITDA, turning the business around from a group adjusted EBITDA loss of ZAR113 million in Q3 2022, to a group adjusted EBITDA profit of ZAR137 million this quarter. We are very pleased by this achievement. Operating income/loss before the acquired assets amortization, the purple block on the graph, has moved from a loss of ZAR147 million in…

Before I turn to our full year outlook, I'd like to provide a brief update on our progress towards establishing an Employee Share Ownership Plan, or ESOP. You will recall, that as part of the Competition Commission's approval of the Connect Group acquisition, we committed to establishing an ESOP of up to 5% of issued share capital within two years of the Connect transaction closing. The ESOP will be a qualifying transaction under South Africa's Broad Based Black Economic Empowerment Act, and is a key strategic imperative for Lesaka, as a company. I am pleased to report that we are progressing well on this initiative, and are confident that we will achieve this condition of the Connect acquisition within the timeframes agreed. So, turning to our Q4 and full year outlook for the Lesaka group to June 30, 2023. Our guidance for revenue and adjusted EBITDA at a group level remains unchanged for the 12 months ending June 30, 2023. We expect revenue to come in between ZAR8.7 billion and ZAR9.3 billion and group adjusted EBITDA of between ZAR480 million and ZAR525 million. More specifically, with three fiscal quarters under our belt and visibility into our fourth fiscal quarter, we believe our group adjusted EBITDA will likely be at the midpoint of this range. At a divisional level, we are raising our FY '23 Merchant segment adjusted EBITDA range to between ZAR580 million and ZAR595 million, from our previous guidance of between ZAR550 million and ZAR565 million, as a result of the continued outperformance of the Connect Group. We are lowering our Consumer segment adjusted EBITDA range to between ZAR65 million and ZAR80 million, primarily due to the lower-than-expected EPE account and loan growth in the last two quarters. In line with market practice, we will provide our guidance for FY '24 in September, when we report our results for the year-ended June 30, 2023. Suffice to say that we believe our monthly net loss before tax will turn positive in the first quarter of FY 2024, excluding PPA amortization and the impact of any changes in our non-core investments. This would mark another important milestone in the growth trajectory of Lesaka. And in conclusion, the results for the fiscal year to date are evidence of the turnaround in our Consumer Division and continued growth in our Merchant Division and are testament to the strategy we put in place just over a year ago. We will continue building on the momentum created across the business, delivering on our unique position to drive growth. And with that, we'd like to open up the Q&A session and take your questions.

Thanks, Chris. We're now going to open up the Q&A session. From Zoom, there are two ways you can participate. The first is to use the Raise Your Hand icon, which is at the bottom of your screen. Clicking this will alert the operator that you want to be called on to ask a live question, and so you'll be placed to the queue and called on. Just note, you're going to be on mute until you are called on. The second way to participate in Q&A is to use the Q&A widget, which will allow you to type in and text the question in. And so, we will take questions from there as well. But just note, if we run into a time constraint, someone from the IR team will get back to you if your question is not asked on today's call. So let's open the session and build the queue. So, while we wait for our first live question, I'm going to read a question that was submitted by Theo O'Neill from Litchfield Hills Research -- excuse me, from [David Garrity] (ph). Looking at Q4 and backing out the first three quarters of the year from your annual guidance, David backs into a revenue range of ZAR1.83 billion to ZAR2.43 billion, an EBITDA of ZAR140.6 million to ZAR185.6 million. He wants to know, given the midpoint of those ranges, how do you think about the dynamics of revenue going down and EBIDA going up. Can you explain that?

Okay. Thanks for the question. Naeem, do you want to pick that up or would you like me to?

Yes, Chris, I'll touch on that and then hand over to you as well. So, I think, well, as we highlighted in the Consumer performance, the major reason for the miss in the guidance was related to cost saving benefits coming through. We envisage that some of those cost initiatives that we have undertaken will come through in the fourth quarter. So that is the uplift that comes through in our Consumer business. In terms of revenue, our revenue uplift for the Q4 would be towards the upper end of the guidance limit, which you have indicated in your calculation. So yes, we are expecting our overall EBITDA margins to improve as those cost saving benefits on which we've already actioned on would come through in the fourth quarter, mainly on the ATM business as well as on the branch network costs that will be reduced. Do you want to add anything on that Chris?

No, that's right. I think as you said, the -- our outlook for revenue would be at the top end of that range, EBITDA in the middle.

Great. Thanks, Chris. Next, we're going to take a live question from James Starke of Morgan Stanley. Operator, please unmute James' line.

Hi, good afternoon, guys. Can you hear me?

Yes, we can James.

Yes. Hi, Chris, Lincoln and team, thank you very much for the opportunity. Two questions from me. Firstly, I mean if you could just tell us a bit more about your money market offering and what sort of revenue expectations you're expecting for that? And just give us some color on how it's going to roll out, what you're kind of thinking it will serve and how you're going to take that to market? The second question really relates to PayShap. I mean, obviously, you are quite involved in the informal market. So I know PayShap is relatively new innovation out of the bigger banks. But I mean, are you seeing or detecting any kind of impact anecdotal or otherwise around the progress this is having on de-cashing the informal sector? Thank you.

Thanks, James. I think so there are two questions. The question around the money market offering in our Merchant business and then PayShap. Steve, do you want to pick up the question on our money market offering? And if you wish to comment on PayShap, I'll also come in at the end, but I'll pass it on to you.

Perfect. So just at the outset, let me say that the money market product was launched in Q3. It's very much at its nascent phases. But if I can say, historically, we never -- we didn't participate in the formal market in the money market space. So while our entire VAS and cash digitization offering was more focused on the informal market, we are very excited about our ability to bring that VAS offering more holistically together with an ecosystem of supplier payment into the formal market. And so far, prospects look good, and we've had some very good traction. So, we have a fairly significant formal merchant base, well over 1,000 fuel courts, et cetera. And this product -- this offering is testing well in the formal space. Chris, with regard to PayShap, do you want to deal with that or would you want some comments from me?

Well, if you've got any comments go for it, I'll pick up if there's anything else still needs to be added.

[Technical Difficulty] table and innovate in relation to what this new technology brings. So we see it as both a challenge to some revenues that we have, but we also see a real opportunity from a product development perspective. At this particular point, as you know, this is only available to the banks in the country and has not been available to the fintech community.

Just to check, I believe Steve, the first part of your question was lost. Apologies, there was a technical glitch, they say. So Steve, if you wouldn't mind just repeating the answer on your comments on PayShap. Apologies.

Sorry, Chris, on PayShap or in relation to money market product?

PayShap. Your money market question was heard, was fine. It's just the PayShap comments, unfortunately, we lost the first half of what you were saying?

Okay. So I think the first point I was making is that it's very early days from an RPP perspective and PayShap. We're still -- the early adoption rates haven't been publicized as yet. But we at Lesaka are quite excited about getting a seat at the table and our ability to participate. I did make a point that at this particular stage, fintechs don't actually have a seat at the table. The ability to participate at this point has been limited to the banking community. This is something that we would like to see change very quickly. And we see opportunities to reduce our cost base. We see opportunities to create new revenue streams. And, of course, we also anticipate that some of our revenue streams may come under pressure, but this will be offset by abilities to reduce cost and create new revenue lines. And this is a piece of technology that we are quite excited about and will look to use both on the revenue and cost side in our business.

Thanks, Steve. James, I think that's the important thing at the moment. There are really four banks -- only four of the banks are involved in PayShap as I'm sure you're aware. We are in very close and regular conversation with Bankserv. And as the leading fintech in South Africa, we are tremendously excited about the introduction of PayShap and our potential involvement in it as soon as it opens up a little wider, we stand ready for that.

Thanks, Chris. Our next question coming in is from Raj Sharma, B. Riley & Company.

Hello? I just wanted to ask you about could you tie in...

Hi, Raj.

Hi. Could you tie in your operating profit before the prepaid time to the U.S., the GAAP loss reported, how should we think about this going forward?

Thanks, Raj. Naeem, did you get that? So it was just tying the operating profit number to the net loss number.

Before the PPA.

Thank you. Hi, Raj, hope you're doing well. So, Raj, I think the operating profit number tied in, as we presented on the slide, after we've adjusted for PPA and interest, we get to a rand amount in the quarter of about ZAR114 million. And then if you adjust for the net loss or gain on equity investments of ZAR5.9 million, get to the income or loss before taxes of the ZAR120 million, which ties -- which is the rand amount that ties back into the dollar amount of 6.7 million loss.

Got it. And then could you talk about the prepaid airtime the -- that how it impacted the revenue? Because it seems like the revenue that came in was a little bit lower than expected. Was that because of the airtime sales? And how do you classify them? And how do you think about them going forward?

Yes. So, Chris, do you want me to take that one?

Yes, sorry, go for it, Naeem.

Yes. So, Raj, as I mentioned in the presentation, with the airtime, you have the PIN-based airtime and the PIN-less airtime. So the difference with the two is that the voucher-based airtime, we actually carry that as inventory and per accounting rules and standards, where we then have to show the face value of that as revenue. The PIN-less airtime because we only act as an agent on behalf of the providers, that is not considered as we don't have to carry that as inventory and therefore, we only show it in commission. So if you look at how the market is changing, the PIN-less airtime is what customers prefer because it's more efficient and it's easier than getting a voucher and losing a voucher. So what we are seeing is a much more higher volume of PIN-less airtime, so we only bring in the commission amount versus bringing in the face value. From a GP basis and from a margin basis, we are in a very similar GP and margin on both the product, which is really the product mix that impacted revenue. And that's why we said this was more a forecasting change in the mix of PIN-less and PIN-based rather than revenue declining.

Got it. Thank you for that. And then I have one more follow-up...

The way to think about it is the voucher-based airtime, we're recognizing on a gross basis, where we are principal and where we are clearly acting as an agent, we're recognizing it on a net basis. That's the difference between gross and net. The bottom line in terms of margin, gross profit is unchanged.

Got it. Thank you. Can I ask you another follow-on question. Could you talk about the -- how severe the impact is of load-shedding on your merchants in South Africa?

Raj, I think on the whole, the impact on load-shedding -- of load-shedding on our Merchant business has not had a material impact. Load-shedding is a localized phenomenon. In other words, parts of the country experienced load-shedding in concentrated areas while the rest of the country remains open and on. And so with our diverse customer base across the country, that impact is therefore localized and not a national impact all at once. It also means load-shedding is done in stages through the day. It means that our merchants often have the opportunity to catch up and make up some of the volume loss through the course of the day. I would add though that -- and so we haven't seen a material impact of load-shedding to date, albeit we've seen some within our cash business, as Steve mentioned earlier. What I would add is -- my comments are, I suppose, mainly in relation to what we've seen over the last quarter, which is probably an average of around load-shedding Level 5, Level 5 and below Level 4 even. And what that means is you've probably been experiencing something like 6 hours to 7.5 hours of load-shedding in a 24-hour cycle. More recently in the last month, let's say, load-shedding is averaging higher than that. It's probably averaging closer to what we call Level 8, which means it could be up to even 12 hours of load-shedding in a 24-hour period. And there might be different challenges that come through with things like connectivity in terms of the cell towers for the telcos and sometimes battery life as well. So that -- if load-shedding materially worsens from what we saw in this quarter, there may be different factors that play that may impact. But I think on the whole, what we're very happy with is that in a tough rather operating environment, where our merchants and our consumers are enduring a lot of inconvenience through load-shedding, our business has proven to be resilient. And you've seen this growth, you've seen this performance, despite the factor that we face and our customers face in the South African economy.

Yes, thank you. Just one last question is on the Connect acquisition, it continues to perform really strongly. And also, could you mention -- could you talk about the competition in the merchant space? How is it that you continue to grow with such resilience and strength?

Steve, I'm going to offer that to you, if you'd like to start?

Yes. So again, we have tremendous respect for the competitors that play in the merchant space. We are well diversified between the formal and the informal market, which makes us a little bit different to the majority of the competitors together with the fact that we have a fairly comprehensive offering in that we play in digital and cash, and we also play in card and card acquiring, we play in the value-added services, airtime, electricity, prepayment business. We're also in the credit space and in the digitization of cash, which means we play right across the spectrum, many of our competitors play in one or two of these particular areas. Let me also say that the informal market is relatively nascent and the fact that this competition is healthy and good. But this is a big market that's untapped and there's plenty of opportunity for growth for a variety of different players. And in the formal market, the Lesaka and Connect brand has developed a real strength. And as we've mentioned before, Capital Connect won Retail Funder of the Year. In past days, we're starting to get traction in that business. We are very soon -- as we touched on earlier, we're launching our VAS or prepaid business through the money market into the formal markets. And because we're so deeply embedded in the formal market, merchant segment business, the ability to scale is a competitive advantage that we have.

Great, thank you. I'll get offline. Thank you for my question.

Thanks, Raj. Again, if you want to ask a live question on today's call, you can just use the Raise Your Hand button to express your interest. While we poll for additional questions, we're going to take a question from Sven Thordsen of Anchor Securities. Given the environment, as lending criteria and consumer been amended, what is happening with loan decline rates? Are you increasing provision coverage?

Thanks, Sven. I'll take the two questions. So on the whole, we apply quite strict lending and affordability criteria in our Consumer business and in our Merchant business. So, we don't believe we've had to adjust our criteria. As I said, we applied a very strict criteria across both businesses. In terms of loan loss provisions, we haven't seen any material change in terms of credit performance in our Consumer business. We've slightly increased our provision on our Merchant business, but nothing material there at all, just again, to just reflect the tighter interest rate environment in that space. But I think on the whole, we're comfortable with credit. We're comfortable with our approach to lending, and we feel that our book is performing well.

Great. Thank you. And we have one final question from Theo O'Neill of Litchfield Hills Research. In your prepared remarks, you said you were active in moving unprofitable ATMs into other areas. How do you evaluate whether to move an ATM or find a way to increase usage? Second question, is there a limit to the number of ATMs you can manage or acquire?

Thanks very much. I'm going to ask Lincoln, would you like to comment on that?

Yes. I think what we want to look at is volume. The number of customers that are patronizing that ATM from across the spectrum, the proximity of that ATM to be transport nodes that are there, and if we feel that, that ATM is performing below the thresholds that we put, we have discussions with the merchants that's there. And if there are ways to up the volumes, we would keep that ATM or if the merchant is not prepared to do that, would ask them to pay a rental for that. If the merchant is not willing to do so, then it's the call that will now reside in Steve's team for the ATM business to withdraw that ATM and put that ATM in an environment where there is higher growth, better transaction and better service to customers. So this has allowed us to look at every ATM and see whether that ATM is providing value, providing service and is giving us the right GP. So that analysis has been done across the country, and it's been done also in consolidation with the consumer team to make sure that it makes sense from a customer point of view, but it also makes sense from a business point of view.

Thanks, Lincoln. I think it's about a very commercial lens and understanding our customer behavior ultimately is driving our strategy around ATM. Thank you.

There are no further questions here. So that is going to conclude the call. Chris, do you have a closing statement or a final thought?

Thanks very much. Just on behalf of the team and everyone at Lesaka, just thank you to everybody for taking the time to be on the call with us today to dialing in and listening to our update. As we've said and I hope it's come across, we're tremendously proud of the results that we presented here today. We feel that this is a testament to both the turnaround in the Consumer business and the excellent growth that we've seen in our Merchant business. The Consumer business as we said is now consistently EBITDA profitable. The Merchant business is growing with the Connect exceeding our industrial expectations. And importantly, as we said, at a business operational level, we're producing a positive cash flow. So on the whole, we're very excited about where we are. And we look forward to, again, giving further update in September when we'll give you the full year to June numbers. And as part of that, we'd like to give you an outlook, as we said, around the full year to 2024, which for us, holds a lot of excitement, a lot of potential. So thank you very much for joining us today and wish you all well. Thank you.