Lesaka Technologies, Inc. Common Stock 2026 Q4 Earnings Call

Welcome to Lesaka Technologies results webcast for the fourth quarter and full year of fiscal 2026. As a reminder, this webcast is being recorded. Management will address any questions you have at the end of the presentation. To ask a question live, participants are requested to join the Chorus Call line by registering by the link provided. Alternatively, please enter your questions into the question tab of this webcast. Our press release and investor presentation are available on our investor relations website at ir.lesakatech.com. During this call, we will be making forward-looking statements. I ask you to look at the cautionary language contained in our press release, presentation, and Form 10-K, available on our website. As a domestic filer in the U.S., 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.

As such, we analyze our performance in South African rand, which is non-GAAP. This assists investors in understanding the underlying trends in our business. I will now turn the webcast over to Ali.

Good morning, good afternoon, and thank you for joining us for Lesaka's results for the fourth quarter and full year of fiscal 2026. FY 2026 was another excellent year for Lesaka, delivering on all our guidance measures, which we will come to shortly. Before reviewing the year, I want to briefly reflect on Lesaka's evolution. Lesaka was launched in May 2022 following the merger with the Connect Group. We had set out on a journey through organic and inorganic growth to build the leading independent fintech platform in Southern Africa. As I sit here today, I am extremely proud to reflect on what we have built: the platform, the people, and the performance. Challenges set and challenges met, fostering a culture of accomplishment and belief. A team whose depth, breadth, diversity, resilience, and ability are fitting representatives of the extraordinary country in which they live.

Yet until a few months ago, that team was spread across a disparate office network operating under multiple brands. The name Lesaka was barely heard or known by our most important stakeholders, our customers. While the financial milestones we will turn to later are significant achievements, one of the biggest reasons for celebration this year is in the coming together of One Lesaka. The coming together in our wonderful new Johannesburg office in July 2026, which will be followed in the coming couple of months with our new offices in Cape Town and Durban, creates the environment to foster the cross-pollination between teams that will be one of our core competitive advantages. We are Lesaka. We are a kraal. It is very difficult to be so when not together.

This change from where we work has been accompanied by the change in the brand unveiled in Q2 FY 2026, and a month ago, the public launch of that brand. Today, I am delighted to say that our customers now say our name, and I am delighted that they are embracing our brand as enthusiastically as our circa 4,000 employees. It is difficult to convey the palpable energy and enthusiasm that has come with the brand launch, the street parades, the music, the crystallization of an identity. This is a new commitment we make. A commitment to show up where our customers are, whether they be mothers or pensioners, spaza shop owners or companies, whether they be in the city centers of the Highveld or the rural villages of the interior, the mountains of the Drakensberg, or by the beaches and valleys of the Cape. Where you are, we are.

A pledge to be present with empathy, with commitment, to serve with dignity, with humility, and with authenticity. Those are the silent, subtle tones now ringing loudly across our country with a voice that is gathering momentum every week, proclaiming, "Lesaka: where you are." To where we are as of June 2026. For the year, net revenue grew 20% to ZAR 6.33 billion. Group adjusted EBITDA grew 41% to ZAR 1.27 billion, and adjusted earnings per share grew 210% to ZAR 6.51. It is a performance that reflects delivery on our promises. On the right are the guidance measures we gave for FY 2026 across net revenue, group adjusted EBITDA, adjusted EPS, and positive GAAP net income. I am pleased to say we delivered across all four measures, including turning GAAP net income positive for the full year for the first time since 2022.

In addition, our net debt to group adjusted EBITDA fell to 1.9 times, below the 2 times we had set as our goal. Underneath the group numbers, our three divisions had different years, reflecting their different stages of evolution, and I want to spend a few minutes on the revenue drivers of each. Merchant had a challenging year as various businesses were brought together. It grew net revenue by 3% to ZAR 3.1 billion, and core net revenue, which strips out hardware sales and residual products, by 6% to ZAR 2.8 billion. Significantly, no single one of the five products that constitute the core of the business dominates contribution. Over the course of FY 2026, acquiring grew by 21% to ZAR 777 million, and software grew by 34% to ZAR 391 million, while ADP, cash, and lending each declined by single-digit percentages.

At the primary level of revenue drivers, we grew our average active merchant base by 12% to 132,000, while our weighted average ARPU declined by 5%. Across our three largest products, we saw volume growth. Acquiring TPV grew 27% to ZAR 44 billion, ADP TPV grew 31% to ZAR 55 billion, and cash TPV grew 4% to ZAR 119 billion. Merchants are transacting more with us, but on individual products, there has been a decline in take rate. ADP take rates declined 25%, mainly due to the reset in commissions for airtime set by the mobile networks over the year. We also experienced a mix effect, where our fastest-growing volumes are in lower margin supplier payments. A combination of mix effect and competitive pressure also led to the cash and acquiring take rate decline.

In lending, where we feel we have a great opportunity, we under-indexed on our expectations during the year with a 3% decline in core net revenue. The demand from our merchants is there, and they are overwhelmingly underserved, but we are still evolving the offering, which will allow us to scale the product with the appropriate capability, risk appetite, and controls. Consumer has had an outstanding year. Net revenue grew by 38% to ZAR 2.4 billion, with all three products growing well. Transactional accounts grew by 24% to ZAR 855 million on strong customer acquisition. Lending grew 49% and insurance grew 42%, both driven by cross-selling into our account base. Our blended transactional fees rose by just 3%, so growth came primarily from customer acquisition, not pricing. In a largely flat market with many competitors, we grew our customer base by 19%, more than any competitor.

This demonstrates a best-in-class proposition built to serve customers with technology and humanity where they are. Enterprise had a strong year as well, growing net revenue to ZAR 913 million, with core net revenue growing 45%. Pleasingly, the growth was across both volumes and take rates for both the two main products, ADP and utilities. A year ago, we told you FY 2025 was a year of build for Enterprise, and that it would become a meaningful contributor in FY 2026. It has done exactly that. We now have three meaningful divisions on which to build our future, combining into a unique South African fintech platform. Dan will now take you through the broader financial performance, focusing on the quarter.

Thank you, Ali. Good morning and good afternoon to everyone joining us today. Ali has described the platform we have built and the performance drivers of each division. I will explain what that progress means financially before taking you through the fourth quarter's results. FY 2026 was a year of financial inflection for Lesaka. We delivered group adjusted EBITDA within our latest guidance, exceeded the top end of our adjusted earnings per share range, and achieved positive full-year GAAP profitability of approximately ZAR 40 million. We are clearly seeing the improvement in our financial performance translate into stronger cash generation, with net cash from operating activities at ZAR 864 million for the year. After capital expenditure of ZAR 421 million, this leaves ZAR 443 million of positive cash generation. This is a significant improvement over the prior year and reflects the growing cash-generating capacity of our business.

Our balance sheet has also strengthened. As a reminder, our medium-term leverage target has been two times or lower. We closed the year at 1.9 times, compared with 2.9 times a year ago, and reduced gross debt by approximately ZAR 200 million. We have achieved this ahead of the Bank Zero acquisition. Pleasingly, we have seen a significant reduction in our non-operational and once-off charges. As shown on the slide, non-operational charges reduced from approximately ZAR 1.7 billion to ZAR 35 million. During the course of FY 2026, we made good progress in exiting our remaining non-core investments and businesses, the overall financial impact of which was quite limited compared to the previous year. In addition, once-off charges reduced from ZAR 322 million to ZAR 91 million. Taken together, these milestones reflect improved cash generation and quality of earnings as we continue to scale our platform.

A significant amount of the noise and complexity has been eliminated in our numbers going forward. Turning to the fourth quarter's performance, net revenue increased 8% to ZAR 1.62 billion, with group adjusted EBITDA increasing 22% to ZAR 367 million, demonstrating increased operating leverage. Our adjusted earnings, which we regard as a key measure of our underlying performance, increased to ZAR 199 million. On a per share basis, adjusting earnings increased from ZAR 0.90 to ZAR 2.40. Our leverage ratio closed at 1.9 times. Our consumer division delivered another strong quarter, with net revenue increasing 31% to ZAR 669 million. This reflects growth in our active customer base and the continued success of our cross-sell initiatives. Enterprise net revenue increased 34% to ZAR 255 million, reflecting the contribution from Recharger and growth across ADP and Utilities.

We are pleased to see the division making a growing contribution as its platforms scale. Merchant net revenue declined 10% to ZAR 729 million. As Ali outlined, the division faces pressure on revenue compression despite growth in transaction volumes. It is a key area of focus for us. Lincoln will take you through the operational drivers. At a group level, adjusted EBITDA of ZAR 367 million was an all-time quarterly high for Lesaka, representing growth of 22%. Our margin increased to nearly 23%, compared with 20% a year ago. Consumer segment adjusted EBITDA increased 56% to ZAR 253 million, while Enterprise delivered ZAR 54 million, an increase of 255%. These are positive contributions and reflect the growing scale of both divisions. Merchant segment adjusted EBITDA declined 33% to ZAR 122 million. This reflects the soft operational performance and the ongoing integration and rationalization of the division.