Lesaka Technologies Inc

NASDAQ:LSAK

Earnings Call Analysis

Earnings Call Transcript 2024-Q2

[Operator]

Hello, everyone, and welcome to the Lesaka Technologies Webcast and Conference Call for the Second Quarter of Fiscal 2024. 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.

[Operator Instructions]

The webcast link, Zoom conference call dial-in numbers as well as the press release and supplementary investor presentation are available on the Investor Relations website at ir.lesakatech.com. Additionally, Lesaka filed its Form 10-Q after the U.S. market closed yesterday, which is also available on the Lesaka 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, Lesaka reports results in U.S. dollars under U.S. GAAP. However, it is important to note that the operational currency is the South African rand. And as such, we analyzed 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 of 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 look at today's agenda, Chris Meyer, Group CEO of Lesaka will start with an overview of performance highlights for the second quarter of fiscal 2024 and a review of Lesaka's progress against its key strategic objectives. Steven Heilbron, CEO Connect Group and Head of Merchant division, will provide an update on the Merchant division, followed by Lincoln Mali, CEO of Lesaka Southern Africa, who will take us through the Consumer division's performance this quarter. Naeem Kola, Group's CFO, will present a detailed overview of our financial performance for the 3 months ended December 31, 2023, and update you on the Q3 and full year guidance.

Chris will then provide some closing remarks, after which Lesaka's incoming Executive Chairman, Ali Mazanderani, will introduce himself and outline his thoughts on Lesaka's mission and strategy. Thereafter, we will open the floor for any questions you may have.

I'd now like to turn the call over to Chris.

[Chris Meyer, executive]

Good morning, good afternoon, and welcome to our second quarter 2024 earnings webcast and conference call. Today, we are pleased to present another quarter of continued growth and improvement in financial performance. The second quarter is characterized by higher volumes in our Merchant and Consumer divisions over the festive season, which is buoyed performance. Full marks to the whole team who have all worked so hard over this period to make sure our customer needs were met and as a result, have delivered an excellent set of results. .

The economic environments in South Africa remains a challenge for our merchants and consumer customers. Encouragingly, inflation has come back into SAB's target range, but interest rates are still at 14-year highs. We will hopefully see a reduction in rates during 2024, which will alleviate some pressure on consumers. Load shedding or power cuts which disrupt our merchants trading improved marginally during the past 2 quarters. However, we cannot as yet count on this being a long-term improvement in power supply. Overall, we do not anticipate any major change in the economic outlook for South Africa, but are optimistic that our business model will remain resilient and that we will continue to deliver on both growth and profitability.

Naeem will talk to the numbers in more detail, but I would like to note 1 or 2 highlights in our group performance. As noted, Q2 is typically our biggest quarter of the year due to the festive season and we were very pleased to see a number of volume records achieved in the month of December and for the quarter as a whole. In particular, Kazang VAS delivered over ZAR 3 billion in VAS throughput for the first time ever in the month of December, contributing to a VAS throughput record of ZAR 8 billion for the quarter. Kazang Pay Card monthly throughput volumes exceeded ZAR 1 billion for the first time in December, achieving ZAR 1.2 billion for the month and exceeding ZAR 3 billion for the quarter for the first time.

The fundamental transformation of the Consumer division into our customer-oriented and sales-focused business is really starting to pay off, and we are seeing record number of account activations, loan disbursements and insurance policy sales since the turnaround of this business began. We have made great strides towards our vision to build the leading fintech platform, providing cash and digital solutions to small merchants and consumers in Southern Africa.

M&A will play a role in achieving this vision and we continue to evaluate opportunities that will enhance our market positioning. This includes bolt-on acquisitions that will provide scale to our existing offering as well as those that will help us broaden our product offering to our clients. Our M&A focus is primarily in our merchant business.

During the quarter, we made an interesting and exciting acquisition in the Kazang business, Touchsides, which Steve will talk to shortly and which will broaden our offering to merchants. From a balance sheet perspective, leverage ratios improved as we focus on reducing debt and growing group adjusted EBITDA. I am pleased to report that we continue to see improvement in our net debt-to-EBITDA ratio, which reduced to 2.7x at quarter end, compared to 3.6x a year ago and 3.1x at the end of quarter 1, 2024. We have exited our shareholding in Finbond during the quarter through our specific repurchase program and received a net cash flow of ZAR 64 million in December 2023, which was used to pay down debt.

So turning to our revenue and group adjusted EBITDA for the quarter. We grew revenue at 13% year-on-year from ZAR 2.4 billion to ZAR 2.7 billion, which is at the midpoint of our guidance range. On a quarterly basis, revenue increased 6%, partly due to seasonality. Group adjusted EBITDA came in slightly ahead of our guidance at ZAR 181 million for the quarter and strongly up compared to ZAR 130 million in Q2 2023. That's a year-on-year increase of 38%. And on a quarterly basis, group adjusted EBITDA was up 11%. In our first quarter, we achieved an important milestone in delivering a profit at an operating income level for the first time in 5 years. In quarter 2, operating income has continued to grow, delivering ZAR 43 million for the quarter.

This quarter saw another important milestone being achieved. Net income before tax, but excluding the nonoperational and noncash PPA charge turned positive for the first time since we initiated our restructure. Coming in at ZAR 29 million, which we are extremely proud of. And this is further evidence that our strategy is paying off and that we are quickly moving towards our goals as we deliver continued improvement in our quarterly results. Overall, in the context of the operating environments in South Africa, I am very pleased with our quarter 2 results and momentum we are taking into Q3. These are exciting times for Lesaka with our customers continuing to demonstrate the value they see in our products and services, which underpins the resilience of our business model.

And with that, I would like to hand over to Steve to take you through the performance of our Merchant division.

[Steven Heilbron, executive]

Thank you, Chris. Quarter 2 is a very busy period for us and our merchants. This is driven by the increased spending during the festive season, which benefits our card acquiring, our supplier payments and cash digitalization businesses in particular. Our portfolio covers products and services, increasing consumer convenience and purchases in our merchant stores as well as physical and fintech solutions to assist our merchants reduced cash risk and improve working capital and business efficiencies.

This comprehensive solution helps us understand our merchants businesses and cash flows better which, in turn, helps us drive an improved value proposition solving for our merchants pain points as they grow and compete. This is the source of our competitive advantage. Our merchants use our Kazang devices to sell a range of value-added services to their customers, including data, airtime, gaming and electricity. They can also use these devices for our supplier payments platform, allowing them to make electronic payments to approximately 700 active suppliers, greatly reducing both their and their suppliers' cash risk. We ended the second quarter with over 79,000 devices deployed in the informal markets, representing a 23% year-on-year and a 3% quarter-on-quarter growth rate.

As mentioned last quarter, we have seen a significant change in product mix, with international money transfers reducing due to a change in the regulatory environment, which affected the industry and can be clearly seen in this graph. Fortunately, this is a lower-margin product for us limiting the impact on profitability. Excluding IMTs, we saw a 51% growth in throughput year-on-year and 16% quarter-on-quarter. Our supplier payments platform continued its excellent growth from the back of partnerships with major FMCG suppliers, which we discussed at our last quarterly results briefing. We continue to bring new suppliers onto our platform. Our card acquiring business is operated through our Kazang Pay business in the informal markets and through Card Connect in the formal market. Our installed card-enabled devices increased to over 48,100, representing a 40% year-on-year growth and 3% quarter-on-quarter growth, now of a significantly higher base.

This growth is primarily driven by Kazang Pay and demonstrates the continued adoption of card payments in the informal economy. From a throughput perspective, we saw a 31% increase year-on-year. Quarter 2 is seasonally our best quarter, and we saw throughput grow 15% compared to quarter 1 of 2024. We are pleased with these numbers considering the economic challenges our merchants and their customers are facing. Our cash vaults or cash digitalization business is primarily exposed to the former SME market, which has been impacted by load shedding, interest rates and consumer pressures more so than the informal market.

Year-on-year, we saw a 1% increase in throughput on our vaults with a number of cash vaults increasing by 4% to over 4,450. On a quarterly basis, we saw better growth in Q2 with throughput up 8%, primarily due to seasonality. We had a more than 30% year-on-year growth in Kazang Vaults. This is off a low base as we extend our offering into the informal market, where we believe we can make a real difference in our informal merchants operations as we build Kazang merchant communities, enhanced risk management and facilitate immediate cash availability for working capital. Our credit business has been negatively impacted by high interest rates and the challenging economic environment. There is demand for this credit product from our merchants. However, the deteriorating performance and financial strength of many of our merchants means that they do not meet our credit criteria, resulting in fewer and smaller extensions.

While strict application of our credit criteria has led to negative growth. It has protected and maintained the quality of our book through the cycle. We are cautiously optimistic that we may have reached the bottom of the cycle, and we anticipate a more favorable operating and trading environment for our merchants, which may allow for a resumption in credit growth later in the year.

In February, we announced the acquisition of Touchsides from Heineken, which we anticipate closing in March 2024. Touchsides is a leading data analytics and insights merchant service business and is highly complementary to Kazang. It has a client base of over 10,000 active points of sale terminals across South Africa's informal licensed taverns and processes more than 1.5 million transactions per day. The business provides Platform as a Service and Software as a Service solutions to licensed tavern outlets enabling the measurement of sales activity in real time, management of stock levels and informed commercial decisions such as pricing and promotional offers.

The rich data and insights in amassed from these terminals carry substantial value and can be monetized through relationships with a range of clients, including FMCG companies, retailers, wholesalers, route to market suppliers and financiers. Touchsides is an exciting acquisition and aligns with our strategy of adding scale and broadening our service offering in our merchant division. Our EasyPay enterprise market solution, which offers VAS, switching and bill payments in the former merchant market through our retail partners experienced pressure over 2022 and 2023. Despite this, we deem this platform to be strategically important, and we are investing in the technology and they have improved our management structures. With over 600 billers on the platform, which are embedded into all major retail systems, EasyPay has an extensive footprint that would be very difficult to replicate.

The recent performance of this business is encouraging, and it's becoming a meaningful contributor to our Merchant Group adjusted EBITDA as our interventions start paying off. We saw a 9% year-on-year improvement in throughput and 14% quarter-on-quarter. We strengthened our market position in formal market VAS distribution with throughput increasing more than 30% year-on-year, driven mainly by electricity sales volumes.

The Merchant division revenue for the quarter was ZAR 2.4 billion, representing a 13% increase year-on-year and 6% quarter-on-quarter. This reflects the seasonality in our business in quarter 2. With our merchants and their customers faced over this period, we are very pleased with this result. From a segment adjusted perspective, we reported a 2% increase year-on-year with an 8% increase quarter-on-quarter. We mentioned in our Q2 results last year, that the merchant group adjusted EBITDA included ZAR 22.1 million related to a bulk order not expected to repeat in our terminal hardware sales business NUETS. Excluding the impact thereof, our Merchant division year-on-year revenue growth is 17%, and adjusted EBITDA growth is 18%.

In conclusion, we are very pleased with the top line growth and profitability achieved in Q2, especially considering the challenging environment we are operating in and the stronger comparative quarter last year. I would like to hand over to Lincoln to take you through the Consumer division results and strategy.

[Lincoln Mali, executive]

Good morning and afternoon, everyone. Thank you, Steve. I'm very proud as I report on the results for the second quarter today. We started our efforts to transform the Consumer division in 2021, and it has been a very difficult journey. Notwithstanding the hard yards that we have had to work, the team's dedication and commitment to executing our strategy is not only making a real difference in people's lives, but is also delivering stronger growth and profitability each quarter as the only financial service provider focused exclusively on grand recipients, we dedicate 100% of our resources to understanding and servicing their needs as effectively as possible through product design, feed for peoples distribution networks and service channels.

At the last 2 quarters, I spoke in some detail about our initiative to grow our EPE customer base and how we are positioning ourselves to take advantage of changes in the grand distribution market. Our gross account activations continued the upward trend from approximately 60,000 in quarter 4 2023 to 76,000 in quarter 1 and now 122,000 for quarter 2. This also compares very favorably to our gross account activations a year ago of 43,000, a year-on-year increase of 188%. Churn also improved this quarter which resulted in a net account activation of over 92,000 compared to approximately 42,000 in quarter 1, 2024 and 10,000 in quarter 2, 2023. Natural chain is a factor in the ground space as child support grant cease when a child turns 18 and as mortality impacts old aid grants. We estimate the net impact to be approximately 10% to 12% per annum.

It is very exciting to see the growth coming through after all the hard work and enthusiasm with which our teams have approached this task. Our EPE account base is a crucial number for us as we only provide our additional products and services to active EPE account holders, and we are very encouraged by the trends we are seeing.

We ended the quarter with over 1.4 million active EPE customers, of which 85% are core permanent grant recipients, representing a 14% year-on-year and a 7% quarter-on-quarter growth. It is important to maintain our EPE growth and momentum and further increase activations to provide us with the base to cross-sell and grow ARPU. Our EasyPay loan book increased 26% year-on-year to ZAR 503 million. Gross advances for the quarter of ZAR 447 million were up 32% compared to quarter 2 last year. Our loan loss ratio remained stable at approximately 6% on an annualized basis. The excellent momentum in the adoption of our EasyPay insurance product continued in this quarter with active policies increasing to 384,000 at quarter end, a growth of 31% from last year and 7% over the quarter 1, 2024.

Our insurance book penetration increased from approximately 25% a year ago to over 30% at the end of quarter 2. Retaining its very high premium collection rate of 96% and a low annual lapse rate of approximately 7% compared to the industry reported annual lapse rate of over 22% per year, an indication that our clients retain their policies for longer and are less likely to replace our policies with those offered by our competitors.

I get very excited when I see the quality of our loan in insurance books. For me, it confirms that our 100% focus on servicing the grant recipients of South Africa and designing relevant and well-priced products is making an impact on their lives. As we expand our EPE account base, we will continue to have a meaningful impact on financial inclusion in South Africa. On the back of our excellent loan in insurance performance, our ARPU has improved from approximately ZAR 74 per month a year ago to over ZAR 85 per month at the end of this quarter.

With the success of our cross-selling and cost optimization efforts, we are now dedicating much of our energy into enhancing our financial service solutions to attract further EPE account holders. A key focus going forward will be the addition of relevant products and services as well as the continuous improvement of service delivery, which will also include enhancing our digital capabilities.

We are also advancing initiatives with Kazang to further enhance our merchant and consumer ecosystem. The improvement in the above KPIs across the board is leading to a continual improvement in quarterly performance of the Consumer division. Revenue for the quarter is ZAR 313 million, representing a 16% year-on-year growth and an 8% quarter-on-quarter growth. Consumer segment adjusted EBITDA for quarter 2 was ZAR 55 million compared to ZAR 46 million last quarter and ZAR 10 million last year. This represents a 450% year-on-year growth and a 19% quarter-on-quarter growth. We see the impact of positive jaws here as our EPE account base growth and cross-selling initiatives take effect of our rightsized cost base and improve activation processes.

In conclusion, we're extremely excited about the momentum we're building in the Consumer division and the opportunity that lies ahead for us to bring true financial inclusion to South Africa's grant beneficiaries. It is at the heart of our purpose and to be able to do this in a profitable and sustainable manner is very rewarding for all of us. On behalf of the consumer team, I would like to say a huge thank you to Chris Meyer, for his support and dedication as we turn around the consumer business. And we now look forward to a new growth path under the leadership of Ali Mazanderani.

I would like to hand over to Naeem now, who will take you through the income statement and balance sheet in more detail and address the outlook for quarter 3 and the full year results.

[Naeem Kola, executive]

Thank you, Lincoln. As Chris said, the second quarter of fiscal 2024 year reflects positive operational momentum in both divisions, translating into improved financial performance despite the challenging trading environment. We again delivered against what we set out to do was revenue reported within our guidance range and group adjusted EBITDA exceeding the upper end of our guidance range for the quarter.

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 currency is South African rand and as such, we annualize our performance in South African rand. Looking at the consolidated income statement for the quarter, we grew revenue by 13% to ZAR 2.7 billion compared to Q2 2023. Revenue increased by 6% compared to Q1 2024, partly due to seasonality. In U.S. dollars, consolidated revenue was $144 million for the quarter, up 6% compared to $136 million in Q2 2023, negatively impacted by the 7% depreciation of the rand against the dollar over the period.

Operating income increased to ZAR 43 million compared to ZAR 4 million in Q1 and an operating loss of ZAR 38 million a year ago. Operating income for Q2 2024 includes an ZAR 18 million, $1 million noncash gain related to the release of a foreign currency translation reserve upon liquidation of a dormant subsidiary. Depreciation and amortization of ZAR 109 million includes ZAR 67 million related to the amortization of acquired intangibles from the Connect Group acquisition.

Acquired asset amortization is both in nonoperational and a noncash charge. Our net interest expense decreased 2% to ZAR 81 million in Q2 2024 from ZAR 83 million in Q1 2024 through further cash optimization measures across the group. Q2 2024 versus Q2 2023 is mainly impacted by the increase in the benchmark interest rate in South Africa in Q2 2024 compared to Q2 2023. Net income before income taxes adding back ZAR 67 million related to the amortization of acquired intangibles for the quarter is ZAR 29 million compared to a loss of ZAR 7 million in the previous quarter and a loss of ZAR 43 million in Q2 2023.

This quarter saw another important milestone being achieved. Fundamental loss per share, which excludes nonoperating items, turned positive for the first time in over 5 years ZAR 0.26 per share compared to a loss of ZAR 0.08 per share in quarter 1 and a loss of ZAR 0.22 per share a year ago. Net income before tax, but excluding the nonoperational and noncash PPA charge, turned positive for the first time since the turnaround of Lesaka begin coming in at ZAR 29 million. Net loss before tax narrowed to ZAR 39 million for Q2 2024 compared to a net loss of ZAR 110 million a year ago, representing a 65% year-on-year improvement and a 48% improvement on the net loss of 74 million in quarter 1 2024.

At a divisional level, merchant delivered a 13% revenue increase year-on-year and a 6% quarter-on-quarter. We mentioned in our Q3 results last year that the Merchant division included a bulk order in our terminal hardware sales business news. Excluding the impact thereof, our Merchant division year-on-year revenue growth is 17%, a robust result given the challenging operating environment for merchants we serve. In the Consumer division, revenues grew 16% year-on-year. We are seeing very good momentum in EPE account activations, which is the foundation of building further annuity income in the consumer revenue base. Our lending and insurance businesses performed exceptionally well, contributing to this very encouraging result.

Year-on-year, the Merchant division reported a segment adjusted EBITDA of ZAR 163 million compared to ZAR 160 million in Q2 2023, excluding the NUETS bulk order impact of ZAR 22.1 million we would have recorded a growth of 18% in segment adjusted EBITDA. The Consumer division delivered segment adjusted EBITDA of ZAR 55 million for Q2 2024 compared to ZAR 10 million for Q2 2023, benefiting from strong goals and cost saving initiatives implemented in FY 2023. Compared to Q1 2024, the Consumer division has grown segment adjusted EBITDA by 19%. Group cost of ZAR 38 million reduced by 5% compared to ZAR 40 million in Q2 2023. Looking briefly at our half year results for the 6 months to 31st December 2023, the transformation in Lesaka's financial performance is clear. Consumer segment adjusted EBITDA for the half year was ZAR 102 million compared to a loss of ZAR 14 million last year, with merchant segment adjusted EBITDA of ZAR 313 million.

Group costs reduced 9% year-on-year, resulting in a 71% improvement in adjusted EBITDA to ZAR 343 million. The group's operating income has turned positive on a half year basis to ZAR 47 million compared to a loss of ZAR 118 million a year ago. Adjusting for the nonoperational and noncash PPA adjustment, we delivered a positive net income before tax of ZAR 22 million for the 6 months.

We experienced continued improvement in our financial performance in the second quarter of 2024 with the sequential quarterly revenue and profitability improving in both Consumer and Merchant divisions. As a reminder, seasonal trends lead to a slightly stronger quarter 2 in both divisions due to the higher-than-average transaction volumes in December. Consumer revenue increased 8% quarter-on-quarter to ZAR 313 million from ZAR 291 million in Q1 2024, and Merchant revenue increased 6% quarter-on-quarter attributable to growth in both divisions. Similarly, the Merchant segment adjusted EBITDA of 163 million increased 8% quarter-on-quarter and Consumer segment adjusted EBITDA of ZAR 55 million increased 19% quarter-on-quarter.

Fundamental earnings per share, which excludes nonoperating items, turned positive in the quarter for the first time in over 5 years to ZAR 0.26 compared to a loss of ZAR 0.08 per share in quarter 1 and a loss of ZAR 0.22 per share a year ago. In management's view, this is the appropriate earnings per share measure given the adjustment for one-off non-repeatable items and PPA amortization and other noncash items. From a cash flow perspective, we saw a continued momentum in achieving positive net cash provided by operating activities at ZAR 11 million for the quarter, which includes an additional ZAR 64 million in interest payments using the Finbond proceeds. Adjusting for this, our net cash provided by operating activities would have been approximately ZAR 75 million. We generated ZAR 207 million operating cash flow before interest paid, tax paid, working capital-related items and movement in loan book funding.

We define this as a cash generated from business operations and consider it an appropriate indicator of our conversion of EBITDA to cash. This is an increase of 41% or 16 million compared to ZAR 147 million generated in Q2 2023. The ZAR 54 million movement in loan book funding relates primarily to the net growth in the consumer book over the quarter. Our working capital was impacted by the quarter end falling on a public holiday and having to find an additional 2 days receivables in our merchant business. We have exited our shareholding in Finbond during the quarter through a specific repurchase program and received a net cash flow of ZAR 64 million in December 2023, which was used to pay down capitalized interest.

Overall, we are pleased with the cash generation in our business this quarter. Our net debt-to-EBITDA ratio is calculated as the net debt at a specific date divided by the annualized group adjusted EBITDA for the quarter. For Q2 2024 this improved to 2.7x compared to 3.6x a year ago, and 3.1x at the end of quarter 1.

Our new funding arrangement in which our lenders have agreed to reduce the margin on facilities G and H on the basis of the improvement in our net debt-to-EBITDA ratio was finalized effective from October 2023, reducing our net debt remains a strategic objective for the group. Capital expenditure in Q2 2024 amounted to ZAR 41 million. As we previously highlighted, this is mainly growth CapEx related to the Merchant division. Our growth CapEx delivers a strong IRR on capital invested.

We are very excited with the overall performance this quarter as we are seeing the full potential of Consumer division benefiting from the revenue growth and margin expansion from expense reductions we did in FY 2023, and the Merchant division continues growth on key KPI metrics. This is a base we will continue to grow on. Turning to our guidance for the third quarter. We expect revenue of ZAR 2.7 billion to ZAR 2.8 billion. Our guidance range for group adjusted EBITDA of ZAR 170 million to ZAR 190 million for Q3 is broad given that seasonal trends indicate that Q2 is usually a stronger quarter than Q3. This is due to the higher-than-average transaction volumes in December. However, we currently expect to be closer to the upper end of this range of ZAR 190 million in Q3. I would also like to reaffirm our full year 2024 revenue guidance of ZAR 10.7 billion to ZAR 11.7 billion and group adjusted EBITDA of ZAR 680 million to ZAR 740 million.

We anticipate the group adjusted EBITDA to come in at the top end of our full year guidance range. However, we expect full year revenue to be at the lower end of our guidance range. This is primarily due to the change in mix between PIN and PIN-less airtime sales during the year, primarily in our Kazang business. Accounting standards require that for PIN-less airtime sales we recognize our commission is revenue, but for PIN airtimes sales, we recognize the full value of the airtime as revenue was our purchase price of airtime as a cost of sale. So PIN-less airtime sales have made up a larger percentage of airtime sales than we expected when our guidance was set at the beginning of the year, which is having a material impact on revenue recognition. Our outlook provided does not include impact of the acquisition of Touchsides or any other M&A transactions that we conclude. Thank you. I will hand over to Chris for his closing comments.

[Chris Meyer, executive]

Thank you, Naeem. As detailed in our public filing in December 2023, I will be stepping down as Group CEO on the 29th of February 2024. I've dedicated all my energy over the past 2.5 years to the turnaround and rebuilding of the Lesaka platform. And in doing so, spending the majority of that time apart from my family who live in the U.K. I believe I've achieved what we set out to do when we started this journey, and I will be leaving Lesaka as a strong platform poised for growth and scale. The time is right for me to return to my family and hand over to a new leader who will take this extraordinary group of people into an exciting future at Lesaka. Ali Mazanderani has assumed the role of Executive Chairman as of 1 February 2024. And Ali has been integrally involved in Lesaka since 2020 and when he presented his vision and the strategy at our results in Q4 2020.

And I'd like to welcome Ali and give him the opportunity to share a few thoughts. Ali?

[Ali Zaynalabidin Mazanderani, executive]

Thank you, Chris. I'd like to take this opportunity to thank Chris for the excellent job he has done. He joined when the company had significant cash ban, uncertainty in the outlook of the Consumer division and the need to quickly achieve scale in the merchant division. He leaves behind a cash-generating business with scale and further potential. On top of this, Lesaka has strong corporate governance, excellent leadership, and people passionate about our purpose of bringing financial inclusion to underserved communities. Under Chris' leadership, we have come a long way in a short period. Chris is remaining on our Board as a Non-Executive Director, and I'm delighted he is available to support me during the handover phase. I look forward to working with him in that capacity. I'm excited to take on the role of Chairman of Lesaka, and I'm very much looking forward to working with Lincoln, Steve and Naeem and the rest of the leadership team in executing our strategy.

I believe they have already created the leading fintech in South Africa, and we have the potential to build on that foundation and truly establish Lesaka as the leading fintech on the continent. In 2020, I outlined our vision for Lesaka. That vision was covered by my personal and professional experience. I was brought up in South Africa on a farm in the east of the country and in Mpumalanga, the place where the sun rises, that is my emotional home. After completing Economics degrees at the University of Pretoria, I got postgraduate scholarships at Oxford University and the London School of Economics. These were subsequently augmented by an MBA at INSEAD in France and a Masters in Business Law at St. Gallen in Switzerland.

I've lived and worked in many countries, experiences that have given me a global perspective, but Africa has always been close. Whether that be through my time at First National Bank, a prominent banking group in the country, or as a private equity investor, where I was intimately involved in creating the country and continence leading credit bureau. In the payment space, I've had the distinct privilege of helping to build multibillion dollar fintechs on 4 continents, leaders in their respective areas. These include in Brazil, StoneCo, in India Pine Labs, in Africa and the Middle East, Network International and in Europe Teya, a business which I cofounded.

Over the past 2 decades, I've been fortunate to be at the forefront of the digitization of commerce, an investment theme that I believe to be the most exciting of our generation. It is therefore a delight for me to be able to come back to the country, I was shaped by and have the opportunity to serve in the industry I know best. This is an opportunity for me and us to want more build the leading fintech on the continent, taking lessons of the past and forging a singular future.

The space is open. We have a steady ship. We have the flagship and the demographic tide is at our back. Taken on the flood, it will lead to fortune. I hope you will join us on the journey. Together, I believe we'll be able to look back and say, we have to make a new world. We made a better future, and we did it for the people and places that needed it most. We'll now open up if there's any questions.

[Operator]

And thank you, Ali. We're now going to open up the call for Q&A sessions.

[Operator Instructions]

Our first question is going to come from Raj Sharma of B. Riley.

[Rajiv Sharma, analyst]

Congratulations on an ongoing good results. My first question is for Lincoln and a couple other questions for Steve and then overall question -- Lincoln, the pace of adding the EPE accounts has picked up well, any specific new initiatives that you've implemented? And can we determine if they -- if we are making inroads into the SASSA account acquisition?

[Lincoln Mali, executive]

Thank you, Raj. This is a continuation of all the plans we've been talking about, vetting in our people, training them, guiding them, building their relationship with SASSA strong marketing presence on the ground, better customer service, improved digitization in how we engage our customers. All of those things have given us a competitive edge. And we now have got the fastest-growing unit as compared to other banks, except for one. So we think that, that process will continue, and we think that we can make even more in growth into that base.

[Rajiv Sharma, analyst]

Great. And then can you talk about the impact of load shedding, any color on its impact going forward?

[Chris Meyer, executive]

I'm happy to take that question. Raj, thank you for the question. Nice to hear your voice. Welcome. Load shedding, I think, has become very much a part of life in South Africa. It's something that has been built in to the business model, both ours and more broadly, our merchant customer base. And we've learned a debt. South Africa is an adaptable place, a resilient place. I think as we said over the last couple of quarters, we've seen a reduction in the number of hours of load shedding. So there has been an improvement in the availability factor, which measures electricity supply in the country, but it's still a significant constraint in the country. And we -- at this point feel it's too early to predict any long-term improvement. But as I say, I think it's very much built into the way of life, into the operating model for both ourselves and our customer base. And we always learn to that.

[Rajiv Sharma, analyst]

And then I just had a question on the new acquisition. Is it -- is it reasonable to expect more? How did this come about this opportunity? What you -- are you hunting for little acquisitions like these? Are there more opportunities like these? And also -- can you give a sense on the contribution to the top line and sort of the valuation metric?

[Chris Meyer, executive]

Raj, I'll take that question as well as its broad in nature around strategy. So as we mentioned earlier in my opening remarks, M&A is an important aspect for us of building and scaling our business. We look at it in sort of broadly two buckets. One is around adding scale, and the other is around adding to our proposition for our customers base. And largely, we see it in the merchant space, most often, the Touchsides acquisition falls into the latter. It's about broadening our proposition. We're active. We look at things all the time. We're evaluating opportunities in a number of different areas. And we feel that it's an important aspect of the future growth for our business. Ali, I don't know if you want to comment at all or I think you've covered it. All right. Thanks, Raj.

[Rajiv Sharma, analyst]

And then for Steve, can you talk a little bit about the credit business deterioration of the merchants. What is your outlook on the strategy going forward, are you going to change credit standards? Or what are your expectations for the business -- this business going forward and this contribution -- ongoing contribution?

[Steven Heilbron, executive]

At the outset, let me say actually in January this year, the month has just passed, we probably had one of our most active months from a credit perspective. So -- as I said in our reflection on the results, we felt that things were starting to improve to some extent. Our retailers had been through a tough period we thought that credit extension could start to improve, and we're starting to see some of that come through.

We didn't change our credit criteria over the last period. We simply became a lot more stringent so that we could protect any potential loss. But I'm glad to say that our retailers are resilient and our strategy remains, which is to continue to add participants to our platform, create the leverage network effect and credit is a very important part of that aspect, both in the formal and informal markets.

[Operator]

Our next question is a live one from Theodore O'Neill from Hills research.

[Theodore O'Neill, analyst]

First question for Steve is about the Touchside acquisition. Is there -- is there opportunity to leverage the analytics that come with that acquisition across the platform, across the entire merchant division? And is AI part of that?

[Steven Heilbron, executive]

So as Chris covered, we're very excited about this opportunity for a variety of reasons. Firstly, it introduces a whole new vertical for us. So the tavern space and specifically the licensed tavern space is a critical vertical in the South African informal markets. It's not an area that we have real traction in. We've been playing there for a relatively short period of time and are making good progress, but we believe this will allow us to scale significantly. We will we will drive very hard our card acquiring our VAS offering as well as what this now enables us to do is to play in the Platform as a Service, Software as a Service and data monetization. So critical to this product is the fact that we see close to ZAR 17 billion of value going through these terminals -- we provide the merchants with a mechanism through the software to be able to track inventory sales and promotional activity.

That data is hugely valuable, and we bought it really for the data insights capability as well as to extend into the vertical with everything else that we do. And to your point, it is very much within our gun sites to take that particular offering across our other verticals as well. It helps us to bring in the FMCG links and monetize that data both from the consumer and to the business.

[Theodore O'Neill, analyst]

And for Lincoln, I'm curious, the year-over-year quarterly ARPU was up 15%. And I was wondering if there's any particular reason that's favorable?

[Lincoln Mali, executive]

I think that if you look at both our growth in our EPE accounts, growth in our lending and growth in our insurance, all of those have been market improvements. And you've seen that a lot in December. So we have very, very good December. So this quarter really represents as Chris pointed out earlier, record numbers of sales in our EPE in our insurance and in our loans. And that all goes very well for our ARPU growth.

[Operator]

We now are going to take a question from Myles -- for that I'm going to read it if she submitted over the chat. Guys, does the recent acquisition [indiscernible] merchant collaboration with [indiscernible].

[Steven Heilbron, executive]

I actually believe it should significantly enhance our relationship with [ ABN ] -- the reality is we are now the Switzerland of the market. Previously, Touchsides would have been owned by Heineken. You can understand this is a data insights business and the data analytics in our hands as an independent is probably very much enhancing in terms of what we can offer in that vertical to all suppliers into the tavern space. So we actually are enthusiastic about the opportunity in our hands in relation to what we can now achieve with the likes of SAB, et cetera.

[Operator]

That's helpful. Next one is a strategic question. Can I just expect more acquisitions as EBITDA increases. And as you think about your M&A strategy, are you thinking bolt-on or transformational?

[Chris Meyer, executive]

Thanks for the question. I think it's probably fairly similar to the one we received from Raj. I don't want to repeat, but we described the 2 sort of broad areas that we would focus on from an M&A perspective. M&A being an important aspect of our strategy to scale the business and build relevance with our customer base. So yes, I think it's fair to say you should expect to see further activity in those buckets. The bucket is being around scale and then relevance and we are active. We are looking at things, we're evaluating things, but we evaluate things against a very clear set of criteria with a very disciplined approach. So we want to make sure we make the right choices that can enhance this business and build the platform. Ali, I don't know if you would like to comment, give you the opportunity to maybe say something.

[Ali Zaynalabidin Mazanderani, executive]

No, Thanks, Chris. I mean I need to echo what you say and say that there is opportunities in both subsectors that are represented there, and each will be assessed on a case-by-case basis.

[Operator]

Great. Last question right now, and this comes from Jared Houston of All Weather Capital. Can you guys provide an outlook for net debt-to-EBITDA post Touchside acquisition?

[Chris Meyer, executive]

Naeem, do you want to address that?

[Naeem Kola, executive]

Yes, sure. Thanks, Chris. Yes. Look, so we're not seeing any material impact on our net debt-to-EBITDA ratio because of the Touchside acquisition. I mean, as we mentioned, the acquisition has been fully funded from our current resources, and we don't see an impact on that material impact coming from that.

[Operator]

Great. And this -- obviously, Raj and Theo both asked about M&A. But Jared wants to know, as you think about M&A, will equity be a part of that? Will you -- how do you fund M&A? How are you thinking about that strategically?

[Chris Meyer, executive]

Rated on its merits. And one of the aspects will be how to fund a particular transaction. And so equity would play into that. So as much as debt or any other form of financing of transactions. So where it's appropriate, we would consider it, and we consider it against a number of metrics that we need to think about in that regard.

[Operator]

Okay. And here's my last question from Jared. Can you provide any updates on the potential of mobile Click and a status update on where that stands?

[Naeem Kola, executive]

Yes, sure. Yes. Look, I think as we mentioned, and it's public information that they've now submitted a [ rate ] hearing and the way to come through for an IPO in the Indian market. I mean where it stands at the moment is that, obviously, we're watching it very closely, and we're in close contact with management to ascertain how they're looking at this. And I think in terms of performance of MobiKwik, the performance of the business has been strong. And going forward, we would keep a watchful eye in terms of valuations as it comes closer to them doing and launching an IPO.

[Operator]

Well, thank you for that update. And that concludes the Q&A. Those are all the questions. We appreciate everybody for participating. Thank you, management.