Net 1 UEPS Technologies (UEPS) Misses Q2 EPS by 7c, Revenues Beat

Net 1 UEPS Technologies (NASDAQ: UEPS) reported Q2 EPS of ($0.10), $0.07 worse than the analyst estimate of ($0.03). Revenue for the quarter came in at $74.1 million versus the consensus estimate of $72.34 million.

Q2 2020 Highlights:

• Revenue of $74.1 million, GAAP EPS of $(0.00) and Fundamental EPS of $(0.10);
• Operating loss of $(6.9) million and adjusted negative EBITDA of $(0.7) million;
• Signed agreement to sell KSNET for $237 million and disposed of FIHRST for $11.7 million;
• Board replenished share repurchase authorization to $100 million from $53 million.

“The sale of KSNET marks an important milestone in the reinvention of Net1 as a fintech company focused on the underbanked, as it allows us to inject the appropriate liquidity in our businesses in order to scale our operations in South Africa, Africa and Europe, while also being able to return significant capital to our shareholders,” said Herman Kotzé, Net1’s CEO. “We expect to commence our reinvestment into South Africa during Q4 2020 and should be able to demonstrate tangible improvements as soon as the first half of fiscal 2021,” he concluded.

“Given the timing of our various corporate actions and availability of liquidity as well as certain pending European regulatory approvals, there are a number of moving parts in our business this year. Using the same assumption of a constant currency base of ZAR 14.27/$1, we believe fiscal 2020 adjusted EBITDA is likely to be a loss of approximately $3 million, a decrease from our previously announced guidance of $16 million. This decrease is primarily due to an $11 million reduction related to foregone contributions as a result of the sale of KSNET and FIHRST, as well as an $8 million negative impact related to the delayed liquidity injection in South Africa due to the timing of our asset realizations, and IPG’s inability to launch its new products due to the dependencies on Visa’s certification,” said Alex Smith, Net1’s CFO. “Our focus following the injection of liquidity during Q4 2020 will be to drive new account growth and financial services in South Africa, and commence with the scaling up of our new initiatives in Europe, in turn, returning the group to a positive adjusted EBITDA position in fiscal 2021,” he concluded.

fundamental (loss) earnings per share.” See Attachment B for a reconciliation of GAAP operating (loss) income to negative EBITDA and Adjusted negative EBITDA, and GAAP net (loss) income to fundamental net (loss) income and (loss) earnings per share.

Factors impacting comparability of our Q2 2020 and Q2 2019 results

• Decline in revenue: Our revenues declined 2% in ZAR primarily due to the significant decline in EPE account numbers driven by SASSA’s auto-migration of accounts to SAPO, and a reduction in EPE-related financial and value-added services and transaction fees due to a smaller customer base, but partially offset by higher ad hoc terminal and prepaid airtime sales;
• Ongoing operating losses: We continue to experience operating losses primarily in South Africa as a result of lower revenues, coupled with a high-fixed cost infrastructure;
• Gain on disposal of FIHRST: We recorded a gain of $9.7 million related to the disposal of FIHRST in December 2019;
• Higher net interest expense: Net interest expense increased due to lower average cash balances and higher short-term borrowing to fund ATMs and utilization of our overdrafts, but was partially offset by the repayment of our long-term debt in the second half of fiscal 2019; and
• Adverse foreign exchange movements: The U.S. dollar appreciated 2% against the ZAR and 4% against the KRW during Q2 2020, which adversely impacted our reported results.

For earnings history and earnings-related data on Net 1 UEPS Technologies (UEPS) click here.

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