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NT1 - Net 1 UEPS Technologies, Inc. - Net 1 UEPS Technologies, Inc.

Release Date: 28/10/2011 08:01
Code(s): NT1
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NT1 - Net 1 UEPS Technologies, Inc. - Net 1 UEPS Technologies, Inc. reports first quarter 2012 Results Net 1 UEPS Technologies, Inc. Registered in the state of Florida, USA (IRS Employer Identification No. 98-0171860) Nasdaq share code: UEPS JSE share code: NT1 ISIN: US64107N2062 ("Net1" or "the Company") Net 1 UEPS Technologies, Inc. Reports First Quarter 2012 Results JOHANNESBURG, October 28, 2011 - Net 1 UEPS Technologies, Inc. (Nasdaq: UEPS; JSE: NT1) today announced results for the three months ended September 30, 2011 ("1Q 2012"). Revenue for 1Q 2012 was $99.9 million, a year over year increase of 55% in US dollars ("USD") and 49% in constant currency. During 1Q 2012, net income under US generally accepted accounting principles ("GAAP") was $19.8 million versus $7.4 million for the three months ended September 30, 2010 ("1Q 2011"). GAAP earnings per share for 1Q 2012 was $0.44 versus $0.16 a year ago. Fundamental earnings per share for 1Q 2012 was $0.44 compared to $0.36 in 1Q 2011, representing an increase of 23% in USD and 17% in constant currency. Summary Financial Metrics Three months ended September 30,
2011 2010 % % change change in USD in ZAR (All figures in USD `000s except per share data) Revenue 99,926 64,283 55% 49% GAAP net income 19,768 7,429 166% 155% Fundamental net income (1) 19,883 16,527 20% 15% GAAP earnings per share ($) 0.44 0.16 174% 163% Fundamental earnings per 0.44 0.36 23% 17% share ($) (1)
Fully-diluted shares 45,079 45,415 (1)% outstanding (`000`s) Average period USD/ ZAR 7.09 7.41 (4)% exchange rate (1) Fundamental net income and earnings per share is GAAP net income and earnings per share, as adjusted to exclude the amortization of acquisition-related intangible assets, net of deferred taxes, stock- based compensation charges and unusual non-recurring items. The calculation of fundamental net income and earnings per share for 1Q 2012 excludes a profit on the liquidation of SmartSwitch Nigeria and amortization of facility fees related to the incurrence of KSNET acquisition debt. The calculation of fundamental net income and earnings per share for 1Q 2011 excludes a net loss on a forward exchange contract and transaction related costs. The following factors impacted the comparability of our 1Q 2012 and 1Q 2011 results: * Favorable impact from the weakness of the US dollar: The US dollar depreciated by 4% compared to the ZAR during 1Q 2012 compared to 1Q 2011 which positively impacted our reported results; * Inclusion of revenue contribution from KSNET at a lower operating margin (before acquired intangible asset amortization) than our legacy business: The inclusion of KSNET contributed to an increase in revenues for fiscal 2012; however, because KSNET has an operating margin (before acquired intangible asset amortization) that is lower than our legacy businesses, it reduced our overall operating margin. KSNET also contributed to the increase in selling, general and administration and depreciation and amortization expenses; * Improved operating income and margins from hardware, software and related technology sales segment: Operating income and margins from our hardware, software and related technology sales segment increased as a result of increased ad hoc sales; * Intangible asset amortization related to acquisition: Our reported results for 1Q 2012 were adversely impacted by additional intangible asset amortization related to the acquisition of KSNET; * Lower interest income and increased interest expense resulting from KSNET acquisition: We paid the KSNET purchase price with a combination of cash and long-term debt, which reduced interest income and increased interest expense; * Liquidation of SmartSwitch Nigeria: We recorded a non-cash profit of $4.0 million on the liquidation of SmartSwitch Nigeria; and * Fiscal 2011 unrealized foreign exchange loss and transaction- related expenses: During 1Q 2011, we recognized, in selling, general and administration expense, an unrealized foreign exchange loss of $2.6 million and incurred transaction-related expenses of $3.4 million, primarily for the acquisition of KSNET. Comments and Outlook "I am very pleased with our 1Q 2012 results and the start to our fiscal year," said Dr. Serge Belamant, Chairman and Chief Executive Officer of Net1. "Several of our strategic actions and investments are beginning to demonstrate tangible progress towards driving long-term growth, including the refocusing of EasyPay toward higher-margin value-added services, investments in KSNET to further penetrate the small and mid- size market, as well as two healthcare processing wins by XeoHealth in the US. SASSA`s tender evaluation process is still underway and we look forward to the outcome," he concluded. "As a result of our solid performance in 1Q 2012, we now expect fundamental EPS of at least $1.60 for the full year, assuming our existing contract with SASSA remains in effect on the existing terms and conditions and on a constant currency basis of ZAR 7.0 to the Dollar," said Herman Kotze, Chief Financial Officer of Net1. Results of Operations by Segment and Liquidity Our frequently asked questions and operating metrics will be updated and posted on our website (www.net1.com). South African transaction-based activities Segment revenue was $49.9 million in 1Q 2012, up 11% when compared with 1Q 2011 in USD and 6% on a constant currency basis. In ZAR, the increase in revenue was primarily due to modest growth under our pension and welfare business and increased transaction volumes at MediKredit. Segment operating income margin remained constant at 40% when compared to a year ago. Excluding amortization of acquisition- related intangibles, 1Q 2012 segment operating income margin was 43%, the same when compared with 1Q 2011. International transaction-based activities KSNET is the largest contributor to this segment. XeoHealth signed its first contract during 1Q 2012 and contributed to segment revenue. Revenue was $30.3 million and operating income margin was 2% in 1Q 2012. Excluding the amortization of intangibles but including the start- up costs related to Net1 Virtual Card and XeoHealth in the United States and MVC activities at Net1 UTA, operating income margin was 13%. Smart card accounts Segment revenue was $8.3 million in 1Q 2012, up 4% compared with 1Q 2011 in USD and down 1% on a constant currency basis. Operating income margin remained consistent at 45%. Financial services Segment revenue was $2.1 million in 1Q 2012, up 69% compared with 1Q 2011 in USD and 62% higher on a constant currency basis, principally due to an increase in lending activities. 1Q 2012 segment operating income margin was 67% compared with 64% during 1Q 2011. Hardware, software and related technology sales Segment revenue was $9.4 million in 1Q 2012, down 3% compared with 1Q 2011 in USD and 7% lower on a constant currency basis. The decrease in revenue was due to a lower contribution from Net1 UTA and the increase in operating income was due to an increase in higher margin ad hoc South African-based contributor`s hardware and software sales. The improvements from the South African-based contributors during the quarter were primarily due to orders which may not continue in future quarters. Excluding amortization of all intangibles segment operating margin was 22% compared to 0% during 1Q 2011. Cash flow and liquidity At September 30, 2011, we had cash and cash equivalents of $102 million, up from $95 million at June 30, 2011. The increase in cash was due to an increase in operating activities. For 1Q 2012, we generated net cash flow of $27.2 million from operating activities, compared to $30.2 million in 1Q 2011. The decrease is attributable to a reduction in interest income from lower cash balances and deposit rates, increased interest expense on our Korean debt facilities and higher tax payments. Excluding these items, operating income increased due to increased activities across all of our operating segments. Capital expenditures for 1Q 2012 and 2011 were $4.5 million and $0.8 million, respectively. During 1Q 2012, we repurchased $1.1 million of shares under our $100 million authorization. Use of Non-GAAP Measures US securities laws require that when we publish any non-GAAP measures, we disclose the reason for using the non-GAAP measure and provide reconciliation to the directly comparable GAAP measure. The presentation of fundamental net income and fundamental earnings per share and headline earnings per share are non-GAAP measures. Fundamental net income and fundamental earnings per share We calculate fundamental net income and earnings per share by adjusting GAAP net income and earnings per share for the items described in note 1 to the Summary Financial Metrics table above. Management believes that the fundamental net income and earnings per share metric enhances its own evaluation, as well as an investor`s understanding, of our financial performance. Attachment B presents the reconciliation between GAAP and fundamental net income and earnings per share. Headline earnings per share ("HEPS") The inclusion of HEPS in this press release is a requirement of our listing on the JSE. HEPS basic and diluted is calculated using net income which has been determined based on GAAP. Accordingly, this may differ to the headline earnings per share calculation of other companies listed on the JSE as these companies may report their financial results under a different financial reporting framework, including but not limited to, International Financial Reporting Standards. HEPS basic and diluted is calculated as GAAP net income adjusted for the loss (profit) on sale of property, plant and equipment, net of related tax effects and the profit on liquidation of SmartSwitch Nigeria. Attachment C presents the reconciliation between our net income used to calculate earnings per share basic and diluted and HEPS basic and diluted. Conference Call We will host a conference call to review 1Q 2012 results on October 28, 2011, at 8:00 Eastern Time. To participate in the call, dial 1-800-860- 2442 (U.S. only), 1-866-605-3852 (Canada only), 0-800-917-7042 (U.K. only) or 0-800-200-648 (South Africa only) ten minutes prior to the start of the call. Callers should request "Net1 call" upon dial-in. The call will also be webcast on our homepage, www.net1.com. Please click on the webcast link at least ten minutes prior to the call. A webcast of the call will be available for replay on our website through November 18, 2011. About Net1 (www.net1.com) We are a leading provider of alternative payment systems that leverage our Universal Electronic Payment System, or UEPS, to facilitate biometrically secure real-time electronic transaction processing to unbanked and under-banked populations of developing economies around the world in an online or offline environment. In addition to payments, UEPS can be used for banking, healthcare management, payroll, remittances, voting and identification. We operate market-leading payment processors in South Africa, Republic of Korea, Ghana and Iraq. In addition, our proprietary Mobile Virtual Card technology offers secure mobile payments and banking services in developed and emerging countries. We have a primary listing on the Nasdaq and a secondary listing on the JSE Limited. Forward-Looking Statements This announcement contains forward-looking statements that involve known and unknown risks and uncertainties. A discussion of various factors that cause our actual results, levels of activity, performance or achievements to differ materially from those expressed in such forward-looking statements are included in our filings with the Securities and Exchange Commission. We undertake no obligation to revise any of these statements to reflect future events. Investor Relations Contact: Dhruv Chopra Vice President of Investor Relations Phone: +1-212-626-6675 Email: dchopra@net1.com NET 1 UEPS TECHNOLOGIES, INC. Unaudited Condensed Consolidated Statements of Operations Three months ended September 30,
2011 2010 (In thousands, except per share data)
REVENUE $ 99,926 $ 64,283 EXPENSE Cost of goods sold, IT 32,944 18,067 processing, servicing and support Selling, general and 27,057 30,326 administration
Depreciation and 9,079 4,904 amortization OPERATING INCOME 30,846 10,986 INTEREST INCOME 1,997 3,084 INTEREST EXPENSE 2,616 248 INCOME BEFORE INCOME TAXES 30,227 13,822 INCOME TAX EXPENSE 10,552 6,207 NET INCOME FROM CONTINUING 19,675 7,615 OPERATIONS BEFORE EARNINGS (LOSS) FROM EQUITY-ACCOUNTED INVESTMENTS EARNINGS (LOSS) FROM EQUITY- 85 (216) ACCOUNTED INVESTMENTS NET INCOME 19,760 7,399 ADD NET LOSS ATTRIBUTABLE TO (8) (30) NON-CONTROLLING INTEREST NET INCOME ATTRIBUTABLE TO $ 19,768 $ 7,429 NET1 Net income per share, in United States dollars Basic earnings attributable $0.44 $0.16 to Net1 shareholders Diluted earnings $0.44 $0.16 attributable to Net1 shareholders NET 1 UEPS TECHNOLOGIES, INC. Condensed Consolidated Balance Sheets Unaudit (A)
ed Septemb June 30, er 30, 2011 2011
(In thousands, except share data) ASSETS CURRENT ASSETS Cash and cash equivalents $ 101,983 $ 95,263 Pre-funded social welfare grants 1,695 4,579 receivable Accounts receivable, net of allowances of 78,172 82,780 - September: $668; June: $728 Finance loans receivable 7,709 8,141 Deferred expenditure on smart cards - 51 Inventory 5,781 6,725 Deferred income taxes 15,192 15,882 Total current assets before settlement 210,532 213,421 assets Settlement assets 159,542 186,668
Total current assets 370,074 400,089 PROPERTY, PLANT AND EQUIPMENT, NET OF 32,409 35,807 ACCUMULATED DEPRECIATION OF - September: $46,910; June: $50,007 EQUITY-ACCOUNTED INVESTMENTS 1,639 1,860 GOODWILL 188,409 209,570 INTANGIBLE ASSETS, NET OF ACCUMULATED 104,271 119,856 AMORTIZATION OF - September: $37,561; June: $37,118 OTHER LONG-TERM ASSETS, including reinsurance 39,900 14,463 assets TOTAL ASSETS 736,702 781,645 LIABILITIES CURRENT LIABILITIES Accounts payable 11,123 11,360 Other payables 61,984 71,265 Current portion of long-term borrowings 13,798 15,062 Income taxes payable 10,791 6,709 Total current liabilities before 97,696 104,396 settlement obligations Settlement obligations 159,542 186,668 Total current liabilities 257,238 291,064 DEFERRED INCOME TAXES 47,648 52,785 LONG-TERM BORROWINGS 97,009 110,504 OTHER LONG-TERM LIABILITIES, including 27,008 1,272 insurance policy liabilities TOTAL LIABILITIES 428,903 455,625 COMMITMENTS AND CONTINGENCIES EQUITY NET1 EQUITY: COMMON STOCK Authorized: 200,000,000 with $0.001 par value; Issued and outstanding shares, net of 59 59 treasury - September: 45,002,304; June: 45,152,805 PREFERRED STOCK Authorized shares: 50,000,000 with $0.001 par value; Issued and outstanding shares, net of - - treasury: 2011: -; 2010: - ADDITIONAL PAID-IN-CAPITAL 136,903 136,430 TREASURY SHARES, AT COST: September: (175,823) (174,694) 13,455,090; June: 13,274,434 ACCUMULATED OTHER COMPREHENSIVE LOSS (71,257) (33,779) RETAINED EARNINGS 414,758 394,990 TOTAL NET1 EQUITY 304,640 323,006 NON-CONTROLLING INTEREST 3,159 3,014 TOTAL EQUITY 307,799 326,020 TOTAL LIABILITIES AND SHAREHOLDERS` EQUITY $ 736,702 $ 781,645 (A) - Derived from audited financial statements NET 1 UEPS TECHNOLOGIES, INC. Unaudited Condensed Consolidated Statements of Cash Flows
Three months ended September 30, 2011 2010 (In thousands)
Cash flows from operating activities Net income $ 19,760 $ 7,399 Depreciation and 9,079 4,904 amortization Loss from equity-accounted (85) 216 investments Fair value adjustments (221) (3,106) Interest payable 1,662 73 Profit on disposal of (8) (5) property, plant and equipment Profit on liquidation of (3,994) - SmartSwitch Nigeria Realized loss on sale of 25 - investments related to insurance business Stock-based compensation 496 1,438 charge Facility fee amortized 116 - Decrease in accounts 3,248 10,957 receivable, pre-funded social welfare grants receivable and finance loans receivable Decrease (Increase) in 44 (2) deferred expenditure on smart cards Increase in inventory (319) (2,102) Increase in accounts 331 6,025 payable and other payables (Decrease) Increase in (3,607) 5,134 taxes payable Increase (Decrease) in 692 (773) deferred taxes Net cash provided by 27,219 30,158 operating activities Cash flows from investing activities Capital expenditures (4,466) (768) Proceeds from disposal of 94 7 property, plant and equipment Acquisition of SmartLife, (1,673) - net of cash acquired Advance of loans to equity- - (375) accounted investment Repayment of loan by equity- 33 373 accounted investment Purchase of investments (2,320) - related to insurance business Proceeds from maturity of 2,321 - investments related to insurance business Net change in settlement 3,447 (15,544 assets ) Net cash used in investing (2,564) (16,307 activities ) Cash flows from financing activities Loan portion related to - 20 options Acquisition of treasury (1,129) - stock Net change in settlement (3,447) 15,544 obligations Net cash (used in) (4,576) 15,564 generated from financing activities Effect of exchange rate (13,360) 17,004 changes on cash Net increase in cash and 6,719 46,419 cash equivalents
Cash and cash equivalents - 153,742 beginning of period 95,264 Cash and cash equivalents - $ 101,983 $ 200,161 end of period Net 1 UEPS Technologies, Inc. Attachment A Operating segment revenue, operating income (loss) and operating margin: Three months ended September 30, 2011 and 2010 and June 30, 2011 Change - Change -
actual constant exchange rate(1) Key segmental data, in Q1 Q1 Q4 `11 Q1 Q1 Q1 Q1 `000, except margins `12 `11 `12 `12 `12 `12 vs vs vs vs Q1`1 Q4 Q1 Q4 1 `11 `11 `11
Revenue: SA transaction-based $49,9 $44,8 $50,267 11% (1)% 6% 3% activities 02 89 International 6,33 8% 6,06 13% transaction-based 30,25 470 27,900 7% 7% activities 5 Smart card accounts 8,252 7,970 8,623 4% (4)% (1)% 0% Financial services 2,111 1,250 2,278 69% (7)% 62% (3)% Hardware, software and 9,704 (3)% 13% (7)% 18% related technology sales 9,406 8,300 Total consolidated $99,9 $64,2 $97,368 55% 3% 49% 7% revenue 26 83 Consolidated operating income (loss): SA transaction-based $20,1 $17,7 $20,776 14% (3)% 9% 1% activities 83 48 International nm 812% nm 850% transaction-based 684 (708) 75 activities Operating income nm 13% nm 18% excluding amortization 3,991 (708) 3,521 Amortization of (3,30 - (3,446) nm (4)% nm 0% intangible assets 7) Smart card accounts 3,750 3,622 3,919 4% (4)% (1)% 0% Financial services 1,411 797 1,634 77% (14) 70% (10) % % Hardware, software and (2,33 nm nm nm nm related technology sales 1,937 9) (1,898) Corporate/ Eliminations 2,881 (8,13 2,087 nm 38% nm 44% 4) Total operating income $30,8 $10,9 $26,593 181% 16% 169% 21% 46 86 Operating income margin (%) SA transaction-based 40% 40% 41% activities International 2% (151) 0% transaction-based % activities International 13% (151) transaction-based % 13% activities excluding amortization Smart card accounts 45% 45% 45% Financial services 67% 64% 72% Hardware, software and 21% (24)% (23)% related technology sales Overall operating margin 31% 17% 27% (1) - This information shows what the change in these items would have been if the USD/ ZAR exchange rate that prevailed during 1Q 2012 also prevailed during 1Q 2011 and 4Q 2011. Net 1 UEPS Technologies, Inc. Attachment B Reconciliation of GAAP net income to fundamental net income: Three months ended September 30, 2011 and 2010 Net EPS, Net EPS, Income basic Income basic
(USD`000) (USD) (ZAR`000) (ZAR) 2011 2010 20 201 2011 2010 201 201 11 0 1 0
GAAP 19,7 7,42 44 16 140,2 55,0 311 121 68 9 32 14 Amortization of 3,49 2,60 24,81 19,3 intangible assets, 7 8 4 13 net of tax Stock-based 496 1,43 3,519 10,6 compensation charge 8 49 Loss on FEC, net of - 1,68 - 12,4 tax 5 80 Facility fees for 116 - 823 - KSNET debt Profit on (3,9 - (28,3 - liquidation of 94) 33) SmartSwitch Nigeria Acquisition-related - 3,36 - 24,9 costs. 7 34 Fundamental 19,8 16,5 44 36 141,0 122, 313 270 83 27 55 390
Net 1 UEPS Technologies, Inc. Attachment C Reconciliation of net income used to calculate earnings per share basic and diluted and headline earnings per share basic and diluted: Three months ended September 30, 2011 and 2010 2011 2010 Net income (USD`000) 19,768 7,429 Adjustments: Profit on liquidation of SmartSwitch - Nigeria (USD`000) (3,994) Profit on sale of property, plant and equipment (USD`000) (8) (5) Tax effects on above (USD`000) 3 2
Net income used to calculate headline 15,769 7,426 earnings (USD`000) Weighted average number of shares used to 45,384 calculate net income per share basic 45,055 earnings and headline earnings per share basic earnings (`000)
Weighted average number of shares used to 45,415 calculate net income per share diluted 45,085 earnings and headline earnings per share diluted earnings (`000) Headline earnings per share: Basic earnings - common stock and linked 16 units, in US cents 35 Diluted earnings - common stock and 16 linked units, in US cents 35 Johannesburg 28 October 2011 Sponsor to Net1 Deutsche Securities (SA) (Proprietary) Limited Date: 28/10/2011 08:01:01 Supplied by www.sharenet.co.za Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited (`JSE`). The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct, indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on, information disseminated through SENS.

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