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NET 1 UEPS TECHNOLOGIES INC - Net 1 UEPS Technologies, Inc. Reports Second Quarter 2019 Results

Release Date: 08/02/2019 07:05
Code(s): NT1     PDF:  
Wrap Text
Net 1 UEPS Technologies, Inc. Reports Second Quarter 2019 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 Second Quarter 2019 Results

JOHANNESBURG, February 8, 2019 – Net1 (Nasdaq: UEPS; JSE: NT1) today released results for
the second fiscal quarter ended December 31, 2018.

Q2 2019 Highlights:
    
   - Revenue of $97.2 million and Fundamental EPS of $(0.88);
   - Fundamental EPS of ($0.88) includes $0.74 per share of non-cash adjustments, including a $0.41 allowance for
     doubtful loans receivable, $0.28 Cell C fair value loss adjustment, and $0.05 Cedar Cell note impairment loss;
   - Operating loss was attributable primarily to our rural South African businesses;
   - Adjusted negative EBITDA of approximately $25 million including approximately $23 million for allowance for
     doubtful loans receivable;
   - Korea EBITDA margin improved to 22% from 20% in Q2 2018;
   - Net cash of approximately $35 million at December 31, 2018;
   - Active EPE accounts declined to 1.1 million as of December 31, 2018.

"This was a very difficult quarter for our company. Our loss for the quarter is primarily attributable to our rural South African
businesses," said Herman Kotzé, CEO. "Our other transaction-driven businesses continue to operate profitably and provide a
meaningful source of EBITDA and free cash flow. We are pleased with the performance of KSNET, DNI, and our EasyPay
financial switch and transaction processing business in South Africa. Our equity investments continued to perform in-line
with expectations."

"Currently, our primary focus is to immediately stem the losses in our South African financial inclusion operations, right size the businesses and
get them to a breakeven level by the end of this fiscal year. The Board and management are squarely focused on reviewing all
options available for the business in South Africa, and will provide updates when there are  tangible actions to report. At
this time, we believe that all of the challenges we are facing are contained and can be resolved in the near future, and remain
comfortable with the Company's liquidity position over the next 12 months," concluded Kotzé.

Subsequent Event
On January 29, 2019 the High Court of the Republic of South Africa (Gauteng Division, Pretoria) handed down its final
judgment in our application to direct SASSA to pay social grants into the EPE accounts of recipients who had previously made
biometric elections to receive their grants into their EPE accounts, but had not submitted a SASSA-prescribed form called an
"Annexure C form". The High Court reversed a portion of its November 28, 2018 interim order that directed SASSA to pay
grants into the EPE accounts of recipients who made those biometric elections without submitting a physical Annexure C form.
The effect of the final judgment is that, while SASSA is required to promptly pay social grants into EPE accounts of those
recipients who have submitted the Annexure C form electing to have their grants paid that way, SASSA is not required to pay
grants into the EPE accounts of those recipients who have not submitted the Annexure C form, despite having provided their
previous biometric consent. We are currently evaluating the
options available to it, including an appeal against the judgment.

Summary Financial Metrics                                                                                
                                                              Three months ended December 31,   
                                                                                   % change   % change   
                                                          2018            2017       in USD     in ZAR   
(All figures in USD ‘000s except per share data)                                                         
Revenue                                                 97,150         148,416        (35%)      (31%)   
GAAP operating (loss) income                          (43,075)          16,307       (364%)     (377%)   
Adjusted negative EBITDA (1)                          (24,731)          32,981       (175%)     (179%)   
GAAP net (loss) income                                (63,941)           9,622       (765%)     (796%)   
Fundamental net (loss) income (1)                     (49,966)          22,405       (323%)     (335%)   
GAAP (loss) earnings per share ($)                      (1.13)            0.17       (764%)     (795%)   
Fundamental (loss)(loss) earnings per share ($) (1)     (0.88)            0.39       (326%)     (336%)   
Fully-diluted shares outstanding (‘000’s)               56,855          56,807           1%              
Average period USD/ ZAR exchange rate                    14.32           13.67           5%              
Non-cash adjustments included (before tax impact):      50,150               -           nm                                                  
Allowance for doubtful finance loans receivables        23,391               -           nm              
Change in fair value of equity securities               15,836               -           nm              
Goodwill impairment loss                                 8,191               -           nm              
Impairment of Cedar Cellular note                        2,732               -           nm              


                                                             Six months ended December 31,   
                                                                                  % change   % change   
                                                          2018         2017         in USD     in ZAR   
(All figures in USD ‘000s except per share data)                                                        
Revenue                                                223,034      300,974          (26%)      (21%)   
GAAP operating (loss) income                          (42,179)       41,313         (202%)     (209%)   
Adjusted negative EBITDA (1)                          (11,491)       68,439         (117%)     (118%)   
GAAP net (loss) income                                (69,140)       29,105         (338%)     (354%)   
Fundamental net (loss)  income (1)                    (48,709)       46,875         (204%)     (211%)   
GAAP (loss) earnings per share ($)                      (1.22)         0.51         (100%)     (100%)   
Fundamental (loss)(loss) earnings per share ($) (1)     (0.86)         0.83         (204%)     (211%)   
Fully-diluted shares outstanding (‘000’s)               56,814       56,812              -              
Average period USD/ ZAR exchange rate                    14.34        13.41             7%              
Non-cash adjustments included (before tax impact):      54,553            -             nm                                                 
Allowance for doubtful finance loans receivables        27,794            -             nm              
Change in fair value of equity securities               15,836            -             nm              
Goodwill impairment loss                                 8,191            -             nm              
Impairment of Cedar Cellular note                        2,732            -             nm              


(1) Adjusted negative EBITDA, fundamental net (loss) income and (loss)(loss) earnings per share are non-GAAP measures and are described
    below under "Use of Non-GAAP Measures — negative EBITDA and Adjusted negative EBITDA, and — Fundamental net (loss) income and
    fundamental (loss)(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)(loss) earnings per share.

Factors impacting comparability of our Q2 2019 and Q2 2018 results
   -    Losses incurred resulting from SASSA’s auto-migration of EPE accounts: We experienced a significant decline in
        EPE account numbers driven largely by SASSA’s auto-migration of accounts to SAPO, often unilaterally and without
        the recipient’s consent. The resultant losses were caused by the loss of monthly income on the relevant EPE accounts,
        a $23.4 million allowance for doubtful finance loans receivable as well as losses incurred from maintaining our mobile
        payment infrastructure;
   -    Loss of CPS revenue and operating income due to the expiration of our SASSA contract: The expiration of our
        SASSA contract on September 30, 2018, resulted in the loss of all revenue from the contract and, as a result, CPS
        recorded no revenue from the SASSA during Q2 2019 compared with the prior year;
   -    Non-cash impairment loss related to impairment of goodwill: We recorded an impairment loss of $8.2 million
        primarily related to goodwill allocated to the international transaction processing operating segment;
   -    Consolidation of DNI results: DNI contributed to an increase in revenue and operating income during the Q2 2019,
        performing in line with expectations;
   -    Improved contribution from South Korea: Our South Korean operations experienced modest revenue pressures due
        to ongoing regulatory changes and macroeconomic factors, though operating income and margin continued to show
        improvement compared to Q2 2018;
   -    High income tax expense due to deferred tax valuation allowance on losses by certain South African businesses:
        Our income tax expense included a valuation allowance recorded against the net operating loss deferred tax asset
        generated by certain of our South African businesses, including CPS and our microlending business as a result of the
        losses incurred during Q2 2019;
   -    Unfavorable impact from the strengthening of the U.S. dollar against the South African Rand: The U.S. dollar
        appreciated 5% against the ZAR during Q2 2019 compared to Q2 2018, which adversely impacted our reported results;
   -    Higher revenue from Masterpayment and allowance for credit losses in fiscal 2018: During fiscal 2018,
        Masterpayment contributed higher revenues as a result of an increase in processing activities, particularly related to
        its cryptocurrency processing launched in December 2017, as well as from its working capital financing and supply
        chain solutions;
   -    Higher depreciation and amortization charges resulting from DNI acquisition: Our depreciation and amortization
        charge increased during the Q2 2019, as a result of our acquisition of DNI;
   -    Loss resulting from Cell C fair value adjustment: We recorded a non-cash pre-tax fair value adjustment loss related
        to Cell C of approximately $15.8 million due to lower industry comparable valuations, which adversely impacted our
        reported results in fiscal 2019;
   -    Reduced income from equity-accounted investments: Earnings from equity accounted investments decreased as a
        result of the consolidation of DNI from June 30, 2018; and
   -    Lower interest income and higher interest expense: The movement in net interest expense (before the Cedar Cellular
        impairment) was $2.8 million primarily due to lower interest income resulting from the utilization of cash to
        fund strategic investments and higher interest expense as a result of the South African lending facilities we obtained,
        including a facility to fund our ATMs.

Results of Operations by Segment and Liquidity

South African transaction processing

Segment revenue was $21.9 million in Q2 2019, down 66% compared with Q2 2018 in USD, and 64% lower on a constant
currency basis. The decrease in segment revenue and operating income was primarily due to the substantial decrease in the
number of SASSA grant recipients paid under our SASSA contract as the contract ended at the end of Q1 fiscal 2019. Our
revenue and operating income was also adversely impacted by the significant reduction in the number of SASSA grant
recipients with SASSA-branded Grindrod cards linked to Grindrod bank accounts as well as a lower number of EPE accounts.
These decreases in revenue and operating income were partially offset by higher transaction revenue as a result of increased
usage of our ATMs. Our operating (loss) income margin for Q2 2019 and 2018 was (53.8%) and 21.0%, respectively.

International transaction processing

Segment revenue was $38.1 million in Q2 2019, down 14% compared with Q2 2018 in USD. The decrease in segment revenue
and operating income was primarily due to a contraction in IPG transactions processed, specifically meaningfully lower crypto-
exchange and China processing activity, and modestly lower KSNET revenue as a result of lower transaction values processed.
Excluding the $7.0 million impairment loss, operating income during Q2 2019 was higher compared to Q2 2018 due to an
improved contribution from KSNET primarily as a result of lower depreciation expense and the Mastertrading allowance for
doubtful working capital finance receivable of $7.8 million recorded during Q2 2018. These increases were partially offset by
a decrease in IPG revenues and ongoing losses at Masterpayment during Q2 2019. Operating loss margin for Q2 2019 and 2018
was 10.6% and 11.3%, respectively. Excluding the goodwill impairment, segment operating income and margin for Q2 2019
were $3.0 million and 7.8%, respectively. Excluding the Mastertrading allowance for doubtful working capital finance
receivables, segment operating income and margin for Q2 2018 were $2.8 million and 6.4% respectively.

Financial inclusion and applied technologies

Segment revenue was $38.8 million in Q2 2019, down 28% compared with Q2 2018 in USD. Segment revenue decreased
primarily due to fewer prepaid airtime and value-added services sales, lower lending and insurance revenue, and a decrease in
inter-segment revenues, partially offset by the inclusion of DNI. Operating income was significantly lower than Q2 2018,
primarily due to the allowance for doubtful finance loans receivable of $23.4 million recognized and expenses incurred to
maintain and expand our financial service infrastructure, partially offset by the contribution from DNI. Operating (loss) income
margin for the Financial inclusion and applied technologies segment was (47.8%) and 23.5% during Q2 2019 and 2018,
respectively. Excluding the allowance for doubtful finance loans receivable, segment operating income and margin for fiscal
2019 were $4.9 million and 12.5% respectively.

Corporate/eliminations

Our corporate expenses increased primarily due to higher acquired intangible asset amortization, non-employee director
expenses and external service provider fees, partially offset by lower transaction-related expenditures.

Cash flow and liquidity

At December 31, 2018, our cash and cash equivalents were $69.9 million and comprised mainly KRW-denominated balances
of KRW 31.9 billion ($28.7 million), ZAR-denominated balances of ZAR 376.7 million ($26.2 million), U.S. dollar-
denominated balances of $11.7 million, and other currency deposits, primarily Botswana pula, of $3.4 million, all amounts
translated at exchange rates applicable as of December 31, 2018. The decrease in our cash balances from June 30, 2018, was
primarily due to significantly weaker trading activities, scheduled debt repayments, dividend payments to non-controlling
interests and capital expenditures, which was partially offset by the utilization of our debt facilities to fund our ATMs and to
finance our lending to Cell C to fund the construction of mobile telephony network infrastructure, the contribution from the
inclusion of DNI, and a decrease in our South African lending book.

Excluding the impact of interest received, interest paid under our South Africa debt and taxes, the decrease in cash provided is
primarily due to significantly weaker trading activity during fiscal 2019 compared to 2018. Capital expenditures for Q2 2019
and 2018 were $2.5 million and $2.1 million, respectively, and have increased primarily due to the acquisition of ATMs in
South Africa, computer equipment to maintain our processing activities and the expansion of our branch network. We made a
scheduled South African debt facility payment of $10.6 million (ZAR 151 million).

Operating metrics and supplemental presentation for Q2 2019 Results

Our updated operating metrics have been posted on our website (www.net1.com). A supplemental presentation for Q2 2019
will be posted to the Investor Relations page of our website – ir.net1.com one hour prior to our earnings call on Friday, February
8, 2019.

Conference Call

We will host a conference call to review these results on February 8, 2019, at 8:00 a.m. Eastern Time. To participate in the call,
dial 1-508-924-4326 (US and Canada), 0333-300-1418 (U.K. only) or 010-201-6800 (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 the Net1 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 the Net1 website through February 28, 2019.

Use of Non-GAAP Measures

US securities laws require that when we publish any non-GAAP measures, we disclose the reason for using these non-GAAP
measures and provide reconciliations to the directly comparable GAAP measures. The presentation of negative EBITDA,
adjusted negative EBITDA, fundamental net (loss) income and fundamental (loss) earnings per share and headline (loss)
earnings per share are non-GAAP measures.

EBITDA and adjusted EBITDA

(Loss) Earnings before interest, tax, depreciation and amortization ("EBITDA") is GAAP operating (loss) income
adjusted for depreciation and amortization and, if applicable, impairment losses. Adjusted EBITDA is EBITDA adjusted
for costs related to acquisitions and transactions consummated or ultimately not pursued, an allowance for
doubtful Mastertrading working capital finance loans receivable and profits realized on sale of a business.

Fundamental net (loss) income and fundamental (loss) earnings per share

Fundamental net (loss) income and (loss) earnings per share is GAAP net (loss) income and (loss) earnings per share adjusted
for the amortization of acquisition-related intangible assets (net of deferred taxes), the amortization of intangible assets (net of
deferred taxes) related to equity-accounted investments, stock-based compensation charges and reversals, the amortization of
South African and South Korean debt facility fees and unusual non-recurring items, including the impairment loss, costs related
to acquisitions and transactions consummated or ultimately not pursued.

Fundamental net (loss) income and (loss) earnings per share for fiscal 2019 also includes an adjustment for the non-controlling
interest portion of the amortization of intangible assets (net of deferred taxes).

We provide earnings guidance only on a non-GAAP basis and do not provide a reconciliation of forward-looking fundamental
(loss) earnings per share guidance to the most directly comparable GAAP financial measures because of the inherent difficulty
in forecasting and quantifying certain amounts that are necessary for such reconciliation, the amounts of which, based on past
experience, could be material.

Management believes that the EBITDA, adjusted EBITDA, fundamental net (loss) income and (loss) 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 operating income and EBITDA and adjusted EBITDA; and GAAP net (loss) income and (loss)
earnings per share and fundamental net (loss) income and (loss) earnings per share.

Headline (loss) earnings per share ("H(L)EPS")

The inclusion of H(L)EPS in this press release is a requirement of our listing on the JSE. H(L)EPS basic and diluted is calculated
using net (loss) income which has been determined based on GAAP. Accordingly, this may differ to the headline (loss) 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.

H(L)EPS basic and diluted is calculated as GAAP net (loss) income adjusted for the impairment loss and (profit) loss on sale
of property, plant and equipment. Attachment C presents the reconciliation between our net (loss) income used to calculate
(loss) earnings per share basic and diluted and HE(L)PS basic and diluted and the calculation of the denominator for headline
diluted (loss) earnings per share.

About Net1

Net1 is a leading provider of transaction processing services, financial inclusion products and services and secure payment
technology. Net1 operates market-leading payment processors in South Africa and the Republic of Korea. Net1 offers debit,
credit and prepaid processing and issuing services for all major payment networks. In South Africa, Net1 provides innovative
low-cost financial inclusion products, including banking, lending and insurance, and is a leading distributor of mobile
subscriber starter packs for Cell C, a South African mobile network operator. Net1 leverages its strategic equity investments in
Finbond and Bank Frick (both regulated banks), and Cell C to introduce products to new customers and geographies. Net1 has
a primary listing on NASDAQ (NasdaqGS: UEPS) and a secondary listing on the Johannesburg Stock Exchange (JSE: NT1).
Visit www.net1.com for additional information about Net1.

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
Head of Investor Relations
Phone: +1 917-767-6722
Email: dchopra@net1.com

Media Relations Contact:
Bridget von Holdt
Business Director – BCW
Phone: +27-82-610-0650
Email: bridget.vonholdt@bm-africa.com

                                                         NET 1 UEPS TECHNOLOGIES, INC.
                                               Unaudited Condensed Consolidated Statements of Operations
                                                                                  Three months ended                      Six months ended
                                                                                    December 31,                             December 31,
                                                                               2018                2017                 2018               2017
                                                                    (In thousands, except per share data)      (In thousands, except per share data)

REVENUE                                                                 $     97,150    $       148,416      $       223,034     $      300,974
EXPENSE
Cost of goods sold, IT processing, servicing and support                      51,185             73,994              123,501            148,646
Selling, general and administration                                           70,996             49,392              112,874             93,326
Depreciation and amortization                                                  9,853              8,723               20,647             17,689
Impairment loss                                                                8,191                  -                8,191                  -
OPERATING (LOSS) INCOME                                                     (43,075)             16,307             (42,179)             41,313
CHANGE IN VALUE OF EQUITY SECURITIES                                        (15,836)                  -             (15,836)                  -
INTEREST INCOME, net of impairment                                             (331)              4,705                1,545              9,749
INTEREST EXPENSE                                                               2,778              2,325                5,537              4,446
(LOSS) INCOME BEFORE INCOME TAX EXPENSE                                     (62,020)             18,687             (62,007)              46,61
INCOME TAX (BENEFIT) EXPENSE                                                 (2,298)             10,062                4,192             20,339
NET (LOSS) INCOME BEFORE EARNINGS FROM
EQUITY-ACCOUNTED INVESTMENTS                                                (59,722)              8,625              66,199)             26,277
(LOSS) EARNINGS FROM EQUITY-ACCOUNTED
INVESTMENTS                                                                  (1,247)              1,354                  126              3,429
NET (LOSS) INCOME                                                           (60,969)              9,979             (66,073)             29,706
LESS NET INCOME ATTRIBUTABLE TO NON-
CONTROLLING INTEREST                                                           2,972                357                3,067                601
NET (LOSS) INCOME ATTRIBUTABLE TO NET1                                  $   (63,941)    $         9,622       $     (69,140)     $       29,105
Net (loss) income per share, in U.S. dollars
Basic (loss) earnings attributable to Net1 shareholders                      $(1.13)              $0.17              $(1.22)              $0.51
Diluted (loss) earnings attributable to Net1     
shareholders                                                                 $(1.12)              $0.17              $(1.22)              $0.51

See Notes to Unaudited Condensed Consolidated Financial Statements


                                                       NET 1 UEPS TECHNOLOGIES, INC.
                                                   Unaudited Consolidated Balance Sheets
                                                                                             Unaudited               (A)
                                                                                           December 31,            June 30,
                                                                                                2018                2018
                                                                                            (In thousands, except share data)
                                                              ASSETS
CURRENT ASSETS
Cash and cash equivalents                                                               $      69,910       $       90,054
Restricted cash                                                                                63,131                    -
Pre-funded social welfare grants receivable                                                         -                2,965
Accounts receivable, net of allowances of – December: $1,331; June: $1,101                    105,007              109,683
Finance loans receivable, net of allowances of – December: $39,850; June: $16,403              25,122               62,205
Inventory                                                                                      10,272               12,887
Total current assets before settlement assets                                                 273,442              277,794
Settlement assets                                                                              65,765              149,047
Total current assets                                                                          339,207              426,841
PROPERTY, PLANT AND EQUIPMENT, net of accumulated depreciation of –December:
$132,191; June: $129,185                                                                       23,739               27,054
EQUITY-ACCOUNTED INVESTMENTS                                                                   93,561               88,331
GOODWILL                                                                                      267,964              283,240
INTANGIBLE ASSETS, net of accumulated amortization of – December: $132,061 ; June:
$121,466                                                                                      115,250              131,132
DEFERRED INCOME TAXES                                                                          20,826                6,312
OTHER LONG-TERM ASSETS, including reinsurance assets                                          219,577              256,380
TOTAL ASSETS                                                                                1,080,124            1,219,290
                                                            LIABILITIES
CURRENT LIABILITIES
Short-term credit facilities for ATM funding                                                   63,131                    -
Accounts payable                                                                               20,939               35,055
Other payables                                                                                 73,464               47,994
Current portion of long-term borrowings                                                        24,660               44,695
Income taxes payable                                                                            6,770                5,742
Total current liabilities before settlement obligations                                       188,964              133,486
Settlement obligations                                                                         65,765              149,047
Total current liabilities                                                                     254,729              282,533
DEFERRED INCOME TAXES                                                                          52,376               46,606
LONG-TERM BORROWINGS                                                                           10,395                5,469
OTHER LONG-TERM LIABILITIES, including insurance policy liabilities                             2,515               38,580
TOTAL LIABILITIES                                                                             320,015              373,188
COMMITMENTS AND CONTINGENCIES
REDEEMABLE COMMON STOCK                                                                       107,672              107,672
                                                              EQUITY
COMMON STOCK
Authorized: 200,000,000 with $0.001 par value;
Issued and outstanding shares, net of treasury - December: 56,833,925; June:
56,685,925                                                                                         80                   80
PREFERRED STOCK
Authorized shares: 50,000,000 with $0.001 par value;
Issued and outstanding shares, net of treasury: December: -; June: -                                -                    -
ADDITIONAL PAID-IN-CAPITAL                                                                    277,463              276,201
TREASURY SHARES, AT COST: December: 24,891,292; June: 24,891,292                            (286,951)            (286,951)
ACCUMULATED OTHER COMPREHENSIVE LOSS                                                        (198,272)            (184,436)
RETAINED EARNINGS                                                                             768,485              837,625
TOTAL NET1 EQUITY                                                                             560,805              642,519
NON-CONTROLLING INTEREST                                                                       91,632               95,911
TOTAL EQUITY                                                                                  652,437              738,430
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY                                              $   1,080,124       $    1,219,290
(A) – Derived from restated audited financial statements filed on Form 10-K/A on December 6, 2018.

                                                     NET 1 UEPS TECHNOLOGIES, INC.
                                           Unaudited Condensed Consolidated Statements of Cash Flows
                                                                 Three months ended              Six months ended
                                                                     December 31,                   December 31,
                                                                  2018          2017            2018            2017
                                                                    (In thousands)                  (In thousands)
Cash flows from operating activities
Net (loss) income                                       $     (60,969)   $     9,979    $   (66,073)    $     29,706
Depreciation and amortization                                    9,853         8,723          20,647          17,689
Impairment loss                                                  8,191             -           8,191               -
Movement in allowance for doubtful accounts receivable          21,368         9,402          23,958           9,465
Loss (Earnings) from equity-accounted investments                1,247       (1,354)           (126)         (3,429)
Interest on Cedar Cell note, net of impairment                   1,516         (182)           1,360           (182)
Change in fair value of equity securities                       15,836             -          15,836               -
Fair value adjustments and re-measurements                          83         (190)               1            (99)
Interest payable                                                   131         (159)             241           (247)
Facility fee amortized                                              68           214             155             347
(Profit) Loss on disposal of property, plant and equipment       (139)            16           (266)             121
Profit on disposal of business                                       -         (463)               -           (463)
Stock-based compensation charge, net                               598           608           1,185           1,435
Dividends received from equity accounted investments               454         1,253             454           2,165
Decrease (Increase) in accounts receivable, pre-funded social
welfare grants receivable and finance loans receivable          18,753       (3,397)          28,755        (42,601)
(Increase) Decrease in inventory                                  (24)       (2,322)           2,161         (3,848)
(Decrease) Increase in accounts payable and other payables    (11,759)         (481)        (19,535)           2,948
(Decrease) Increase in taxes payable                           (7,007)       (9,754)           1,347           (916)
(Increase) Decrease in deferred taxes                          (3,436)         1,419         (7,070)             428
Net cash (used in)provided by operating activities             (5,236)        13,312          11,221          12,519
Cash flows from investing activities
Capital expenditures                                           (2,547)       (2,103)         (5,665)         (3,576)
Proceeds from disposal of property, plant and equipment            212            99             486             415
Acquisition of intangible assets                               (1,384)             -         (1,384)               -
Investment in equity of equity-accounted investments           (2,500)      (40,892)         (2,500)       (113,738)
Investment in MobiKwik                                         (1,056)             -         (1,056)               -
Proceeds on return of investment                                     -             -             284               -
Investment in Cell C                                                 -             -               -       (151,003)
Acquisition of held to maturity investment                           -       (9,000)               -         (9,000)
Other investing activities                                           -         (154)               -           (154)
Net change in settlement assets                                  2,031        24,519          77,962         237,168
Net cash (used in) provided by investing activities            (5,244)      (27,531)          68,127        (39,888)
Cash flows from financing activities
Proceeds from bank overdraft                                   221,582           690         306,237          32,570
Repayment of bank overdraft                                  (245,726)      (11,391)       (245,726)        (14,343)
Repayment of long-term borrowings                             (13,551)      (30,881)        (23,811)        (45,141)
Long-term borrowings utilized                                    3,203             -          11,004          95,431
Dividends paid to non-controlling interest                     (1,208)             -         (2,937)               -
Payment of guarantee fee                                         (258)             -           (394)           (552)
Net change in settlement obligations                           (2,031)      (24,519)        (77,962)       (237,168)
Net cash used in financing activities                         (37,989)      (66,101)        (33,589)       (169,203)
Effect of exchange rate changes on cash                        (1,823)         6,857         (2,772)           3,011
Net (decrease) increase in cash, cash equivalents and
restricted cash                                               (50,292)      (73,463)          42,987       (193,561)
Cash, cash equivalents and restricted cash – beginning of
period                                                         183,333       138,359          90,054         258,457
Cash, cash equivalents and restricted cash – 
end of period (1)                                        $     133,041   $    64,896    $    133,041    $     64,896

See Notes to Unaudited Condensed Consolidated Financial Statements
(1) Cash, cash equivalents and restricted cash as of December 31, 2018, includes restricted cash of approximately $63.1 million related 
    to cash withdrawn from our various debt facilities to fund ATMs. This cash may only be used to fund ATMs and is considered restricted as 
    to use and therefore is classified as restricted cash.

Net 1 UEPS Technologies, Inc.

Attachment A

Operating segment revenue, operating income and operating margin:

Three months ended December 31, 2018 and 2017 and September 30, 2018
                                                                                                                 Change –
                                                                                                                 constant
                                                                                       Change - actual       exchange rate(1)
                                                                                       Q2 ‘19    Q2 ‘19      Q2 ‘19    Q2 ‘19
Key segmental data, in ’000, except                                                      vs        vs          vs        vs
margins                                                 Q2 ‘19     Q2 ‘18     Q1 ‘19   Q2 ‘18    Q1 ‘19       Q2‘18    Q1 ‘19
Revenue:
South African transaction processing                   $21,970    $64,148    $37,749    (66%)     (42%)       (64%)     (44%)
International transaction processing.                   38,124     44,185     39,387    (14%)      (3%)       (10%)      (7%)
Financial inclusion and applied 
technologies......................................      38,755     54,131     53,206    (28%)     (27%)       (25%)     (30%)
Subtotal: Operating segments..                          98,849    162,464    130,342    (39%)     (24%)       (36%)     (27%)
Intersegment eliminations ........                     (1,699)   (14,048)    (4,458)    (88%)     (62%)       (87%)     (63%)
Consolidated revenue .......                           $97,150   $148,416   $125,884    (35%)     (23%)       (31%)     (26%)
Operating (loss) income:
South African transaction processing                 ($11,830)    $13,470   ($3,513)       nm      237%          nm      225%
International transaction processing.                  (4,043)    (4,991)      2,762    (19%)        nm      (281%)        nm
Financial inclusion and applied
technologies......................................    (18,538)     12,737     11,302       nm        nm          nm        nm
Subtotal: Operating segments. .                       (34,411)     21,216     10,551       nm        nm          nm        nm
Corporate/Eliminations............                     (8,664)    (4,909)    (9,655)      76%     (10%)       (49%)     (13%)
Consolidated operating
(loss) income......................                  ($43,075)    $16,307       $896       nm        nm          nm        nm
Operating (loss) income margin (%)
South African transaction processing                   (53.8%)      21.0%     (9.3%)
International transaction processing.                  (10.6%)    (11.3%)       7.0%
Financial inclusion and applied
technologies......................................     (47.8%)      23.5%      21.2%
Consolidated operating margin                          (44.3%)      11.0%       0.7%
 (1) – This information shows what the change in these items would have been if the USD/ ZAR exchange rate that prevailed
       during the Q2 2019 also prevailed during Q2 2018 and Q1 2019.

Six months ended December 31, 2018 and 2017                                                                               
                                                                                                               Change –   
                                                                                                               constant   
                                                                                                    Change -   exchange   
                                                                                                      actual    rate(1)   
                                                                                                       F2019      F2019   
                                                                                                          vs         vs   
Key segmental data, in ’000, except margins                                      F2019      F2018      F2018      F2018   
Revenue:                                                                                                                  
South African transaction processing ...............................           $59,719   $130,585      (54%)      (51%)   
International transaction processing .................................          77,511     90,207      (14%)       (8%)   
Financial inclusion and applied technologies ...................                91,961    108,444      (15%)       (9%)   
Subtotal: Operating segments ..................................                229,191    329,236      (30%)      (26%)   
Intersegment eliminations ........................................             (6,157)   (28,262)      (78%)      (77%)   
Consolidated revenue .......................................                  $223,034   $300,974      (26%)      (21%)   
Operating (loss) income:                                                                                                  
South African transaction processing ...............................         ($15,343)    $25,802         nm         nm   
International transaction processing .................................         (1,281)        325         nm         nm   
Financial inclusion and applied technologies ...................               (7,236)     26,657         nm         nm   
Subtotal: Operating segments ..................................               (23,860)     52,784         nm         nm   
Corporate/Eliminations ............................................           (18,319)   (11,471)        60%        71%   
Consolidated operating (loss) income .............                           ($42,179)    $41,313         nm         nm   
Operating (loss) income margin (%)                                                                                        
South African transaction processing ...............................           (25.7%)      19.8%                         
International transaction processing .................................          (1.7%)       0.4%                         
Financial inclusion and applied technologies ...................                (7.9%)      24.6%                         
Overall operating margin .........................................             (18.9%)      13.7%                         

(1) – This information shows what the change in these items would have been if the USD/ZAR exchange rate that
      prevailed during the first half of fiscal 2019 also prevailed during the first half of fiscal 2018.

(Loss) Earnings from equity-accounted investments:

The table below presents the relative (loss) earnings from our equity-accounted investments:
                                                                                           %                            %
                                                                Q2 2019     Q2 2018   change      F2019    F2018   change
Bank Frick ...............................................     ($1,217)        $322       nm   ($1,805)     $322       nm
Share of net income ..........................                      402         487    (17%)        564      487      16%
Amortization of intangible assets, net
of deferred tax ...................................               (141)       (165)    (15%)      (285)    (165)      73%
Other .................................................         (1,478)           -       nm    (2,084)        -       nm
DNI(1) ......................................................         -       1,046       nm          -    1,911       nm
Share of net income ..........................                        -       1,832       nm          -    3,240       nm
Amortization of intangible assets, net
of deferred tax ...................................                   -       (786)       nm          -  (1,329)       nm
Finbond(2)                                                            -           -       nm      1,875    1,101      70%
Other .......................................................      (30)        (14)     114%         56       95    (41%)
(Loss) earnings from equity- accounted investments .....       ($1,247)      $1,354   (192%)       $126   $3,429    (96%)

(1) DNI was accounted for using the equity method in fiscal 2018 and has been consolidated from June 30, 2018, following
    the acquisition of a controlling interest in the company. DNI is included in our Financial inclusion and applied 
    technologies operating segment from the acquisition date.
(2) Finbond is listed on the Johannesburg Stock Exchange and reports its six-month results during our first quarter and its
    annual results during our fourth quarter and we record those results in our results during those quarters

Net 1 UEPS Technologies, Inc.

Attachment B

Reconciliation of GAAP operating (loss) income to negative EBITDA and adjusted negative EBITDA:

Three and six months and year ended December 31, 2018 and 2017
                                                                                       Three months ended    Six months ended
                                                                                              December 31,       December 31,
                                                                                            2018      2017       2018     2017
Operating (loss) income - GAAP .....................................................    (43,075)    16,307   (42,179)   41,313
Depreciation and amortization ......................................................       9,853     8,723     20,647   17,689
Impairment loss ....................................................................       8,191         -      8,191        -
(Negative) EBITDA ..................................................................    (25,031)    25,030   (13,341)   59,002
Transaction costs ..................................................................         300       611      1,850    2,097
Non-recurring Mastertrading allowance for doubtful accounts ........                           -     7,803          -    7,803
Profit on sale of Xeo ..............................................................           -     (463)          -    (463)
Adjusted (negative) EBITDA ...................................................          (24,731)    32,981   (11,491)   68,439

Reconciliation of GAAP net (loss) income and (loss) earnings per share, basic, to fundamental net (loss) income and
(loss) earnings per share, basic:

Three months ended December 31, 2018 and 2017
                                                                            (L)EPS,                                   (L)EPS,
                                                   Net (loss) income         basic          Net (loss) income          basic
                                                          (USD’000)          (USD)               (ZAR’000)             (ZAR)
                                                       2018      2017     2018     2017       2018       2017       2018    2017

GAAP .......................................       (63,941)     9,622   (1.13)     0.17  (915,866)    131,510    (16.11)    2.31
Impairment loss ...........................           8,191         -                      117,325          -
Intangible asset amortization, net                    4,510     2,199                       64,609     30,055
Intangible asset amortization, net
related to non-controlling interest                   (909)         -                     (13,020)          -
Stock-based compensation charge                         598       608                        8,566      8,310
Transaction costs .........................             300       611                        4,297      8,351
Intangible asset amortization, net
related to equity accounted
investments ..................................        1,217       951                       17,432     10,701
Facility fees for debt ....................              68       214                          974      2,925
Non-recurring Mastertrading
allowance for doubtful accounts ..                        -     7,803                            -    106,647
Change in US tax rate ..................                  -       860                            -     11,754
Profit on sale of Xeo ....................                -     (463)                            -    (6,328)
Fundamental ......................                 (49,966)    22,405   (0.88)     0.39  (715,683)    303,925    (12.59)    5.34


Six months ended December 31, 2018 and 2017
                                                                                 (L)EPS,                                   (L)EPS,
                                                        Net (loss) income         basic        Net (loss) income            basic
                                                            (USD’000)             (USD)            (ZAR’000)                (ZAR)
                                                        2018         2017     2018     2017       2018       2017       2018    2017
 GAAP ......................................        (69,140)       29,105   (1.22)     0.51  (991,314)    390,375    (17.46)    6.88
Intangible asset amortization, net                     9,060        4,354                      129,886     58,378
Impairment loss ...........................            8,191            -                      117,441          -
Transaction costs .........................            1,850        1,940                       26,525     26,021
Intangible asset amortization, net
related to non-controlling interest                  (1,815)            -                     (26,023)          -
Stock-based compensation charge                        1,185        1,435                       16,990     19,247
Intangible asset amortization, net
related to equity accounted
investments ..................................         1,805        1,494                       25,880     17,835
Facility fees for debt ....................              155          347                        2,222      4,654
Non-recurring Mastertrading
allowance for doubtful accounts ..                         -        7,803                            -    104,659
Change in US tax rate ..................                   -          860                            -     11,535
Profit on sale of Xeo ....................                 -        (463)                            -    (6,210)
Fundamental ......................                  (48,709)       46,875   (0.86)     0.83  (698,393)    626,494    (12.30)   11.04

Net 1 UEPS Technologies, Inc.

Attachment C

Reconciliation of net (loss) income used to calculate (loss) earnings per share basic and diluted and headline (loss)
earnings per share basic and diluted:

Three months ended December 31, 2018 and 2017
                                                                                                            2018         2017
Net (loss) income (USD’000)..........................................................................   (63,941)        9,622
Adjustments: ........................................................................................
Impairment loss .....................................................................................      8,191            -
Profit on sale of business ..........................................................................          -        (463)
(Profit) loss on sale of property, plant and equipment ..............................................      (139)           16
Tax effects on above ................................................................................         39          (4)
Net (loss) income used to calculate headline earnings (USD’000) .....................................   (55,850)        9,171
Weighted average number of shares used to calculate net income per share basic (loss)
earnings and headline (loss) earnings per share basic (loss) earnings (‘000) ........................     56,834       56,755
Weighted average number of shares used to calculate net income per share diluted (loss)
earnings and headline (loss) earnings per share diluted (loss) earnings (‘000) .....................      56,855       56,807
Headline (loss) earnings per share:..................................................................
Basic, in USD .......................................................................................     (0.98)         0.16
Diluted, in USD .....................................................................................     (0.98)         0.16

Six months ended December 31, 2018 and 2017
                                                                                                            2018         2017
Net (loss) income (USD’000)..........................................................................   (69,140)       29,105
Adjustments: ........................................................................................
Impairment loss .....................................................................................      8,191            -
Profit on sale of business ..........................................................................          -        (463)
(Profit) loss on sale of property, plant and equipment ..............................................      (266)           16
Tax effects on above ................................................................................         74          (4)
Net (loss) income used to calculate headline earnings (USD’000) .....................................   (61,141)       28,654
Weighted average number of shares used to calculate net income per share basic (loss)
earnings and headline (loss) earnings per share basic (loss) earnings (‘000) ........................     56,778       56,762
Weighted average number of shares used to calculate net income per share diluted (loss)
earnings and headline (loss) earnings per share diluted (loss) earnings (‘000) .....................      56,814       56,812
Headline (loss) earnings per share:..................................................................
Basic, in USD .......................................................................................     (1.08)         0.50
Diluted, in USD .....................................................................................     (1.08)         0.50

Calculation of the denominator for headline diluted (loss) earnings per share
                                                                                  Q2 ‘19   Q2 ‘18    F2019    F2018   
Basic weighted-average common shares outstanding and unvested                              
restricted shares expected to vest under GAAP ............................        56,834   56,755   56,778   56,762   
Effect of dilutive securities under GAAP ...............................              21       52       36       50   
Denominator for headline diluted (loss) earnings per share                        56,855   56,807   56,814   56,812   


Weighted average number of shares used to calculate headline (loss) earnings per share diluted represent the denominator for
basic weighted-average common shares outstanding and unvested restricted shares expected to vest plus the effect of dilutive
securities under GAAP. We use this number of fully-diluted shares outstanding to calculate headline (loss) earnings per share
diluted because we do not use the two-class method to calculate headline (loss) earnings per share diluted.

Johannesburg
February 8, 2019

Sponsor:
Rand Merchant Bank, a division of FirstRand Bank Limited

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