Net 1 UEPS Technologies, Inc.: Form 8K - Filed by newsfilecorp.com

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

___________________________

FORM 8-K

CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): February 7, 2019

NET 1 UEPS TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)

Florida 000-31203 98-0171860
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)

President Place, 4th Floor, Cnr. Jan Smuts Avenue and Bolton Road
Rosebank, Johannesburg, South Africa
(Address of principal executive offices) (ZIP Code)

Registrant’s telephone number, including area code: 011-27-11-343-2000

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a -12)

[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d -2(b))

[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e -4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§ 230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§ 240.12b -2 of this chapter).

Emerging growth company [ ]

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]


Item 2.02. Results of Operations and Financial Condition.

The following information is furnished pursuant to Item 2.02, “Results of Operations and Financial Condition”.

On February 7, 2019, we issued a press release setting forth our unaudited financial results for the three and six months ended December 31, 2018. A copy of the press release is attached as Exhibit 99.1.

Item 9.01. Financial Statements and Exhibits.

  (d)

Exhibits


Exhibit No.  Description
   

99.1

Press Release, dated February 7, 2019, issued by Net 1 UEPS Technologies, Inc.


SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

  NET 1 UEPS TECHNOLOGIES, INC.
   
   
Date: February 7, 2019 By: /s/ Herman G. Kotzé
  Name: Herman G. Kotzé
  Title: Chief Executive Officer


Net 1 UEPS Technologies, Inc.: Exhibit 99.1 - Filed by newsfilecorp.com

Exhibit 99.1

Net 1 UEPS Technologies, Inc. Reports Second Quarter 2019 Results

JOHANNESBURG, February 7, 2019 – Net 1 UEPS Technologies, Inc. (Nasdaq: UEPS; JSE: NT1) today released results for the second fiscal quarter ended December 31, 2018.

Q2 2019 Highlights:

“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


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 )   46,616  
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.