Net 1 UEPS Technologies, Inc. - Form 8-K - 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): May 9, 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 May 9, 2019, we issued a press release setting forth our unaudited financial results for the three and nine months ended March 31, 2019. 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 May 9, 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: May 9, 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 Third Quarter 2019 Results

JOHANNESBURG, May 9, 2019 – Net 1 UEPS Technologies, Inc. (Nasdaq: UEPS; JSE: NT1) today released results for the third fiscal quarter ended March 31, 2019.

Q3 2019 Highlights:

“We are pleased that our core South African operations demonstrated far more stability during the third-quarter, allowing us to focus on our extensive cost-containment exercise, a significant reduction of debt and other obligations, and the first steps towards the realization of value of some of our assets,” said Herman Kotzé, CEO. “The retrenchment of thousands of Net1 family members has been one of the most difficult processes we have ever faced and we completed the necessary actions to remain on track to achieve a monthly EBITDA-neutral position for our South African operations by the end of Q4 2019. The Board and management remain squarely focused on reviewing all options available for the Group, and will provide updates when there are tangible actions to report.”

“In Korea, our advisors are actively engaged with management to execute the near-term action items to drive higher growth and profitability, and in parallel, our Board, with financial advisors, is reviewing the strategic alternatives for this business. Cell C is focused on managing its near-term liquidity constraints, closing its transaction with a new minority investor and improving the performance of the business. Our other equity investments continued to perform in line with expectations during the quarter,” continued Kotzé. “With the deleveraging of the balance sheet that has been achieved since our last report, we remain comfortable with our liquidity position for the next 12 months.”

Subsequent Event
On February 28, 2019, we entered into a transaction which reduced our shareholding in DNI from 55% to 38%. The transaction closed on March 31, 2019. On May 3, 2019, we entered into an agreement which further reduced our shareholding in DNI from 38% to 30.4% through the sale of shares in DNI to FirstRand Bank Limited, acting through its Rand Merchant Bank division, for a transaction consideration of ZAR 215.0 million ($14.9 million, translated at exchange rates applicable as of May 3, 2019). The company utilized the sale proceeds and ZAR 15.0 million ($1.0 million, translated at exchange rates applicable as of May 3, 2019) of its cash reserves to early-settle its outstanding long-term borrowings. On May 3, 2019, we also entered into an agreement, in which we granted a call option to DNI to acquire our retained 30.4% interest in DNI. The option expires on December 31, 2019, and may be exercised at any time during this period. The option strike price for our remaining 30.4% interest is ZAR 859.3 million, or $59.3 million, translated at exchange rates applicable as of May 3, 2019, less any special distributions made by DNI.

Summary Financial Metrics

    Three months ended March 31,  
    2019     2018              
          As     % change     % change  
          restated(1)   in USD     in ZAR  
(All figures in USD ‘000s except per share data)                        
Revenue   86,484     162,721     (47% )   (37% )
GAAP operating (loss) income   (21,683 )   7,564     nm     nm  
Adjusted (negative) EBITDA(2)   (1,082 )   34,335     nm     nm  
GAAP (loss) earnings per share ($)   (0.96 )   0.57     nm     nm  
     Continuing   (0.88 )   0.51     nm     nm  
     Discontinued   (0.08 )   0.06     nm     nm  
Fundamental (loss) earnings per share ($)(2)   (0.62 )   0.95     nm     nm  
Fully-diluted shares outstanding (‘000’s)   56,828     56,777     0%        
Average period USD/ ZAR exchange rate   14.17     11.95     19%        
Non-cash adjustments included (before tax impact):   39,726     (17,399 )   nm        
Allowance for doubtful finance loans receivables   396     579     (32% )      
Change in fair value of equity securities   26,263     (37,843 )   nm        
Loss on disposal of DNI   5,140     -     nm        
Impairment loss   5,305     19,865     (73% )      
Impairment of Cedar Cell note   2,622     -     nm        



    Nine months ended March 31,  
    2019     2018              
          As     % change     % change  
          restated(1)     in USD     in ZAR  
(All figures in USD ‘000s except per share data)                        
Revenue   309,518     463,695     (33% )   (26% )
GAAP operating (loss) income   (63,862 )   48,877     nm     nm  
Adjusted (negative) EBITDA(2)   (11,872 )   102,774     nm     nm  
GAAP (loss) earnings per share ($)   (2.18 )   1.08     nm     nm  
     Continuing   (2.16 )   1.02     nm     nm  
     Discontinued   (0.02 )   0.06     nm     nm  
Fundamental (loss) earnings per share ($)(2)   (1.48 )   1.77     nm     (188% )
Fully-diluted shares outstanding (‘000’s)   56,819     56,842     (0% )      
Average period USD/ ZAR exchange rate   14.27     12.89     11%        
Non-cash adjustments included (before tax impact):   97,727     (6,418 )   nm        
Allowance for doubtful finance loans receivables   31,638     11,560     174%        
Change in fair value of equity securities   42,099     (37,843 )   nm        
Loss on disposal of DNI   5,140     -     nm        
Impairment loss   13,496     19,865     (32% )      
Impairment of Cedar Cell note   5,354     -     nm        

(1) As previously reported and more fully described in Note 1 to the consolidated financial statements contained in the Form 10-K/A filed on December 6, 2018, the Company restated its 2018 consolidated financial statements, to correctly classify and record the change in fair value of its investment in Cell C. The financial information for the three and nine months ended March 31, 2018, has been restated with the effect of increasing GAAP net (loss) income by $29,366, and GAAP (loss) net income by $0.52.

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

Factors impacting comparability of our Q3 2019 and Q3 2018 results


Results of Operations by Segment and Liquidity

     South African transaction processing

Segment revenue was $17.4 million in Q3 2019, down 72% on a constant currency basis compared with Q3 2018. 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 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. Operating income for this operating segment for Q3 2019 included retrenchment costs of $3.0 million (ZAR 41.7 million). Our operating (loss) income margin for Q3 2019 and 2018 was (74.6%) and 17.3%, respectively. Excluding restructuring costs, the operating loss margin for Q3 2019 was (57.5%) .

     International transaction processing

Segment revenue was $34.4 million in Q3 2019, down 12% compared with Q3 2018 in constant currency. Segment revenue was lower during Q3 2019, 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. Operating income during Q3 2018 was adversely impacted by a $19.9 million impairment loss and positively impacted by an ad hoc refund of indirect taxes of $2.5 million in Korea. Excluding the impact of the impairment loss and the ad hoc tax refund, operating income during Q3 2019 was lower compared to fiscal 2018 due to the decrease in IPG revenues and resulting from these lower revenues, and partially offset by an improved contribution from KSNET, primarily as a result of a lower depreciation expense. Operating income (loss) margin for Q3 2019 and 2018 was 5.6% and (32.2%), respectively. Excluding the goodwill impairment and ad hoc tax refund, segment operating income and margin for fiscal 2018 were $2.4 million and 5.2%, respectively.

     Financial inclusion and applied technologies

Segment revenue was $36.7 million in Q3 2019, down 27% compared with Q3 2018 in constant currency. 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 Q3 2018, primarily due to lower revenue generation and higher expenses incurred to maintain and expand our financial service infrastructure, partially offset by the contribution from DNI. Operating income for this operating segment for Q3 2019 included retrenchment costs of $1.6 million (ZAR 22.1 million). Excluding the retrenchment costs, segment operating income and margin for fiscal 2019 were $4.8 million and 13.2% respectively.

     Corporate/eliminations

Our corporate expenses increased primarily due to a $5.3 million impairment loss as well as higher acquired intangible asset amortization, non-employee director expenses, transaction-related expenditures and external service provider fees.

     Cash flow and liquidity

At March 31, 2019, our cash and cash equivalents were $48.8 million and comprised ZAR-denominated balances of ZAR 263.0 million ($18.2 million), KRW-denominated balances of KRW 17.2 billion ($15.1 million), U.S. dollar-denominated balances of $10.7 million, and other currency deposits, primarily Botswana pula, of $4.7 million, all amounts translated at exchange rates applicable as of March 31, 2019. The decrease in our unrestricted 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 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 Q3 2019 and 2018 were $1.6 million and $4.2 million, respectively, and have decreased primarily due to the acquisition of fewer ATMs in South Africa and computer equipment to maintain our processing activities. We made a scheduled South African debt facility payment of $10.5 million (ZAR 151 million).

Operating metrics and supplemental presentation for Q3 2019 Results

Our updated operating metrics have been posted on our website (www.net1.com). A supplemental presentation for Q3 2019 will be posted to the Investor Relations page of our website – ir.net1.com one hour prior to our earnings call on Friday, May 10, 2019.


Conference Call

We will host a conference call to review these results on May 10, 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 080-020-0648 (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 May 30, 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, retrenchment costs incurred, an allowance for doubtful Mastertrading working capital finance loans receivable, a refund of indirect taxes in Korea, and (loss) profits realized on the sale of a business.

vFundamental 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 loss incurred on the disposal of DNI, retrenchment costs incurred, accretion of interest related to the DNI contingent consideration, and for the non-controlling interest portion of the amortization of intangible assets (net of deferred taxes). Fundamental net income and earnings per share for fiscal 2018 also includes adjustments for an allowance for doubtful working capital finance receivables, refund of indirect taxes in Korea, the impact of changes in tax laws in the U.S and a gain realized on the sale of XeoHealth.

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 through DNI 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
Group Vice President, 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       Nine months ended  
    March 31,       March 31,  
    2019       2018       2019       2018  
            (As               (As  
            restated)               restated)  
    (In thousands, except per share data)       (In thousands, except per share data)  
                               
REVENUE $  86,484     $  162,721     $  309,518     $ 463,695  
                               
EXPENSE                              
                               
         Cost of goods sold, IT processing, servicing and support   50,179       77,860       173,680       226,506  
                               
         Selling, general and administration   42,802       48,091       155,676       141,417  
                               
         Depreciation and amortization   9,881       9,341       30,528       27,030  
                               
         Impairment loss   5,305       19,865       13,496       19,865  
                               
OPERATING (LOSS) INCOME   (21,683 )     7,564       (63,862 )     48,877  
                               
CHANGE IN FAIR VALUE OF EQUITY SECURITIES   (26,263 )     37,843       (42,099 )     37,843  
                               
LOSS ON DISPOSAL OF DNI   5,140       -       5,140       -  
                               
INTEREST INCOME, net of impairment   (959 )     5,154       586       14,903  
                               
INTEREST EXPENSE   3,493       2,426       9,030       6,872  
                               
(LOSS) INCOME BEFORE INCOME TAX (BENEFIT) EXPENSE   (57,538 )     48,135       (119,545 )     94,751  
                               
INCOME TAX (BENEFIT) EXPENSE   (2,490 )     19,418       1,702       39,757  
                               
NET (LOSS) INCOME BEFORE EARNINGS FROM EQUITY-ACCOUNTED INVESTMENTS   (55,048 )     28,717       (121,247 )     54,994  
                               
(LOSS) EARNINGS FROM EQUITY-ACCOUNTED INVESTMENTS   (464 )     3,960       (338 )     7,389  
                               
NET (LOSS) INCOME   (55,512 )     32,677       (121,585 )     62,383  
         Continuing   (50,784 )     29,386       (124,275 )     57,181  
         Discontinued   (4,728 )     3,291       2,690       5,202  
                               
(ADD) LESS NET (LOSS) INCOME ATTRIBUTABLE TO NON-CONTROLLING INTEREST   (728 )     302       2,339       903  
         Continuing   (485 )     302       (1,362 )     903  
         Discontinued   (243 )     -       3,701       -  
                               
NET (LOSS) INCOME ATTRIBUTABLE TO NET1 $  (54,784 )   $  32,375     $  (123,924 )   $ 61,480  
         Continuing   (50,299 )     29,084       (122,913 )     56,278  
         Discontinued   (4,485 )     3,291       (1,011 )     5,202  
                               
Net (loss) income per share, in U.S. dollars                              
         Basic (loss) earnings attributable to Net1 shareholders $(0.96 )   $0.57     $(2.18 )   $1.08  
                   Continuing $(0.88 )   $0.51     $(2.16 )   $1.02  
                   Discontinued $(0.08 )   $0.06     $(0.02 )   $0.06  
         Diluted (loss) earnings attributable to Net1 shareholders $(0.96 )   $0.57     $(2.18 )   $1.08  
                   Continuing $(0.88 )   $0.51     $(2.16 )   $1.02  
                   Discontinued $(0.08 )   $0.06     $(0.02 )   $0.06  


NET 1 UEPS TECHNOLOGIES, INC.
Unaudited Condensed Consolidated Balance Sheets

    March 31,     June 30,  
    2019     2018(A)
    (In thousands, except share data)  
ASSETS    
CURRENT ASSETS            
     Cash and cash equivalents $  48,757   $  87,075  
     Restricted cash   74,181     -  
     Pre-funded social welfare grants receivable   -     2,965  
     Accounts receivable, net and other receivables   80,150     93,448  
     Finance loans receivable, net   25,217     61,463  
     Inventory   7,861     10,361  
     Current assets of discontinued operation   -     22,482  
             Total current assets before settlement assets   236,166     277,794  
                     Settlement assets   66,222     149,047  
                           Total current assets   302,388     426,841  
PROPERTY, PLANT AND EQUIPMENT, net of accumulated depreciation of – March: $131,212;            
June: $126,026   19,889     25,737  
EQUITY-ACCOUNTED INVESTMENTS   167,497     87,992  
GOODWILL   156,499     169,079  
INTANGIBLE ASSETS, net of accumulated amortization of – March: $128,724; June: $121,466   15,719     27,129  
DEFERRED INCOME TAXES   2,862     5,751  
OTHER LONG-TERM ASSETS, including reinsurance assets   174,903     235,032  
LONG-TERM ASSETS OF DISCONTINUED OPERATION   -     241,729  
     TOTAL ASSETS   839,757     1,219,290  
LIABILITIES    
CURRENT LIABILITIES            
     Short-term credit facilities for ATM funding   74,181     -  
     Short-term credit facilities   8,865     -  
     Accounts payable   14,743     21,106  
     Other payables   37,936     41,645  
     Current portion of long-term borrowings   15,823     44,079  
     Income taxes payable   4,958     5,742  
     Current liabilities of discontinued operation   -     20,914  
             Total current liabilities before settlement obligations   156,506     133,486  
                     Settlement obligations   66,222     149,047  
                           Total current liabilities   222,728     282,533  
DEFERRED INCOME TAXES   6,299     17,485  
LONG-TERM BORROWINGS   -     5,469  
OTHER LONG-TERM LIABILITIES, including insurance policy liabilities   2,273     30,289  
LONG-TERM LIABILITIES OF DISCONTINUED OPERATION   -     37,412  
     TOTAL LIABILITIES   231,300     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 - March: 56,815,925; 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: March: -; June: -   -     -  
ADDITIONAL PAID-IN-CAPITAL   277,950     276,201  
TREASURY SHARES, AT COST: March: 24,891,292; June: 24,891,292   (286,951 )   (286,951 )
ACCUMULATED OTHER COMPREHENSIVE LOSS   (204,338 )   (184,436 )
RETAINED EARNINGS   713,701     837,625  
     TOTAL NET1 EQUITY   500,442     642,519  
     NON-CONTROLLING INTEREST   343     95,911  
             TOTAL EQUITY   500,785     738,430  
                     TOTAL LIABILITIES, REDEEMABLE COMMON STOCK AND SHAREHOLDERS’ EQUITY $  839,757   $  1,219,290  
(A) – Derived from 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     Nine months ended  
    March 31,     March 31,  
    2019     2018     2019     2018  
          (as restated)           (as restated()  
    (In thousands)     (In thousands)  
Cash flows from operating activities                        
Net (loss) income $  (55,512 ) $  32,677   $  (121,585 ) $  62,383  
Depreciation and amortization   9,881     9,341     30,528     27,030  
Impairment loss   5,305     19,865     13,496     19,865  
Allowance for doubtful accounts receivable charged   396     579     31,638     11,560  
Loss (Earnings) from equity-accounted investments   464     (3,960 )   338     (7,389 )
Interest on Cedar Cell note, net of impairment   2,044     (587 )   3,404     (769 )
Change in fair value of equity securities   26,263     (37,843 )   42,099     (37,843 )
Fair value adjustments and foreign currency re-measurements   90     (110 )   91     (209 )
Interest payable   53     (17 )   294     (264 )
Facility fee amortized   51     120     206     467  
(Profit) Loss on disposal of property, plant and equipment   (147 )   (50 )   (413 )   71  
Loss (Profit) on disposal of business   5,140     -     5,140     (463 )
Stock-based compensation charge, net   487     575     1,672     2,010  
Dividends received from equity accounted investments   -     1,946     454     4,111  
Decrease (Increase) in accounts receivable, pre-funded social welfare grants receivable and finance loans receivable   (14,938 )   41,679     6,533     (2,438 )
Decrease (Increase) in inventory   1,451     1,072     3,612     (2,776 )
Increase (Decrease) in accounts payable and other payables   8,196     2,827     (11,339 )   5,775  
Increase in taxes payable   795     9,007     2,142     8,091  
(Decrease) Increase in deferred taxes   (4,153 )   7,824     (11,223 )   8,252  
    Net cash (used in) provided by operating activities   (14,134 )   84,945     (2,913 )   97,464  
Cash flows from investing activities                        
Capital expenditures   (1,615 )   (4,225 )   (7,280 )   (7,801 )
Proceeds from disposal of property, plant and equipment   295     160     781     575  
Disposal of DNI   (2,114 )   -     (2,114 )   -  
Investment in equity of equity-accounted investments   (489 )   (18,597 )   (2,989 )   (132,335 )
Acquisition of intangible assets   -     -     (1,384 )   -  
Investment in MobiKwik   -     -     (1,056 )   -  
Proceeds on return of investment   -     -     284     -  
Investment in Cell C   -     -     -     (151,003 )
Loans to equity-accounted investments   -     (10,635 )   -     (10,635 )
Acquisition of held to maturity investment   -     -     -     (9,000 )
Other investing activities   -     300     -     146  
Net change in settlement assets   (1,083 )   43,222     76,879     280,390  
    Net cash (used in) provided by investing activities   (5,006 )   10,225     63,121     (29,663 )
Cash flows from financing activities                        
Proceeds from bank overdraft   278,288     9,802     584,525     42,372  
Repayment of bank overdraft   (257,097 )   (42,650 )   (502,823 )   (56,993 )
Repayment of long-term borrowings   (12,499 )   (15,826 )   (36,310 )   (60,967 )
Long-term borrowings utilized   3,609     17,726     14,613     113,157  
Dividends paid to non-controlling interest   (1,148 )   -     (4,085 )   -  
Payment of guarantee fee   -     (202 )   (394 )   (754 )
Net change in settlement obligations   1,083     (43,222 )   (76,879 )   (280,390 )
      Net cash provided by (used in) financing activities   12,236     (74,372 )   (21,353 )   (243,575 )
Effect of exchange rate changes on cash   (3,199 )   1,478     (5,971 )   4,489  
Net (decrease) increase in cash, cash equivalents and restricted cash   (10,103 )   22,276     32,884     (171,285 )
Cash, cash equivalents and restricted cash – beginning   133,041     64,896     90,054     258,457  
Cash, cash equivalents and restricted cash – end of period (1) $  122,938   $  87,172   $  122,938   $  87,172  

(1) Cash, cash equivalents and restricted cash as of March 31, 2019, includes restricted cash of approximately $74.2 million related to cash withdrawn from the Company’s 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 March 31, 2019 and 2018 and December 31, 2018

                                  Change –  
                                  constant  
                      Change - actual     exchange rate(1)  
                      Q3 ‘19     Q3 ‘19     Q3 ‘19     Q3 ‘19  
Key segmental data, in ’000, except                     vs     vs     vs     vs  
margins   Q3 ‘19     Q3 ‘18     Q2 ‘19     Q3‘18     Q2 ‘19     Q3‘18     Q2 ‘19  
Revenue:                                          
South African transaction processing $17,374   $73,508   $21,970     (76% )   (21% )   (72% )   (22% )
International transaction processing .   34,358     46,240     38,124     (26% )   (10% )   (12% )   (11% )
Financial inclusion and applied technologies   36,650     59,574     38,755     (38% )   (5% )   (27% )   (6% )
     Continuing   18,808     59,574     19,047     (68% )   (1% )   (63% )   (2% )
     Discontinued   17,842     -     19,708     nm     (9% )   nm     (10% )
         Subtotal: Operating segments   88,382     179,322     98,849     (51% )   (11% )   (42% )   (12% )
         Intersegment eliminations   (1,898 )   (16,601 )   (1,699 )   (89% )   12%     (86% )   11%  
                 Consolidated revenue   86,484     162,721     97,150     (47% )   (11% )   (37% )   (12% )
                         Continuing   68,642     $162,721     77,442     (58% )   (11% )   (50% )   (12% )
                         Discontinued   $17,842     $-     $19,708     nm     (9% )   nm     (10% )
Operating (loss) income:                                          
South African transaction processing   ($12,954 ) $12,719     ($11,830 )   nm     10%     nm     8%  
International transaction processing .   1,909     (14,892 )   (4,043 )   nm     nm     nm     nm  
Financial inclusion and applied technologies   3,227     14,968     (18,538 )   (78% )   nm     (74% )   nm  
     Continuing   (4,911 )   14,968     (26,968 )   (133% )   nm     (139% )   nm  
     Discontinued   8,138     -     8,430     nm     (3% )   nm     (4% )
         Subtotal: Operating segments   (7,818 )   12,795     (34,411 )   nm     (77% )   nm     (78% )
         Corporate/Eliminations   (13,865 )   (5,231 )   (8,664 )   165%     60%     214%     58%  
     Continuing   (6,399 )   (5,231 )   (6,061 )   22%     6%     45%     4%  
     Discontinued   (7,466 )   -     (2,603 )   nm     187%     nm     184%  
                 Consolidated operating                                          
                 (loss) income   (21,683 )   7,564     (43,075 )   nm     (50% )   nm     (50% )
                         Continuing   (22,355 )   7,564     (48,902 )   nm     (54% )   nm     (55% )
                         Discontinued   $672     $-     $5,827     nm     (88% )   nm     (89% )
Operating (loss) income margin                                          
(%)                                          
South African transaction processing   (74.6% )   17.3%     (53.8% )                        
International transaction processing .   5.6%     (32.2% )   (10.6% )                        
Financial inclusion and applied technologies   8.8%     25.1%     (47.8% )                
     Continuing   (26.1% )   25.1%     (141.6% )                        
     Discontinued   45.6%     nm     42.8%                          
         Consolidated operating margin   (25.1% )   4.6%     (44.3% )                        
                 Continuing   (32.6% )   4.6%     (63.1% )                        
                 Discontinued   3.8%     nm     29.6%                          

(1) – This information shows what the change in these items would have been if the USD/ ZAR exchange rate that prevailed during Q3 2019 also prevailed during Q3 2018 and Q2 2019.


Nine months ended March 31, 2019 and 2018

                        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 $77,093     $204,093     (62% )   (58% )
International transaction processing   111,869       136,447     (18% )   (9% )
Financial inclusion and applied technologies   128,611       168,018     (23% )   (15% )
     Continuing   72,274       168,018     (57% )   (52% )
     Discontinued   56,337       -     nm     nm  
         Subtotal: Operating segments   317,573       508,558     (38% )   (31% )
         Intersegment eliminations   (8,055 )     (44,863 )   (82% )   (80% )
                 Consolidated revenue   309,518       463,695     (33% )   (26% )
                         Continuing   253,181       463,695     (45% )   (40% )
                         Discontinued $56,337     $-     nm     nm  
                           
Operating (loss) income:                          
South African transaction processing   ($28,297 )   $38,521     (173% )   (181% )
International transaction processing   628       (14,567 )   (104% )   (105% )
Financial inclusion and applied technologies   (4,009 )     41,625     (110% )   (111% )
     Continuing   (28,409 )     41,625     (168% )   (176% )
     Discontinued   24,400       -     nm     nm  
         Subtotal: Operating segments   (31,678 )     65,579     (148% )   (153% )
         Corporate/Eliminations   (32,184 )     (16,702 )   93%     113%  
                 Continuing   (19,465 )     (16,702 )   17%     29%  
                 Discontinued   (12,719 )     -     nm     nm  
                 Consolidated operating (loss) income   (63,862 )     48,877     (231% )   (245% )
                         Continuing   (75,543 )     48,877     (255% )   (271% )
                         Discontinued $11,681     $-     nm     nm  
                           
Operating (loss) income margin (%)                          
South African transaction processing   (36.7% )     18.9%              
International transaction processing   0.6%       (10.7% )            
Financial inclusion and applied technologies   (3.1% )     24.8%              
         Continuing   (39.3% )     24.8%              
         Discontinued   43.3%       nm              
         Consolidated operating margin   (20.6% )     10.5%              
                 Continuing   (29.8% )     10.5%              
                 Discontinued   20.7%       nm              

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

(Loss) Earnings from equity-accounted investments:

The table below presents the relative (loss) earnings from our equity-accounted investments:

                  %                   %  
    Q3 2019       Q3 2018     change     F2019       F2018     change  
Bank Frick   ($90 )   $653     nm     ($1,895 )   $975     nm  
       Share of net income   52       747     (93% )   616       1,234     (50% )
       Amortization of intangible assets, 
       net of deferred tax
  (142 )     (94 )   51%     (427 )     (259 )   65%  
       Other   -       -     nm     (2,084 )     -     nm  
DNI(1)   -       3,291     nm     -       5,202     nm  
       Share of net income   -       3,628     nm     -       6,868     nm  
       Amortization of intangible assets, 
       net of deferred tax
  -       (337 )   nm     -       (1,666 )   nm  
Finbond(2)   -       -     nm     1,875       1,101     70%  
Other   (374 )     16     nm     (318 )     111     nm  
       (Loss) earnings from equity- 
       accounted investments
  ($464 )   $3,960     nm     ($338 )   $7,389     nm  


(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 nine months and year ended March 31, 2019 and 2018

    Three months ended     Nine months ended  
    March 31,     March 31,  
    2019     2018     2019     2018  
                         
Operating (loss) income - GAAP   (21,683 )   7,564     (63,862 )   48,877  
                         
     Depreciation and amortization   9,881     9,341     30,528     27,030  
     Impairment loss   5,305     19,865     13,496     19,865  
            (Negative) EBITDA   (6,497 )   36,770     (19,838 )   95,772  
                     Retrenchment costs   4,542     -     5,243     -  
                     Transaction costs   873     110     2,723     2,207  
                     Refund of Korean indirect taxes   -     (2,545 )   -     (2,545 )
                     Non-recurring Mastertrading allowance for doubtful accounts   -     -     -     7,803  
                     (Loss) Profit on disposal of subsidiary   -     -     -     (463 )
                          Adjusted (negative) EBITDA   (1,082 )   34,335     (11,872 )   102,774  

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 March 31, 2019 and 2018

                (L)EPS,                 (L)EPS,  
    Net (loss) income     basic     Net (loss) income     basic  
    (USD’000)     (USD)     (ZAR’000)     (ZAR)  
    2019     2018     2019     2018     2019     2018     2019     2018  
                                                 
GAAP   (54,784 )   32,375     (0.96 )   0.57       (815,439 )   386,814     (14.35 )   6.80  
                                                 
     Impairment loss   5,305     19,865                 75,184     237,345              
     Loss on disposal of DNI   5,140     -                 72,845     -              
     Intangible asset amortization, net.   4,380     2,268                 62,080     27,096              
     Retrenchment costs, net   3,270     -                 45,915     -              
     Accreted interest on DNI 
     contingent consideration
  1,012     -             14,335     -          
     Intangible asset amortization, net                                                
     related to non-controlling interest   (918 )   -                 (13,008 )   -              
     Stock-based compensation charge   578     575                 8,190     6,870              
     Transaction costs   873     110                 12,371     1,314              
     Intangible asset amortization, net 
     related to equity accounted 
     investments
  142     431             2,012     10,701          
     Facility fees for debt   51     120                 723     1,434              
     Refund related to litigation 
     finalized in Korea, net
  -     (1,985 )             -     (23,717 )        
          Fundamental   (34,951 )   53,759     (0.62 )    0.95       (534,792 )   647,857     (9.41 )   11.40  


Nine months ended March 31, 2019 and 2018

                (L)EPS,                 (L)EPS,  
    Net (loss) income     basic     Net (loss) income     basic  
    (USD’000)     (USD)     (ZAR’000)     (ZAR)  
    2019     2018     2019     2018       2019     2018     2019     2018  
                                                 
GAAP   (123,924 )   61,480     (2.18 )   1.08       (1,705,572 )   792,686     (30.03 )   13.96  
                                                 
     Intangible asset amortization, net   13,502     6,644                 192,633     85,666              
     Impairment loss   13,496     19,865                 192,551     256,128              
     Loss on disposal of DNI   5,140     -                 73,333     -              
     Retrenchment costs, net   3,775                       53,087     -              
     Intangible asset amortization, net 
     related to non-controlling interest
  (2,737 )   -             (39,047 )   -          
     Transaction costs   2,723     2,050                 38,848     26,432              
     Accreted interest on DNI contingent 
     consideration
  1,848     -             26,360     -          
     Stock-based compensation charge   1,763     2,010             25,152     25,916          
     Intangible asset amortization, net 
     related to equity accounted investments
  427     1,925             6,092     17,835          
     Facility fees for debt   206     467                 2,939     6,021              
     Non-recurring Mastertrading allowance 
     for doubtful accounts .
  -     7,803             -     100,607          
     Refund related to litigation finalized 
     in Korea, net
  -     (1,985 )           -     (25,593 )        
     Change in US tax rate   -     860                 -     11,088              
     Profit on disposal of subsidiary   -     (463 )               -     (5,970 )            
          Fundamental   (83,781 )   100,656     (1.48   1.77      (1,133,624 )   1,290,816     (19.96 )   22.73  


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 March 31, 2019 and 2018

    2019     2018  
             
Net (loss) income (USD’000)   (54,784 )   32,375  
Adjustments:            
     Impairment loss   5,305     19,865  
     Loss on sale of business   5,140     -  
     Profit on sale of property, plant and equipment   (147 )   (50 )
     Tax effects on above   41     14  
             
Net (loss) income used to calculate headline earnings (USD’000)   (44,445 )   52,204  
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)   56,828     56,716  
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)   56,828     56,777  
Headline (loss) earnings per share:            
     Basic, in USD   (0.78 )   0.92  
     Diluted, in USD   (0.78 )   0.92  

Nine months ended March 31, 2019 and 2018

    2019     2018  
             
Net (loss) income (USD’000)   (123,924 )   61,480  
Adjustments:            
     Impairment loss   13,496     19,865  
     Loss (Profit) on sale of business   5,140     (463 )
     Profit on sale of property, plant and equipment   (413 )   (50 )
     Tax effects on above   116     14  
             
Net (loss) income used to calculate headline earnings (USD’000)   (105,585 )   80,846  
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)   56,795     56,788  
             
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)   56,819     56,842  
Headline (loss) earnings per share:            
     Basic, in USD   (1.86 )   1.42  
     Diluted, in USD   (1.86 )   1.42  

Calculation of the denominator for headline diluted (loss) earnings per share

    Q3 ‘19     Q3 ‘18     F2019     F2018  
                         
Basic weighted-average common shares outstanding and unvested restricted shares expected to vest under GAAP   56,828     56,716     56,795     56,788  
         Effect of dilutive securities under GAAP   -     61     24     54  
         Denominator for headline diluted (loss) earnings per share   56,828     56,777     56,819     56,842  

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.