Net 1 UEPS Technologies, Inc. Announces 2010 First Quarter Results
Thu Nov 5, 4:15 PMJOHANNESBURG, Nov. 5 /PRNewswire-FirstCall/ -- Net 1 UEPS Technologies, Inc. ("Net1" or the "Company") (Nasdaq: UEPS; JSE: NT1) today announced results for the three months ended September 30, 2009. Revenue during 1Q 2010 was $65.5 million, a year over year decline of 4% in US dollars ("USD") and 3% in constant currency. Earnings per share under US generally accepted accounting principles ("GAAP") in 1Q 2010 was $0.37 versus $0.45 a year ago, a decline of 18% in USD and 18% in constant currency. Fundamental earnings per share for 1Q 2010 was $0.45 compared to $0.39 in the 1Q 2009, representing an increase of 15% in USD and 15% in constant currency.
Summary Financial Metrics
Three months ended September 30,
--------------------------------
% change % change
2009 2008(2) in USD in ZAR
------ -------- ------ -------
(All figures in USD '000s except
per share data)
Revenue 65,514 67,935 (4)% (3)%
GAAP net income 17,941 26,244 (32)% (32)%
Fundamental net income (1) 21,804 22,696 (4)% (4)%
GAAP earnings per share ($) 37 45 (18)% (18)%
Fundamental earnings per share ($)(1) 45 39 15% 15%
Fully diluted shares outstanding
('000's) 48,918 58,362 (16)%
Average period USD/ ZAR exchange rate 7.82 7.80 -%
(1) Fundamental net income and earnings per share is GAAP net income and
earnings per share excluding the amortization of acquisition-related
intangible assets, net of deferred taxes, and stock-based compensation
charges. In addition, the calculation of fundamental net income and
earnings per share for 1Q 2009 also excludes the effects of the change in
the Company's fully distributed tax rate from 35.45% to 34.55%, JSE
listing costs, a bank facility fee and a foreign exchange gain, net of
tax, related to a short-term investment.
(2) Basic and fundamental earnings per shares for 1Q 2009, have been
retrospectively adjusted, as required by FSP EITF 03-6-1 (Topic 260), to
include participating securities in the weighted average number of
outstanding shares of common stock.
The following factors had significant impact on the comparability of our 2010 first quarter results to last year:
-- Inflation-adjusted fixed fees on pension distribution: 1Q 2010 results
was favorably impacted by the inflation-adjusted fixed fee effective
from April 2009 for the distribution of a minimum number of social
welfare grants;
-- Increased transaction volumes at EasyPay: 1Q 2010 results were favorably
impacted by increased transaction volumes at EasyPay resulting from
growth in value added services;
-- Tax comparison: 1Q 2009 results were favorably impacted by a reduction
in the Company's fully-distributed tax rate, which became effective in
1Q 2009.
-- Intangible asset amortization related to acquisitions: 1Q 2010 and 1Q
2009, respectively, includes $2.9 million and $0.9 million intangible
asset amortization related to acquisitions;
-- Non-recurring items: In 1Q 2009, hardware and software revenue included
one-time contributions of $6.2 million from Ghana and Nedbank, while
GAAP EPS was positively influenced by a $4.0 million foreign exchange
gain, all of which had no impact in 1Q 2010.
Comments and Outlook
"Our results, particularly within core transaction-based activities, demonstrate the strength of our business model and the power of our technology, allowing us to take advantage of opportunities created by economic challenges globally," said Dr. Serge Belamant, Chairman and Chief Executive Officer of Net1. "While we did face difficult year-over-year comparisons in our hardware, software and related technology sales segment, we continue to grow both revenue and profitability in transaction-based activities. We remain an integral distributor of welfare grants for the South African government, and we continue to make progress on business development activities that should allow us to export our technology to more countries around the globe. We remain committed to delivering sustainable growth for all of our stake holders," he concluded.
"We reiterate our guidance of at least 20% constant currency fundamental earnings per share growth for fiscal year 2010," said Herman Kotze, Chief Financial Officer of Net1. "Our growth during 1Q 2010 was driven by our core pension and welfare business, further penetration of our merchant acquiring platform and increased contribution of value-added services at EasyPay as well as contributions from our activities in Iraq," he concluded.
Results of operations
Net1's frequently asked questions and operating metrics will be posted on the Company's website (www.net1.com).
Transaction-based activities
Transaction-based activities revenue was $45 million, up 11% from 1Q 2009 in USD and 12% higher on a constant currency basis. Revenue and operating income increased as a result of the standard pricing formula agreed with SASSA, which resulted in a higher average revenue per grant, increased transactions processed through EasyPay and the opening of the October 2009 payfile in the last three days of September 2009, compared to the last two days of September 2008. Operating margin increased to 59% from 54% during 1Q 2010 primarily as a result of the early opening of the October 2009 pay file, higher average revenue per grant paid due to the standard pricing formula for all provinces and improved margins at EasyPay. Excluding amortization of intangibles for EasyPay and RMT, segment operating margin was 61% in 1Q 2010.
Smart card accounts
Smart card account revenue of $8.1 million declined 6% year-over-year both in USD and on a constant currency basis. Operating margin for the segment remained consistent at 45%.
Financial services
Financial services revenue of $0.8 million, was down 56% from 1Q 2009 in both USD and constant currency, principally due to the divestiture of the Company's traditional microlending business in 3Q 2009. Operating margin for the segment however, improved significantly to 67% from 18% in 1Q 2009 as a result of the sale of this low-margin business, and higher profitability in our underlying UEPS-based lending activities.
Hardware, software and related technology sales
Revenue of $11.7 million decreased 32% year-over-year both in USD and in constant currency. The decrease was due primarily to cyclical pressure on certain commodity hardware products we sell, non-recurring revenues from Ghana and Nedbank during 1Q 2009 and lower revenues from BGS. During 1Q 2009, Ghana and Nedbank had one-time contributions of $6.2 million to segment revenue. Operating margin for the segment was (15)% in 1Q 2010 compared to 24% in the quarter last year, due to non-recurring Ghana and Iraq sales in the prior year and high intangible asset amortization related to the BGS acquisition. Excluding amortization of all intangibles, segment operating margin was 7%.
Cash flow and liquidity
At September 30, 2009, the Company had cash and equivalents of $139 million, down from $221 million at June 30, 2009. For 1Q 2010, the Company generated operating cash flow of $37.0 million compared to cash used in operating activities of $33.0 million in 1Q 2009. Capital expenditures for 1Q 2010 were $0.6 million.
Repurchase of Brait Shares
In July 2009, the Company repurchased all Company shares held by Brait S.A. and its investment affiliates for an aggregate repurchase price, including transaction costs, of $125 million. The buyback of Brait's 9,221,526 shares represented 16.9% of the Company's then outstanding shares.
Use of Non-GAAP Measures
US securities laws require that when we publish any non-GAAP measures, we disclose the reason for using the non-GAAP measure and provide reconciliation to the directly comparable GAAP measure. The presentation of fundamental net income and fundamental earnings per share and headline earnings per share are non-GAAP measures.
Fundamental net income and fundamental earnings per share
Under GAAP, the Company is required to fair value all intangible assets on the date of the acquisition and amortize these intangible assets over their expected useful lives. In addition, under GAAP, the Company is required to measure the fair value of options and other stock-based awards, and recognize a stock-based compensation charge over the requisite service period. The Company's GAAP net income and earnings per share for the three months September 30, 2009 and 2008, include amortization of intangibles and stock-based compensation, as well as, in 2008, JSE listing costs, a bank facility fee and a foreign exchange gain, net of tax, related to a short-term investment. Finally, the effect of the change in the fully distributed tax rate from 35.45% to 34.55% in July 2008 was included in net income and earnings per share for the three months ended September 30, 2008. The Company excludes all of the above-mentioned amounts when calculating fundamental net income and earnings per share, because management believes that these adjustments enhance its own evaluation, as well as an investor's understanding, of the Company's financial performance. Attachment B presents the reconciliation between GAAP and fundamental net income and earnings per share.
Headline earnings per share ("HEPS")
The inclusion of HEPS in this press release is a requirement of our listing on the JSE. HEPS basic and diluted is calculated using net income which has been determined based on GAAP. Accordingly, this may differ to the headline earnings per share calculation of other companies listed on the JSE as these companies may report their financial results under a different financial reporting framework, including but not limited to, International Financial Reporting Standards. HEPS basic and diluted is calculated as GAAP net income adjusted for the loss (profit) on sale of property, plant and equipment, net of related tax effects. Attachment C presents the reconciliation between our net income used to calculate earnings per share basic and diluted and HEPS basic and diluted.
Conference Call
Net1 will host a conference call to review first quarter results on November 6, 2009, at 8:00 a.m. Eastern Time. To participate in the call, dial 1-800-860-2442 (US only), 1-866-605-3852 (Canada only), 0-800-917-7042 (UK only) or 0-800-200-648 (South Africa only) five 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 10 minutes prior to the call. A webcast of the call will be available for replay on the Net1 website through November 27, 2009.
About Net1 (www.net1.com)
Net1 provides its universal electronic payment system, or UEPS, as an alternative payment system for the unbanked and under-banked populations of developing economies. Our market-leading system enables the estimated four billion people who generally have limited or no access to a bank account, to enter affordably into electronic transactions with each other, government agencies, employers, merchants and other financial service providers. Our universal electronic payment system, or UEPS, uses smart cards that operate in real-time but offline, unlike traditional payment systems offered by major banking institutions that require immediate access through a communications network to a centralized computer. This offline capability means that users of the Net1 system can enter into transactions at any time with other card holders even in the most remote areas so long as a portable offline smart card reader is available. In addition to payments and purchases, UEPS can be used for banking, healthcare management, international money transfers, voting and identification.
The Company also focuses on the development and provision of secure transaction technology, solutions and services. The Company's core competencies around secure online transaction processing, cryptography and integrated circuit card (chip/smart card) technologies are principally applied to electronic commerce transactions in the telecommunications, banking, retail, energy and utilities market sectors. Additionally, through our majority-owned subsidiary, BGS Smartcard System AG ("BGS") based in Austria, the Company implements, develops and integrates smart card-based offline and online financial transaction systems in cooperation with banks, enterprises and government authorities in Russia and the other members of the Commonwealth of Independent States.
Net1 has a primary listing on the Nasdaq and a secondary listing on the JSE Limited.
Forward-Looking Statements
This announcement contains forward-looking statements that involve known and unknown risks and uncertainties. A discussion of various factors that cause the Company's actual results, levels of activity, performance or achievements to differ materially from those expressed in such forward-looking statements are included in the Company's filings with the Securities and Exchange Commission. The Company undertakes no obligation to revise any of these statements to reflect future circumstances or the occurrence of unanticipated events.
NET 1 UEPS TECHNOLOGIES, INC.
Unaudited Condensed Consolidated Statements of Operations
Three months ended
------------------
September 30,
-------------
2009 2008
---- ----
(In thousands, except
per share data)
REVENUE $65,514 $67,935
EXPENSE
Cost of goods sold, IT processing,
servicing and support 16,827 19,236
Selling, general and administration 17,740 17,998
Depreciation and amortization 4,579 3,423
----- -----
OPERATING INCOME 26,368 27,278
UNREALIZED FOREIGN EXCHANGE GAIN
RELATED TO SHORT-TERM INVESTMENT - 6,076
INTEREST INCOME, net 2,371 3,162
----- -----
INCOME BEFORE INCOME TAXES 28,739 36,516
INCOME TAX EXPENSE 11,031 9,902
------ -----
NET INCOME FROM CONTINUING OPERATIONS
BEFORE LOSS FROM EQUITY-ACCOUNTED
INVESTMENTS 17,708 26,614
LOSS FROM EQUITY-ACCOUNTED INVESTMENTS (111) (310)
---- ----
NET INCOME 17,597 26,304
(ADD) LESS: NET (LOSS) INCOME
ATTRIBUTABLE TO NON-CONTROLLING
INTEREST (344) 60
---- ---
NET INCOME ATTRIBUTABLE TO NET1 $17,941 $26,244
------- -------
Net income per share, in cents
Basic earnings attributable to Net1
shareholders 36.8 45.2
Diluted earnings attributable to Net1
shareholders 36.7 45.0
NET 1 UEPS TECHNOLOGIES, INC.
Condensed Consolidated Balance Sheets
Unaudited (A)
September 30, June 30,
2009 2009
---- ----
(In thousands, except share data)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $139,312 $220,786
Pre-funded social welfare grants
receivable 3,624 4,930
Accounts receivable, net of
allowances of - September: $355;
June: $395 43,766 42,475
Finance loans receivable, net of
allowances of - September: $243;
June: $226 2,588 2,563
Deferred expenditure on smart cards 40 8
Inventory 6,617 7,250
Deferred income taxes 13,597 12,282
------ ------
Total current assets 209,544 290,294
OTHER LONG-TERM ASSETS, including
available for sale securities 7,567 7,147
PROPERTY, PLANT AND EQUIPMENT, NET OF
ACCUMULATED DEPRECIATION OF - September:
$30,637; June: $28,169 7,342 7,376
EQUITY-ACCOUNTED INVESTMENTS 2,471 2,583
GOODWILL 121,935 116,197
INTANGIBLE ASSETS, NET OF ACCUMULATED
AMORTIZATION OF -
September: $36,350; June: $31,150 75,447 75,890
------ ------
TOTAL ASSETS 424,306 499,487
------- -------
LIABILITIES
CURRENT LIABILITIES
Accounts payable 4,230 5,481
Other payables 68,563 61,454
Income taxes payable 17,799 10,874
------ ------
Total current liabilities 90,592 77,809
DEFERRED INCOME TAXES 45,543 41,737
OTHER LONG-TERM LIABILITIES, including
noncontrolling interest loans 4,125 4,185
COMMITMENTS AND CONTINGENCIES - -
------- -------
TOTAL LIABILITIES 140,260 123,731
------- -------
EQUITY
NET1 EQUITY:
COMMON STOCK
Authorized: 200,000,000 with $0.001
par value;
Issued and outstanding shares, net of
treasury - September: 45,378,397;
June: 54,506,487 59 59
ADDITIONAL PAID-IN-CAPITAL 129,056 126,914
TREASURY SHARES, AT COST: September:
13,149,042; June: 3,927,516 (173,671) (48,637)
ACCUMULATED OTHER COMPREHENSIVE LOSS (44,985) (58,472)
RETAINED EARNINGS 371,294 353,353
------- -------
TOTAL NET1 EQUITY 281,753 373,217
NON-CONTROLLING INTEREST 2,293 2,539
----- -----
TOTAL EQUITY 284,046 375,756
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $424,306 $499,487
-------- --------
(A) - Derived from audited financial statements
NET 1 UEPS TECHNOLOGIES, INC.
Unaudited Condensed Consolidated Statements of Cash Flows
Three months ended
------------------
September 30,
-------------
2009 2008
---- ----
(In thousands)
Cash flows from operating activities
Net income $17,597 $26,304
Depreciation and amortization 4,579 3,423
Loss from equity-accounted investments 111 310
Fair value adjustments (142) (6,048)
Interest payable 78 639
(Profit) Loss on disposal of property,
plant and equipment (1) 1
Stock-based compensation charge 1,422 1,205
Facility fee amortized - 748
Decrease (Increase) in accounts receivable,
pre-funded social welfare grants receivable
and finance loans receivable 5,529 (46,141)
Increase in deferred expenditure on smart cards (30) (23)
Decrease (Increase) in inventory 1,015 (217)
Increase (Decrease) in accounts payable and
other payables 25 (14,415)
Increase in taxes payable 6,211 3,409
Increase (Decrease) in deferred taxes 575 (2,170)
--- ------
Net cash provided by (used in) operating
activities 36,969 (32,975)
------ --------
Cash flows from investing activities
Capital expenditures (641) (2,844)
Proceeds from disposal of property, plant
and equipment 49 1
Acquisition of BGS, net of cash acquired - (95,328)
Acquisition of shares in equity-accounted
investments - (550)
--- ----
Net cash used in investing activities (592) (98,721)
---- --------
Cash flows from financing activities
Proceeds from issue of share capital, net of
share issue expenses 720 155
Treasury stock acquired (126,304) -
Proceeds from short-term loan facility - 110,000
Payment of facility fee - (1,100)
Repayment of noncontrolling interest loan - 2
Proceeds from bank overdrafts - (1)
Repayment of loans (137) -
---- ---
Net cash provided by financing activities (125,721) 109,056
--------- -------
Effect of exchange rate changes on cash 7,870 (3,911)
----- ------
Net decrease in cash and cash equivalents (81,474) (26,551)
Cash and cash equivalents - beginning of
period 220,786 272,475
------- -------
Cash and cash equivalents - end of period $139,312 $245,924
-------- --------
Net 1 UEPS Technologies, Inc.
Attachment A
Operating segment revenue, operating income and operating margin:
Three months ended September 30, 2009 and 2008
Q1 '10 Q1 '09 Change
------ ------ ------
' In Constant
Key segmental data, in $'000, USD USD In USD Currency(1)
except margins --- --- ------ -----------
Revenue:
Transaction-based activities 44,978 40,344 11% 12%
Smart card accounts 8,074 8,570 (6)% (6)%
Financial services 792 1,784 (56)% (56)%
Hardware, software and related
technology sales 11,670 17,237 (32)% (32)%
------ ------
Total consolidated revenue 65,514 67,935 (4)% (3)%
------ ------
Consolidated operating income (loss):
Transaction-based activities 26,668 21,638 23% 23%
Smart card accounts 3,670 3,895 (6)% (6)%
Financial services 531 327 62% 63%
Hardware, software and related
technology sales (1,713) 4,134 (141)% (141)%
Corporate/ Eliminations (2,788) (2,716) 3% 3%
------ ------
Total operating income 26,368 27,278 (3)% (3)%
------ ------
Operating income margin (%)
Transaction-based activities 59% 54%
Smart card accounts 45% 45%
Financial services 67% 18%
Hardware, software and related
technology sales (15)% 24%
Overall operating margin 40% 40%
(1) - This information shows what the change in these items would have
been if the USD/ ZAR exchange rate that prevailed during the first
quarter of fiscal 2010 also prevailed during the first quarter of
fiscal 2009.
Net 1 UEPS Technologies, Inc.
Attachment B
Reconciliation of GAAP net income to fundamental net income:
Three months ended September 30, 2009 and 2008
Net Income EPS, basic
(USD'000) (USD cents)
--------- -----------
2009 2008 2009 2008
---- ---- ---- ----
GAAP 17,941 26,244 37 45
Amortization of intangible assets(1) 2,441 1,490
----- -----
Customer relationships 3,237 1,203
Software and unpatented Technology - 851
Trademarks 87 87
Deferred tax benefit (883) (651)
---- ----
Stock-based charge 1,422 1,205
JSE listing costs - 441
Facility fee - 748
Foreign exchange gain related to a
short-term investment, net of tax of $2,100 - (3,976)
Change in tax rate (2) - (3,456)
Fundamental 21,804 22,696 45 39
------ ------
Net income EPS, basic
(ZAR'000) (ZAR cents)
---------- -----------
2009 2008 2009 2008
---- ---- ---- ----
GAAP 140,214 204,822 287 353
Amortization of intangible assets(1) 19,073 11,631
------ ------
Customer relationships 25,299 9,389
Software and unpatented Technology - 6,642
Trademarks 679 679
Deferred tax benefit (6,905) (5,079)
------ ------
Stock-based charge 11,113 9,404
JSE listing costs - 3,442
Facility fee - 5,838
Foreign exchange gain related to a
short-term investment, net of
tax of $2,100 - (31,940)
Change in tax rate (2) - (26,524)
Fundamental 170,400 176,673 349 304
------- -------
(1) Amortization of Prism, EasyPay, RMT and BGS intangibles, net of
deferred tax benefit.
(2) Represents the effect of the change in the fully distributed tax rate
from 35.45% to 34.55% in fiscal 2009.
Net 1 UEPS Technologies, Inc.
Attachment C
Reconciliation of net income used to calculate earnings per share basic
and diluted and headline earnings per share basic and diluted:
Three months ended September 30, 2009 and 2008
2009 2008
---- ----
Net income (USD'000) 17,941 26,244
Adjustments:
(Profit) Loss on sale of property, plant and
equipment (USD'000) (1) 1
Tax effects on above (USD'000) - -
Net income used to calculate headline earnings
(USD'000) 17,940 26,245
------ ------
Weighted average number of shares used to calculate
net income per share basic earnings and headline
earnings per share basic earnings ('000) 48,815 58,031
Weighted average number of shares used to calculate
net income per share diluted earnings and headline
earnings per share diluted earnings ('000) 48,918 58,362
Headline earnings per share:
Basic earnings - common stock and linked units, in
US cents 37 45
Diluted earnings - common stock and linked units,
in US cents 37 45
SOURCE Net 1 UEPS Technologies, Inc.
158.94 (1.43%)
