| Wed 10 Nov 2010, 8:12 | | NT1 - Net1 - Net 1 UEPS Technologies Inc. Announces 2011 First Quarter Results |
|
NT1
NT1
NT1 - Net1 - Net 1 UEPS Technologies, Inc. Announces 2011 First Quarter Results
Net 1 UEPS Technologies, Inc.
Registered in the state of Florida, USA
(IRS Employer Identification No. 98-0171860)
Nasdaq share code: UEPS
JSE share code: NT1
ISIN: US64107N2062
("Net1" or "the Company")
Net 1 UEPS Technologies, Inc. Announces 2011 First Quarter Results
JOHANNESBURG, November 9, 2010 - Net 1 UEPS Technologies, Inc. ("Net1" or the
"Company") (Nasdaq: UEPS; JSE: NT1) today announced results for the three months
ended September 30, 2010 ("1Q 2011"). Revenue for 1Q 2011 was $64.3 million, a
year over year decrease of 2% in US dollars ("USD") and 7% in constant currency.
During 1Q 2011, net income under US generally accepted accounting principles
("GAAP") was $7.4 million versus net income of $17.9 million for the three
months ended September 30, 2009 ("1Q 2010"). GAAP earnings per share for 1Q 2011
was $0.16 versus GAAP earnings per share of $0.37 a year ago. Fundamental
earnings per share for 1Q 2011 was $0.36 compared to $0.45 for 1Q 2010,
representing a decrease of 20% in USD and 24% in constant currency.
Summary Financial Metrics
Three months ended September
30,
2010 2009 % %
change change
in USD in ZAR
(All figures in USD `000s
except per share data)
Revenue 64,283 65,514 (2)% (7)%
GAAP net income 7,429 17,941 (59)% (61)%
Fundamental net income (1) 16,527 21,804 (24)% (28)%
GAAP earnings per share ($) 0.16 0.37 (57)% (59)%
Fundamental earnings per 0.36 0.45 (20)% (24)%
share ($) (1)
Fully-diluted shares 45,415 48,918 (7)%
outstanding (`000`s)
Average period USD/ ZAR 7.41 7.82 (5)%
exchange rate
(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 2011 also excludes transaction-related costs and an unrealized foreign
exchange loss (related to foreign exchange contracts entered into in order to
hedge the fluctuations in the ZAR/ US dollar related to the anticipated flow of
funds from South Africa to the United States to fund a portion of the KSNET
("KSNET") purchase price).
The following factors had significant impact on the comparability of our 1Q 2011
and 1Q 2010 results:
SASSA price and volume reductions: The Company`s new contract with SASSA has
reduced its revenue and operating income as a result of the previously announced
price and volume reductions;
Favorable impact from the weakness of the US dollar: The US dollar depreciated
by 5% compared to the ZAR during the first quarter of fiscal 2011 compared to
fiscal 2010 which has had a positive impact on the Company`s reported results;
Increased transaction volumes at EasyPay: Reported results were favorably
impacted by increased transaction volumes at EasyPay resulting from growth in
value-added services;
Increased revenue from MediKredit and FIHRST at lower operating margins than
other transaction-based activity business: The Company`s MediKredit and FIHRST
acquisitions positively impacted its revenue during the first quarter of fiscal
2011; however, because MediKredit generated a modest operating loss and FIHRST`s
operating margin is lower than the Company`s other transaction-based activity
businesses, they negatively impacted its operating margin. The inclusion of
these businesses in the Company`s results has also contributed to the increase
in selling, general and administration expense;
Increased user adoption in Iraq: Reported results were positively impacted by
increased transaction revenues from the adoption of the Company`s UEPS
technology in Iraq;
Lower revenues and margins from hardware, software and related technology sales
segment: The Company`s hardware, software and related technology sales segment
continues to be adversely impacted by lower revenues generated by card sales and
software maintenance and development activities and fewer ad hoc sales to Iraq
when compared to a year ago, partially offset by increased hardware sales by
Net1 UTA;
Intangible asset amortization related to acquisitions: Reported results were
adversely impacted by additional intangible asset amortization of approximately
$0.5 million related to the acquisitions of MediKredit and FIHRST during the
third quarter of fiscal 2010; and
Non-recurring items included in selling, general and administration expense:
During the first quarter of fiscal 2011, the Company recognized, in selling,
general and administration expense, an unrealized foreign exchange loss of $2.6
million and incurred transaction-related expenses of $3.4 million, primarily for
the acquisition of KSNET.
Comments and Outlook
"Our first quarter of fiscal 2011 was negatively impacted by the reduction in
the economics of our contract with SASSA. Following the recent changes in the
South African cabinet, we expect to work with the new leadership in the ensuing
months to define a long-term solution for the administration of social grants in
South Africa," said Dr. Serge Belamant, Chairman and Chief Executive Officer of
Net1. "Our growth initiatives within South Africa and internationally,
specifically in Iraq and Ghana, our new technologies such as Virtual Card and
EasyPay Kiosks and increasing contributions from our acquisitions of KSNET,
MediKredit and FIHRST leave us well-positioned to drive long-term revenue,
earnings and cash flows. We remain committed to achieving long-term sustainable
growth for the Company and thus for all of our stakeholders. Finally, I would
also like to welcome the KSNET team to the Net1 family and we look forward to a
prosperous relationship with them," he concluded.
"Our guidance of Fundamental EPS of at least $1.50 on a constant USD/ZAR
currency basis for fiscal 2011 remains dependent on the continuation of our
SASSA contract beyond March 31, 2011, on similar terms, as well as the
incorporation of KSNET`s results on a US GAAP basis with effect from November
2010," said Herman Kotze, Chief Financial Officer of Net1.
Results of Operations
Net1`s frequently asked questions and operating metrics will be updated and
posted on the Company`s website (www.net1.com).
Transaction-based activities
Transaction-based activities revenue was $44.9 million, consistent when compared
with 1Q 2010 in USD and 5% lower on a constant currency basis. In ZAR, the
decreases in revenue were primarily due to the new SASSA nine month contract at
lower economics, which was partially offset by increased transaction volumes at
EasyPay, increased utilization of our UEPS system in Iraq and the inclusion of
MediKredit and FIHRST. Operating margin decreased to 40% from 59% during 1Q 2011
primarily due to the lower revenues generated under our SASSA contract,
additional intangible asset amortization related to the acquisition of
MediKredit and FIHRST and lower margins in our recently-acquired transaction
processing operations compared with legacy transaction-based activities, which
was partially offset by increased transaction fees from the utilization of our
UEPS system in Iraq. Excluding amortization of acquisition-related intangibles,
1Q 2011 segment operating margin was 43% compared with 61% during 1Q 2010.
Smart card accounts
Smart card account revenue was $8.0 million, down 1% compared with 1Q 2010 in
USD and 6% lower on a constant currency basis. Operating margin for the segment
remained consistent at 45%.
Financial services
Financial services revenue was $1.2 million, up 58% compared with 1Q 2010 in USD
and 49% higher on a constant currency basis, principally due to an increase in
lending activities. Operating margin for this segment increased to 74% from 67%
in 1Q 2010 largely as a result of the increased lending activities.
Hardware, software and related technology sales
Hardware, software and related technology sales revenue was $10.2 million, down
13% compared with 1Q 2010 in USD and 17% lower on a constant currency basis. The
decrease in revenue and operating income for 1Q 2011 was primarily due to lower
revenues generated by card sales and software maintenance and development, as
well as lower ad hoc hardware sales to Iraq in 2011 as compared with the prior
year, which was offset partially by increased hardware sales by Net1 UTA. In
ZAR, the decrease in operating income was primarily due to lower sales activity.
Excluding amortization of all intangibles and the impairment of goodwill,
segment operating margin was (3)% compared to 7% during 1Q 2010.
Cash flow and liquidity
At September 30, 2010, the Company had cash and cash equivalents of $200
million, up from $154 million at June 30, 2010. For 1Q 2011, the Company
generated operating cash flow of $30.2 million, compared to $37.0 million in 1Q
2010. The decrease in operating cash flow resulted mainly from the SASSA price
and volume reductions which were effective July 1, 2010. Capital expenditures
for 1Q 2011 and 2010 were $0.8 million and $0.6 million, respectively. During 1Q
2011, the Company did not repurchase any shares under its $100 million
authorization. On October 29, 2010, we used approximately $124 million of our
cash to fund a portion of the KSNET purchase price.
Use of Non-GAAP Measures
US securities laws require that when the Company publishes any non-GAAP
measures, it discloses the reason for using the non-GAAP measure and provides a
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
The Company`s GAAP net income and earnings per share for 1Q 2011 and 1Q 2010
include amortization of intangible assets and stock-based compensation. In
addition, GAAP net income and earnings per share for 1Q 2011 includes
transaction-related costs and an unrealized foreign exchange loss described
above. 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 the Company`s
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 the
Company`s 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 10,
2010, at 8:00 a.m. Eastern Time. To participate in the call, dial 1-800-860-2442
(U.S. only), 1-866-605-3852 (Canada only), 0-800-917-7042 (U.K. only) or 0-800-
200-648 (South Africa only) 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 December 1, 2010.
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. Net1`s 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. Net1`s
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.
Net1 also focuses on the development and provision of secure transaction
technology, solutions and services and offers transaction processing, financial
and clinical risk management solutions to both funders and providers of
healthcare. Its core competencies around secure online transaction processing,
cryptography and integrated circuit card (chip/smartcard) technologies are
principally applied to electronic commerce transactions in the
telecommunications, banking, retail, petroleum and utilities market sectors.
Net1 recently acquired KSNET, Inc. KSNET services a broad range of industries in
Korea, including credit card, retail and wholesale merchant, financial
institutions, governmental organizations, utility companies and e-commerce
businesses. It offers payment processing solutions including payment card and
banking value added networks, payment gateways, cash receipt, purchase cards and
point cards. It has a diverse merchant base and processed over 1.4 billion
transactions in 2009.
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.
Investor Relations Contact:
Dhruv Chopra
Vice President of Investor Relations
Phone: +1-212-626-6675
Email: dchopra@net1.com
NET 1 UEPS TECHNOLOGIES, INC.
Unaudited Condensed Consolidated Statements of Operations
Three months ended
September 30,
2010 2009
(In thousands, except
per share data)
REVENUE $ 64,283 $ 65,514
EXPENSE
Cost of goods sold, IT 18,067 16,827
processing, servicing and
support
Selling, general and 30,326 17,740
administration
Depreciation and 4,904 4,579
amortization
OPERATING INCOME 10,986 26,368
INTEREST INCOME, net 2,836 2,371
INCOME BEFORE INCOME TAXES 13,822 28,739
INCOME TAX EXPENSE 6,207 11,031
NET INCOME FROM CONTINUING 7,615 17,708
OPERATIONS BEFORE LOSS FROM
EQUITY-ACCOUNTED INVESTMENTS
LOSS FROM EQUITY-ACCOUNTED (216) (111)
INVESTMENTS
NET INCOME 7,399 17,597
ADD: NET LOSS ATTRIBUTABLE (30) (344)
TO NON-CONTROLLING INTEREST
NET INCOME ATTRIBUTABLE TO $ 7,429 $ 17,941
NET1
Net income per share, in
United States dollars
Basic earnings attributable $0.16 $0.37
to Net1 shareholders
Diluted earnings $0.16 $0.37
attributable to Net1
shareholders
NET 1 UEPS TECHNOLOGIES, INC.
Condensed Consolidated Balance Sheets
Unaudit (A)
ed
Septemb June 30,
er 30,
2010 2010
(In thousands, except
share data)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 200,161 $ 153,742
Pre-funded social welfare grants 4,597 6,660
receivable
Accounts receivable, net of allowances of 37,225 41,854
- September: $885; June: $807
Finance loans receivable, net of 5,523 4,221
allowances of - September: $-; June: $-
Deferred expenditure on smart cards 2 -
Inventory 6,144 3,622
Deferred income taxes 18,546 16,330
Total current assets before settlement 272,198 226,429
assets
Settlement assets 107,407 83,661
Total current assets 379,605 310,090
OTHER LONG-TERM ASSETS, including available 8,130 7,423
for sale securities
PROPERTY, PLANT AND EQUIPMENT, NET OF 7,637 7,286
ACCUMULATED DEPRECIATION OF - September:
$39,683; June: $35,271
EQUITY-ACCOUNTED INVESTMENTS 2,376 2,598
GOODWILL 83,203 76,346
INTANGIBLE ASSETS, NET OF ACCUMULATED 71,646 68,347
AMORTIZATION OF -
September: $41,477; June: $34,226
TOTAL ASSETS 552,597 472,090
LIABILITIES
CURRENT LIABILITIES
Accounts payable 5,175 3,596
Other payables 58,847 50,855
Income taxes payable 9,330 3,476
Total current liabilities before 73,352 57,927
settlement obligations
Settlement obligations 107,407 83,661
Total current liabilities 180,759 141,588
DEFERRED INCOME TAXES 43,766 38,858
OTHER LONG-TERM LIABILITIES, including non- 4,413 4,343
controlling interest loans
TOTAL LIABILITIES 228,938 184,789
COMMITMENTS AND CONTINGENCIES - -
EQUITY
NET1 EQUITY:
COMMON STOCK
Authorized: 200,000,000 with $0.001 par
value;
Issued and outstanding shares, net of 59 59
treasury - September: 45,392,353; June:
45,378,397
PREFERRED STOCK
Authorized shares: 50,000,000 with $0.001
par value;
Issued and outstanding shares, net of - -
treasury: 2010: -; 2009: -
ADDITIONAL PAID-IN-CAPITAL 134,841 133,543
TREASURY SHARES, AT COST: September: (173,671) (173,671
13,149,042; June: 13,149,042 )
ACCUMULATED OTHER COMPREHENSIVE LOSS (38,906) (66,396)
RETAINED EARNINGS 399,772 392,343
TOTAL NET1 EQUITY 322,095 285,878
NON-CONTROLLING INTEREST 1,564 1,423
TOTAL EQUITY 323,659 287,301
TOTAL LIABILITIES AND SHAREHOLDERS` EQUITY $ 552,597 $ 472,090
(A) - Derived from audited financial
statements
NET 1 UEPS TECHNOLOGIES, INC.
Unaudited Condensed Consolidated Statements of Cash Flows
Three months ended
September 30,
2010 2009
(In thousands)
Cash flows from operating
activities
Net income $7,399 $ 17,597
Depreciation and amortization 4,904 4,579
Loss from equity-accounted 216 111
investments
Fair value adjustments (3,106) (142)
Interest payable 73 78
Profit on disposal of property, (5) (1)
plant and equipment
Stock-based compensation charge 1,438 1,422
Decrease in accounts receivable, 10,957 5,529
pre-funded social welfare grants
receivable and finance loans
receivable
Increase in deferred expenditure on (2) (30)
smart cards
(Increase) Decrease in inventory (2,102) 1,015
Increase in accounts payable and 6,025 25
other payables
Increase in taxes payable 5,134 6,211
(Decrease) Increase in deferred (773) 575
taxes
Net cash provided by operating 30,158 36,969
activities
Cash flows from investing
activities
Capital expenditures (768) (641)
Proceeds from disposal of property, 7 49
plant and equipment
Repayment of loan by equity- (375) -
accounted investment
Advance of loans to equity- 373 -
accounted investment
Net change in settlement assets (15,544) -
Net cash used in investing (16,307) (592)
activities
Cash flows from financing
activities
Proceeds from issue of share 20 720
capital, net of share issue
expenses
Treasury stock acquired - (126,30
4)
Net change in settlement 15,544 -
obligations
Proceeds from bank overdrafts - -
Repayment of loans - (137)
Net cash generated from (used in) 15,564 (125,72
financing activities 1)
Effect of exchange rate changes on 17,004 7,870
cash
Net increase (decrease) in cash and 46,419 (81,474
cash equivalents )
Cash and cash equivalents - 153,742 220,786
beginning of period
Cash and cash equivalents - end of $200,161 $ 139,312
period
Net 1 UEPS Technologies, Inc.
Attachment A
Operating segment revenue, operating income and operating margin:
Three months ended September 30, 2010 and 2009
Change
Key segmental data, in Q1 `11 Q1 `10 In Constant
`000, except margins In USD Currency
Revenue:
Transaction-based $ $44,978 0% (5)%
activities 44,892
Smart card accounts 8,074 (1)% (6)%
7,970
Financial services 792 58% 49%
1,248
Hardware, software and 10,173 11,670 (13)% (17)%
related technology
sales
Total consolidated $64,283 $65,514 (2)% (7)%
revenue
Consolidated operating
income (loss):
Transaction-based $17,776 $26,668 (33)% (37)%
activities
Smart card accounts 3,622 3,670 (1)% (6)%
Financial services 929 531 75% 66%
Hardware, software and (2,660) (1,713) (55)% (47)%
related technology
sales
Corporate/ Eliminations (8,681) (2,788) 211% 195%
Total operating income $10,986 $26,368 (58)% (61)%
Operating income margin
(%)
Transaction-based 40% 59%
activities
Smart card accounts 45% 45%
Financial services 74% 67%
Hardware, software and (26)% (15)%
related technology
sales
Overall operating 17% 40%
margin
Net 1 UEPS Technologies, Inc.
Attachment B
Reconciliation of GAAP net income to fundamental net income:
Three months ended September 30, 2010 and 2009
Net Income EPS, basic Net income EPS, basic
(USD`000) (USD cents) (ZAR`000) (ZAR cents)
2010 2009 2010 2009 2010 2009 2010 2009
GAAP 7,429 17,941 16 37 55,014 140,214 121 287
Amortization 2,608 2,441 19,313 19,073
of intangible
assets(1)
Customer 2,553 3,237 18,901 25,299
relationship
s
Software and 951 - 7,045 -
unpatented
technology
Trademarks 92 87 679 679
Database 68 - 507 -
Deferred tax (1,056) (883) (7,819) (6,905)
benefit
Stock-based 1,438 1,422 10,649 11,113
charge(2)
Loss on FEC, 1,685 - 12,480 -
net of tax
Acquisition- 3,367 - 24,934 -
related costs.
Fundamental 16,527 21,804 36 45 122,390 170,400 270 349
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, 2010 and 2009
2010 2009
Net income (USD`000) 7,429 17,941
Adjustments:
Profit on sale of property, plant and equipment (5) (1)
(USD`000)
Tax effects on above (USD`000) 2 -
Net income used to calculate headline earnings 7,426 17,940
(USD`000)
Weighted average number of shares used to calculate 45,384 48,815
net income per share basic earnings and headline
earnings per share basic earnings (`000)
Weighted average number of shares used to calculate 45,415 48,918
net income per share diluted earnings and headline
earnings per share diluted earnings (`000)
Headline earnings per share:
Basic earnings - common stock and linked units, in US 16 37
cents
Diluted earnings - common stock and linked units, in 16 37
US cents
Johannesburg
10 November 2010
Sponsor:
Deutsche Securities (SA) (Proprietary) Limited
Date: 10/11/2010 08:12:00 Produced by the JSE SENS Department.
The SENS service is an information dissemination service administered by the
JSE Limited (`JSE`). The JSE does not, whether expressly, tacitly or
implicitly, represent, warrant or in any way guarantee the truth, accuracy or
completeness of the information published on SENS. The JSE, their officers,
employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature,
howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
