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NT1
NT1
NT1 - Net 1 UEPS Technologies, Inc. - Net 1 UEPS Technologies, Inc.
reports first quarter 2012 Results
Net 1 UEPS Technologies, Inc.
Registered in the state of Florida, USA
(IRS Employer Identification No. 98-0171860)
Nasdaq share code: UEPS
JSE share code: NT1
ISIN: US64107N2062
("Net1" or "the Company")
Net 1 UEPS Technologies, Inc. Reports First Quarter 2012 Results
JOHANNESBURG, October 28, 2011 - Net 1 UEPS Technologies, Inc. (Nasdaq:
UEPS; JSE: NT1) today announced results for the three months ended
September 30, 2011 ("1Q 2012"). Revenue for 1Q 2012 was $99.9 million,
a year over year increase of 55% in US dollars ("USD") and 49% in
constant currency. During 1Q 2012, net income under US generally
accepted accounting principles ("GAAP") was $19.8 million versus $7.4
million for the three months ended September 30, 2010 ("1Q 2011"). GAAP
earnings per share for 1Q 2012 was $0.44 versus $0.16 a year ago.
Fundamental earnings per share for 1Q 2012 was $0.44 compared to $0.36
in 1Q 2011, representing an increase of 23% in USD and 17% in constant
currency.
Summary Financial Metrics
Three months ended September
30,
2011 2010 % %
change change
in USD in ZAR
(All figures in USD `000s
except per share data)
Revenue 99,926 64,283 55% 49%
GAAP net income 19,768 7,429 166% 155%
Fundamental net income (1) 19,883 16,527 20% 15%
GAAP earnings per share ($) 0.44 0.16 174% 163%
Fundamental earnings per 0.44 0.36 23% 17%
share ($) (1)
Fully-diluted shares 45,079 45,415 (1)%
outstanding (`000`s)
Average period USD/ ZAR 7.09 7.41 (4)%
exchange rate
(1) Fundamental net income and earnings per share is GAAP net income
and earnings per share, as adjusted to exclude the amortization of
acquisition-related intangible assets, net of deferred taxes, stock-
based compensation charges and unusual non-recurring items. The
calculation of fundamental net income and earnings per share for 1Q
2012 excludes a profit on the liquidation of SmartSwitch Nigeria and
amortization of facility fees related to the incurrence of KSNET
acquisition debt. The calculation of fundamental net income and
earnings per share for 1Q 2011 excludes a net loss on a forward
exchange contract and transaction related costs.
The following factors impacted the comparability of our 1Q 2012 and 1Q
2011 results:
* Favorable impact from the weakness of the US dollar: The US dollar
depreciated by 4% compared to the ZAR during 1Q 2012 compared to
1Q 2011 which positively impacted our reported results;
* Inclusion of revenue contribution from KSNET at a lower operating
margin (before acquired intangible asset amortization) than our
legacy business: The inclusion of KSNET contributed to an increase
in revenues for fiscal 2012; however, because KSNET has an
operating margin (before acquired intangible asset amortization)
that is lower than our legacy businesses, it reduced our overall
operating margin. KSNET also contributed to the increase in
selling, general and administration and depreciation and
amortization expenses;
* Improved operating income and margins from hardware, software and
related technology sales segment: Operating income and margins
from our hardware, software and related technology sales segment
increased as a result of increased ad hoc sales;
* Intangible asset amortization related to acquisition: Our reported
results for 1Q 2012 were adversely impacted by additional
intangible asset amortization related to the acquisition of KSNET;
* Lower interest income and increased interest expense resulting
from KSNET acquisition: We paid the KSNET purchase price with a
combination of cash and long-term debt, which reduced interest
income and increased interest expense;
* Liquidation of SmartSwitch Nigeria: We recorded a non-cash profit
of $4.0 million on the liquidation of SmartSwitch Nigeria; and
* Fiscal 2011 unrealized foreign exchange loss and transaction-
related expenses: During 1Q 2011, we 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
"I am very pleased with our 1Q 2012 results and the start to our fiscal
year," said Dr. Serge Belamant, Chairman and Chief Executive Officer of
Net1. "Several of our strategic actions and investments are beginning
to demonstrate tangible progress towards driving long-term growth,
including the refocusing of EasyPay toward higher-margin value-added
services, investments in KSNET to further penetrate the small and mid-
size market, as well as two healthcare processing wins by XeoHealth in
the US. SASSA`s tender evaluation process is still underway and we look
forward to the outcome," he concluded.
"As a result of our solid performance in 1Q 2012, we now expect
fundamental EPS of at least $1.60 for the full year, assuming our
existing contract with SASSA remains in effect on the existing terms
and conditions and on a constant currency basis of ZAR 7.0 to the
Dollar," said Herman Kotze, Chief Financial Officer of Net1.
Results of Operations by Segment and Liquidity
Our frequently asked questions and operating metrics will be updated
and posted on our website (www.net1.com).
South African transaction-based activities
Segment revenue was $49.9 million in 1Q 2012, up 11% when compared with
1Q 2011 in USD and 6% on a constant currency basis. In ZAR, the
increase in revenue was primarily due to modest growth under our
pension and welfare business and increased transaction volumes at
MediKredit. Segment operating income margin remained constant at 40%
when compared to a year ago. Excluding amortization of acquisition-
related intangibles, 1Q 2012 segment operating income margin was 43%,
the same when compared with 1Q 2011.
International transaction-based activities
KSNET is the largest contributor to this segment. XeoHealth signed its
first contract during 1Q 2012 and contributed to segment revenue.
Revenue was $30.3 million and operating income margin was 2% in 1Q
2012. Excluding the amortization of intangibles but including the start-
up costs related to Net1 Virtual Card and XeoHealth in the United
States and MVC activities at Net1 UTA, operating income margin was 13%.
Smart card accounts
Segment revenue was $8.3 million in 1Q 2012, up 4% compared with 1Q
2011 in USD and down 1% on a constant currency basis. Operating income
margin remained consistent at 45%.
Financial services
Segment revenue was $2.1 million in 1Q 2012, up 69% compared with 1Q
2011 in USD and 62% higher on a constant currency basis, principally
due to an increase in lending activities. 1Q 2012 segment operating
income margin was 67% compared with 64% during 1Q 2011.
Hardware, software and related technology sales
Segment revenue was $9.4 million in 1Q 2012, down 3% compared with 1Q
2011 in USD and 7% lower on a constant currency basis. The decrease in
revenue was due to a lower contribution from Net1 UTA and the increase
in operating income was due to an increase in higher margin ad hoc
South African-based contributor`s hardware and software sales. The
improvements from the South African-based contributors during the
quarter were primarily due to orders which may not continue in future
quarters. Excluding amortization of all intangibles segment operating
margin was 22% compared to 0% during 1Q 2011.
Cash flow and liquidity
At September 30, 2011, we had cash and cash equivalents of $102
million, up from $95 million at June 30, 2011. The increase in cash was
due to an increase in operating activities. For 1Q 2012, we generated
net cash flow of $27.2 million from operating activities, compared to
$30.2 million in 1Q 2011. The decrease is attributable to a reduction
in interest income from lower cash balances and deposit rates,
increased interest expense on our Korean debt facilities and higher tax
payments. Excluding these items, operating income increased due to
increased activities across all of our operating segments. Capital
expenditures for 1Q 2012 and 2011 were $4.5 million and $0.8 million,
respectively. During 1Q 2012, we repurchased $1.1 million of shares
under our $100 million authorization.
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
We calculate fundamental net income and earnings per share by adjusting
GAAP net income and earnings per share for the items described in note
1 to the Summary Financial Metrics table above. Management believes
that the fundamental net income and 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 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 and the profit on liquidation of
SmartSwitch Nigeria. 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
We will host a conference call to review 1Q 2012 results on October 28,
2011, at 8:00 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) ten minutes prior to the
start of the call. Callers should request "Net1 call" upon dial-in. The
call will also be webcast on our 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 our website through
November 18, 2011.
About Net1 (www.net1.com)
We are a leading provider of alternative payment systems that leverage
our Universal Electronic Payment System, or UEPS, to facilitate
biometrically secure real-time electronic transaction processing to
unbanked and under-banked populations of developing economies around
the world in an online or offline environment. In addition to payments,
UEPS can be used for banking, healthcare management, payroll,
remittances, voting and identification.
We operate market-leading payment processors in South Africa, Republic
of Korea, Ghana and Iraq. In addition, our proprietary Mobile Virtual
Card technology offers secure mobile payments and banking services in
developed and emerging countries.
We have 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 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
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,
2011 2010
(In thousands,
except per share
data)
REVENUE $ 99,926 $ 64,283
EXPENSE
Cost of goods sold, IT 32,944 18,067
processing, servicing and
support
Selling, general and 27,057 30,326
administration
Depreciation and 9,079 4,904
amortization
OPERATING INCOME 30,846 10,986
INTEREST INCOME 1,997 3,084
INTEREST EXPENSE 2,616 248
INCOME BEFORE INCOME TAXES 30,227 13,822
INCOME TAX EXPENSE 10,552 6,207
NET INCOME FROM CONTINUING 19,675 7,615
OPERATIONS BEFORE EARNINGS
(LOSS) FROM EQUITY-ACCOUNTED
INVESTMENTS
EARNINGS (LOSS) FROM EQUITY- 85 (216)
ACCOUNTED INVESTMENTS
NET INCOME 19,760 7,399
ADD NET LOSS ATTRIBUTABLE TO (8) (30)
NON-CONTROLLING INTEREST
NET INCOME ATTRIBUTABLE TO $ 19,768 $ 7,429
NET1
Net income per share, in
United States dollars
Basic earnings attributable $0.44 $0.16
to Net1 shareholders
Diluted earnings $0.44 $0.16
attributable to Net1
shareholders
NET 1 UEPS TECHNOLOGIES, INC.
Condensed Consolidated Balance Sheets
Unaudit (A)
ed
Septemb June 30,
er 30,
2011 2011
(In thousands, except
share data)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 101,983 $ 95,263
Pre-funded social welfare grants 1,695 4,579
receivable
Accounts receivable, net of allowances of 78,172 82,780
- September: $668; June: $728
Finance loans receivable 7,709 8,141
Deferred expenditure on smart cards - 51
Inventory 5,781 6,725
Deferred income taxes 15,192 15,882
Total current assets before settlement 210,532 213,421
assets
Settlement assets 159,542 186,668
Total current assets 370,074 400,089
PROPERTY, PLANT AND EQUIPMENT, NET OF 32,409 35,807
ACCUMULATED DEPRECIATION OF - September:
$46,910; June: $50,007
EQUITY-ACCOUNTED INVESTMENTS 1,639 1,860
GOODWILL 188,409 209,570
INTANGIBLE ASSETS, NET OF ACCUMULATED 104,271 119,856
AMORTIZATION OF -
September: $37,561; June: $37,118
OTHER LONG-TERM ASSETS, including reinsurance 39,900 14,463
assets
TOTAL ASSETS 736,702 781,645
LIABILITIES
CURRENT LIABILITIES
Accounts payable 11,123 11,360
Other payables 61,984 71,265
Current portion of long-term borrowings 13,798 15,062
Income taxes payable 10,791 6,709
Total current liabilities before 97,696 104,396
settlement obligations
Settlement obligations 159,542 186,668
Total current liabilities 257,238 291,064
DEFERRED INCOME TAXES 47,648 52,785
LONG-TERM BORROWINGS 97,009 110,504
OTHER LONG-TERM LIABILITIES, including 27,008 1,272
insurance policy liabilities
TOTAL LIABILITIES 428,903 455,625
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: 45,002,304; June:
45,152,805
PREFERRED STOCK
Authorized shares: 50,000,000 with $0.001
par value;
Issued and outstanding shares, net of - -
treasury: 2011: -; 2010: -
ADDITIONAL PAID-IN-CAPITAL 136,903 136,430
TREASURY SHARES, AT COST: September: (175,823) (174,694)
13,455,090; June: 13,274,434
ACCUMULATED OTHER COMPREHENSIVE LOSS (71,257) (33,779)
RETAINED EARNINGS 414,758 394,990
TOTAL NET1 EQUITY 304,640 323,006
NON-CONTROLLING INTEREST 3,159 3,014
TOTAL EQUITY 307,799 326,020
TOTAL LIABILITIES AND SHAREHOLDERS` EQUITY $ 736,702 $ 781,645
(A) - Derived from audited financial
statements
NET 1 UEPS TECHNOLOGIES, INC.
Unaudited Condensed Consolidated Statements of Cash Flows
Three months ended
September 30,
2011 2010
(In thousands)
Cash flows from operating
activities
Net income $ 19,760 $ 7,399
Depreciation and 9,079 4,904
amortization
Loss from equity-accounted (85) 216
investments
Fair value adjustments (221) (3,106)
Interest payable 1,662 73
Profit on disposal of (8) (5)
property, plant and
equipment
Profit on liquidation of (3,994) -
SmartSwitch Nigeria
Realized loss on sale of 25 -
investments related to
insurance business
Stock-based compensation 496 1,438
charge
Facility fee amortized 116 -
Decrease in accounts 3,248 10,957
receivable, pre-funded
social welfare grants
receivable and finance
loans receivable
Decrease (Increase) in 44 (2)
deferred expenditure on
smart cards
Increase in inventory (319) (2,102)
Increase in accounts 331 6,025
payable and other payables
(Decrease) Increase in (3,607) 5,134
taxes payable
Increase (Decrease) in 692 (773)
deferred taxes
Net cash provided by 27,219 30,158
operating activities
Cash flows from investing
activities
Capital expenditures (4,466) (768)
Proceeds from disposal of 94 7
property, plant and
equipment
Acquisition of SmartLife, (1,673) -
net of cash acquired
Advance of loans to equity- - (375)
accounted investment
Repayment of loan by equity- 33 373
accounted investment
Purchase of investments (2,320) -
related to insurance
business
Proceeds from maturity of 2,321 -
investments related to
insurance business
Net change in settlement 3,447 (15,544
assets )
Net cash used in investing (2,564) (16,307
activities )
Cash flows from financing
activities
Loan portion related to - 20
options
Acquisition of treasury (1,129) -
stock
Net change in settlement (3,447) 15,544
obligations
Net cash (used in) (4,576) 15,564
generated from financing
activities
Effect of exchange rate (13,360) 17,004
changes on cash
Net increase in cash and 6,719 46,419
cash equivalents
Cash and cash equivalents - 153,742
beginning of period 95,264
Cash and cash equivalents - $ 101,983 $ 200,161
end of period
Net 1 UEPS Technologies, Inc.
Attachment A
Operating segment revenue, operating income (loss) and operating
margin:
Three months ended September 30, 2011 and 2010 and June 30, 2011
Change - Change -
actual constant
exchange
rate(1)
Key segmental data, in Q1 Q1 Q4 `11 Q1 Q1 Q1 Q1
`000, except margins `12 `11 `12 `12 `12 `12
vs vs vs vs
Q1`1 Q4 Q1 Q4
1 `11 `11 `11
Revenue:
SA transaction-based $49,9 $44,8 $50,267 11% (1)% 6% 3%
activities 02 89
International 6,33 8% 6,06 13%
transaction-based 30,25 470 27,900 7% 7%
activities 5
Smart card accounts 8,252 7,970 8,623 4% (4)% (1)% 0%
Financial services 2,111 1,250 2,278 69% (7)% 62% (3)%
Hardware, software and 9,704 (3)% 13% (7)% 18%
related technology sales 9,406 8,300
Total consolidated $99,9 $64,2 $97,368 55% 3% 49% 7%
revenue 26 83
Consolidated operating
income (loss):
SA transaction-based $20,1 $17,7 $20,776 14% (3)% 9% 1%
activities 83 48
International nm 812% nm 850%
transaction-based 684 (708) 75
activities
Operating income nm 13% nm 18%
excluding amortization 3,991 (708) 3,521
Amortization of (3,30 - (3,446) nm (4)% nm 0%
intangible assets 7)
Smart card accounts 3,750 3,622 3,919 4% (4)% (1)% 0%
Financial services 1,411 797 1,634 77% (14) 70% (10)
% %
Hardware, software and (2,33 nm nm nm nm
related technology sales 1,937 9) (1,898)
Corporate/ Eliminations 2,881 (8,13 2,087 nm 38% nm 44%
4)
Total operating income $30,8 $10,9 $26,593 181% 16% 169% 21%
46 86
Operating income margin
(%)
SA transaction-based 40% 40% 41%
activities
International 2% (151) 0%
transaction-based %
activities
International 13% (151)
transaction-based % 13%
activities excluding
amortization
Smart card accounts 45% 45% 45%
Financial services 67% 64% 72%
Hardware, software and 21% (24)% (23)%
related technology sales
Overall operating margin 31% 17% 27%
(1) - This information shows what the change in these items would have been
if the USD/ ZAR exchange rate that prevailed during 1Q 2012 also prevailed
during 1Q 2011 and 4Q 2011.
Net 1 UEPS Technologies, Inc.
Attachment B
Reconciliation of GAAP net income to fundamental net income:
Three months ended September 30, 2011 and 2010
Net EPS, Net EPS,
Income basic Income basic
(USD`000) (USD) (ZAR`000) (ZAR)
2011 2010 20 201 2011 2010 201 201
11 0 1 0
GAAP 19,7 7,42 44 16 140,2 55,0 311 121
68 9 32 14
Amortization of 3,49 2,60 24,81 19,3
intangible assets, 7 8 4 13
net of tax
Stock-based 496 1,43 3,519 10,6
compensation charge 8 49
Loss on FEC, net of - 1,68 - 12,4
tax 5 80
Facility fees for 116 - 823 -
KSNET debt
Profit on (3,9 - (28,3 -
liquidation of 94) 33)
SmartSwitch Nigeria
Acquisition-related - 3,36 - 24,9
costs. 7 34
Fundamental 19,8 16,5 44 36 141,0 122, 313 270
83 27 55 390
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, 2011 and 2010
2011 2010
Net income (USD`000) 19,768 7,429
Adjustments:
Profit on liquidation of SmartSwitch -
Nigeria (USD`000) (3,994)
Profit on sale of property, plant and
equipment (USD`000) (8) (5)
Tax effects on above (USD`000)
3 2
Net income used to calculate headline 15,769 7,426
earnings (USD`000)
Weighted average number of shares used to 45,384
calculate net income per share basic 45,055
earnings and headline earnings per share
basic earnings (`000)
Weighted average number of shares used to 45,415
calculate net income per share diluted 45,085
earnings and headline earnings per share
diluted earnings (`000)
Headline earnings per share:
Basic earnings - common stock and linked 16
units, in US cents 35
Diluted earnings - common stock and 16
linked units, in US cents 35
Johannesburg
28 October 2011
Sponsor to Net1
Deutsche Securities (SA) (Proprietary) Limited
Date: 28/10/2011 08:01:01 Produced by the JSE SENS Department.
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