Net 1 UEPS Technologies, Inc. Reports First Quarter 2016 Results

JOHANNESBURG, SOUTH AFRICA--(Marketwired - November 05, 2015) - Net 1 UEPS Technologies, Inc. (NASDAQ: UEPS) (JSE: NT1) today released results for the first quarter of fiscal 2016.

• Q1 2016 Revenue and FEPS of $154.5 million and $0.56, a constant currency increase of 19% and 16% respectively.

• More than 350,000 EPE cards issued and approximately 750 ATMs deployed to October 2015; and

• SASSA cancels tender process resulting in contract to March 2017, and Court dismisses U.S. class action lawsuit.

(1) Fundamental net income and earnings per share are non-GAAP measures and are described below under "Use of Non-GAAP Measures -- Fundamental net income and fundamental earnings per share." See Attachment B for a reconciliation of GAAP net income to fundamental net income and earnings per share.

Factors impacting comparability of our Q1 2016 and Q1 2015 results

• Unfavorable impact from the strengthening of the U.S. dollar against primary functional currencies: The U.S. dollar appreciated by 21% against the ZAR and 13% against the KRW during Q1 2016, which negatively impacted our reported results;
• Increased contribution by KSNET: Our results were positively impacted by growth in our Korean operations;
• Continued growth in financial inclusion services: We continued to grow our financial inclusion services offerings during Q12016 which has resulted in higher revenues and operating income, primarily from more sales of low-margin prepaid airtime and an increase in transaction fees;
• Increase in the number of SASSA grants paid: Our revenue and operating income have increased as a result of the higher number of SASSA UEPS/EMV cardholders paid during Q1 2016 compared with Q1 2015; and
• Launch of EPE and Smart Life: During Q1 2016, we launched our EPE and Smart Life offerings, which contributed to a marginal increase in revenue in ZAR, as well as an associated increase in establishment costs.

Comments and Outlook

"In addition to the solid results that we have once again achieved, the take-up of our strategic initiatives to date, such as EasyPay Everywhere and ZAZOO, continues to validate our business strategy," said Dr. Serge Belamant, Chairman and CEO of Net1. "The pipeline for both our card-centric and mobile-centric projects augurs well for the continued organic growth of our business, and the resultant value creation for shareholders," he concluded.

"We achieved our great Q1 constant currency results despite the resources committed for the roll-out of our EPE, Smart Life and ATM initiatives," said Herman Kotzé, Chief Financial Officer of Net1. "For fiscal 2016, we continue to expect fundamental earnings per share of at least $2.57, assuming a constant currency base of ZAR11.43/$1 and a share count of 46.7 million shares," he concluded.

SASSA files progress report on the status of a new tender process with the South African Constitutional Court

As a result of SASSA's decision not to award the new tender, and in accordance with the Constitutional Court's order, SASSA filed a report today setting out the relevant information on whether and when it will be ready to assume the duty to pay grants itself. A full copy of the report is available on our website (www.net1.com).

Results of Operations by Segment and Liquidity

Our operating metrics will be updated and posted on our website (www.net1.com).

South African transaction processing

Segment revenue was $55.6 million in Q1 2016, down 8% compared with Q1 2015 in USD and up 11% on a constant currency basis. In ZAR, the increase in segment revenue was primarily due to more low-margin transaction fees generated from cardholders using the South African National Payment System and an increase in the number of social welfare grants distributed, offset by fewer inter-segment transaction processing activities. Our operating income margin for Q1 2016 and 2015 was 24% and 23%, respectively, and has increased primarily due to an increase in the number of beneficiaries paid in Q1 2016 and a modest increase in the margin of transaction fees generated from cardholders using the South African National Payment System.

International transaction processing

Segment revenue was $41.2 million in Q1 2016, down 5% compared with Q1 2015 in USD and up 15% on a constant currency basis. Revenue increased in constant currency primarily due to higher transaction volume at KSNET during Q1 2016. Operating income during the first fiscal quarter of 2016 was higher due to increase in revenue contribution from KSNET and a positive contribution by XeoHealth, but was partially offset by ongoing ZAZOO start-up costs in the UK and India. Operating income margin for Q1 2016 and 2015 was 16% and 17%, respectively.

Financial inclusion and applied technologies

Segment revenue was $67.4 million in Q1 2016, up 3% compared with Q1 2015 in USD and 24% on a constant currency basis. In ZAR, Financial inclusion and applied technologies revenue and operating income increased primarily due to higher prepaid airtime and other value-added services sales, more ad hoc terminal and card sales and, in ZAR, an increase in inter-segment revenues. Operating income for Q1 2016, was adversely impacted by establishment costs for EPE and Smart Life. The South African National Credit Act, made certain industry-wide amendments, which became effective March 13, 2015. These amendments were introduced primarily to address over-indebtedness of South African consumers and requires lenders to perform a stricter affordability assessment. Compliance with the amended legislation had a modest impact on our UEPS-based lending businesses in Q4 2015 and Q1 2016, but should moderate going forward. Operating income margin for the Financial inclusion and applied technologies segment was 25% and 27%, respectively, during Q1 2016 and 2015, and has decreased primarily due to the sale of more low-margin prepaid airtime and establishment costs for EPE and Smart Life.

Corporate/eliminations

In USD, our corporate expenses have decreased primarily due to the impact of the stronger USD on goods and services procured in other currencies, primarily the ZAR, and lower amortization costs, partially offset by modest increases in USD denominated goods and services purchased from third parties and directors' fees.

Cash flow and liquidity

At September 30, 2015, we had cash and cash equivalents of $125.6 million, up from $117.6 million at June 30, 2015. The increase in our cash balances from June 30, 2015, was primarily due to the expansion of all of our core businesses, offset by provisional tax payments, capital expenditures and the strengthening of the U.S. dollar against our primary functional currencies.

Excluding the impact of interest received, interest paid under our Korean debt and taxes, the decrease in cash from operating activities resulted from the timing of receipts of cash from customers. Capital expenditures for Q1 2016 and 2015 were $10.7 million and $9.4 million, respectively, and have increased primarily due to the acquisition of more payment processing terminals in South Korea and ATMs in South Africa.

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

Fundamental net income and earnings per share is GAAP net income and earnings per share adjusted for (1) the amortization of acquisition-related intangible assets (net of deferred taxes), (2) stock-based compensation charges and (3) unusual non-recurring items, including the amortization of KSNET debt facility fees and US government investigations-related and US lawsuit expenses. 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 profit on sale of property, plant and equipment. Attachment C presents the reconciliation between our net income used to calculate earnings per share basic and diluted and HEPS basic and diluted and the calculation of the denominator for headline diluted earnings per share.

Conference Call

We will host a conference call to review Q1 2016 results on November 6, 2015, at 8:00 Eastern Time. To participate in the call, dial 1-855-481-5362 (US and Canada), 0808-162-4061 (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 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 November 29, 2015.

About Net1 (www.net1.com)

Net1 is a leading provider of alternative payment systems that leverage its Universal Electronic Payment System ("UEPS") or utilize its proprietary mobile technologies. The Company operates market-leading payment processors in South Africa and the Republic of Korea.

UEPS permits the Company 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. Net1's UEPS/EMV solution is interoperable with global EMV standards that seamlessly enable access to all the UEPS functionality in a traditional EMV environment. In addition to payments, UEPS can be used for banking, healthcare management, payroll, remittances, voting and identification.

Net1's mobile technologies include its proprietary mobile payments solution -- MVC, which offers secure mobile-based payments, as well as mobile banking and prepaid value-added services in developed and emerging countries. The Company intends to deploy its varied mobile solutions through its ZAZOO business unit, which is an aggregation of innovative technology companies and is based in the United Kingdom.

Net1 has a primary listing on the NASDAQ and a secondary listing on the Johannesburg Stock Exchange.

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.

Weighted average number of shares used to calculate headline 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 earnings per share diluted because we do not use the two-class method to calculate headline earnings per share diluted.