Shares of Net 1 UEPS Technologies Inc. (NASDAQ:UEPS) slumped Thursday after the payment solutions and transaction processing services provider reported preliminary fourth-quarter results. Both revenue and earnings declined as the company completed what it called "a turbulent year." The stock was down about 16.6% at 11:15 a.m. EDT.
Net 1 reported fourth-quarter revenue of $149.2 million, down 4% year over year in U.S. dollars and down 16% year over year in South African Rand. In its earnings release, the company explained some of the decline: "We achieved this result despite the deferral of significant revenue related to Q4 activities under our SASSA contract, until we receive pricing confirmation from the Constitutional Court."
Net 1 was awarded its contract with the South African Social Security Agency, or SASSA, in 2012. CPS revenue plunged 81% in the fourth quarter due to the phase-out period of the SASSA contract, which is scheduled to terminate on Sept. 30.
Fundamental earnings per share, a non-GAAP figure, came in at $0.22, down from $0.41 in the prior-year period. A significant loss in the CPS business due to the phase-out of the SASSA contract contributed to the earnings decline.
"While many investors have been concerned that the end of this relationship would severely impact our other South African businesses, I can happily point to our solid Q4 we achieved despite a nearly 80% decline at CPS, as well as our guidance for fiscal 2019," said Net 1 CEO Herman Kotze. "Furthermore, the elimination of the negative impact that this contract has had on our business, management's time and shareholder value, should provide a meaningful lift to product refinement and R&D going forward."
Net 1 expects to produce fundamental EPS of at least $1.05 in fiscal year 2019, with no contribution from CPS. That's down from $2 in fiscal year 2018.
With profits plunging and guidance calling for an even bigger decline next year, the market punished the stock. Net 1 will need to show that it can return to growth absent the SASSA contract over the next few years.