May 15, 2020

Net Element Reports First Quarter 2020 Financial Results

Current Investor Presentation

MIAMI, FL / ACCESSWIRE / May 15, 2020 / Net Element, Inc. (NASDAQ:NETE) ("Net Element" or the "Company"), a global technology and value-added solutions group that supports electronic payments acceptance in a multi-channel environment including point-of-sale ("POS"), e-commerce and mobile devices, today reports its financial results for the first quarter ended March 31, 2020.

First Quarter 2020 Financial Results

  • Total transaction processing volume increased to $810.7 million, as compared to $786.7 million for the same comparable period

  • Net revenue increased to $15.8 million as compared to $15.0 million for the same comparable period

  • North American Transactions Solutions revenue increased to $15.2 million as compared to $14.4 million for the same comparable period

  • International Transaction Solutions revenue was unchanged at $0.7 million

  • Operating expenses were $3.6 million for both periods

  • Gross margin decreased to $2.5 million as compared to $2.8 million for the same comparable period in 2019

  • Net loss per share increased to ($0.33) from ($0.29) for the same comparable period

"North American Transactions Solutions continued showing modest growth during the first quarter while our International Transactions Solutions segment showed a slight increase in operating margins. Due to the COVID-19 pandemic's impact on the overall economy and in anticipation of lower processing volumes, we implemented company-wide cost savings by reducing executive pay and creating efficiencies in our work force to be better positioned for the months ahead," commented Oleg Firer, CEO of Net Element. "We are actively exploring strategic alternatives to further unlock value for shareholders, and the Company will evaluate all potential options for its business, including the sale of the Company or the Company's technology and or its assets, licensing of technology, spin-offs or business combinations"

Results of Operations for the Three Months Ended March 31, 2020 Compared to the Three Months Ended March 31, 2019

We reported a net loss attributable to common stockholders of approximately $1.4 million or $0.33 per share loss for the three months ended March 31, 2020 as compared to a net loss of approximately $1.1 million or $0.29 per share loss for the three months ended March 31, 2019.

The following table sets forth our sources of revenues, cost of revenues and the respective gross margins for the three months ended March 31, 2020 and 2019.

                               

 

  Three           Three              

 

  Months Ended           Months Ended           Increase /  

Source of Revenues

  March 31, 2020     Mix     March 31, 2019     Mix     (Decrease)  

North American Transaction Solutions

  15,159,081       95.7 %   14,363,506       95.5 %   795,575  

International Transaction Solutions

    683,486       4.3 %     683,676       4.5 %     (190 )

Total

  15,842,567       100.0 %   15,047,182       100.0 %   795,385  

 

                               

 

  Three           Three              

 

  Months Ended     % of     Months Ended     % of     Increase /  

Cost of Revenues

  March 31, 2020     revenues     March 31, 2019     revenues     (Decrease)  

North American Transaction Solutions

  12,824,669       84.6 %   11,768,738       81.9 %   1,055,931  

International Transaction Solutions

    476,136       69.7 %     491,410       71.9 %     (15,274 )

Total

  13,300,805       84.0 %   12,260,148       81.5 %   1,040,657  

 

                               

 

  Three           Three              

 

  Months Ended     % of     Months Ended     % of     Increase /  

Gross Margin

  March 31, 2020     revenues     March 31, 2019     revenues     (Decrease)  

North American Transaction Solutions

  2,334,412       15.4 %   2,594,768       18.1 %   (260,356 )

International Transaction Solutions

    207,350       30.3 %     192,266       28.1 %     15,084  

Total

  2,541,762       16.0 %   2,787,034       18.5 %   (245,272 )

 

                                       

Net revenues consist primarily of service fees from transaction processing. Net revenues were approximately $15.8 million for the three months ended March 31, 2020 as compared to approximately $15.0 million for the three months ended March 31, 2019. The increase in net revenues for the comparable period was primarily related to the boarding of new merchants and increased dollar volume in transactions during the beginning of 2020

Cost of revenues represents direct costs of generating revenues, including commissions, interchange expense, processing, and non-processing fees. Cost of revenues for the three months ended March 31, 2020 were approximately $13.3 million as compared to approximately $12.3 million for the three months ended March 31, 2019. The increase in cost of revenues for the comparable three months ended of $1.0 million was primarily driven by the increase in volume of transactions processed.

The gross margin for the three months ended March 31, 2020 was approximately $2.5 million, or 16.0% of net revenue, as compared to approximately $2.8 million, or 18.5% of net revenue, for the three months ended March 31, 2019. The primary reason for the decrease in the gross margin percentage was due to the compression of our margins due to the competitive nature of the industry.

Operating Expenses Analysis:

Operating expenses were approximately $3.6 million for the three months ended March 31, 2020 and 2019. Operating expenses for the three months ended March 31, 2020, primarily consisted of selling, general and administrative expenses of approximately $2.3 million, bad debt expense of approximately $0.4 million, and depreciation and amortization expense of approximately $0.8 million. Operating expenses for the three months ended March 31, 2019 primarily consisted of selling, general and administrative expenses of approximately $2.4 million, bad debt expense of approximately $0.3 million and depreciation and amortization of approximately $0.9 million.

The components of our selling, general and administrative expenses are reflected in the table below.

Selling, general and administrative expenses for the three months ended March 31, 2020 and 2019 consisted of operating expenses not otherwise delineated in our Condensed Consolidated Statements of Operations and Comprehensive Loss, as follows:

Three months ended March 31, 2020

Category

  North American Transaction Solutions     International Transaction Solutions     Corporate Expenses & Eliminations     Total  

Salaries, benefits, taxes and contractor payments

  548,626     113,142     550,721     1,212,489  

Professional fees

    106,242       48,891       259,198       414,331  

Rent

    4,573       16,833       52,414       73,820  

Business development

    79,201       17       2,102       81,320  

Travel expense

    4,708       25,123       55,632       85,463  

Filing fees

    -       -       21,813       21,813  

Transaction losses (gains)

    -       157,011       -       157,011  

Office expenses

    77,756       6,968       28,197       112,921  

Communications expenses

    48,702       42,990       20,008       111,700  

Insurance expense

    -       -       38,685       38,685  

Other expenses

    135       -       10,223       10,358  

Total

  869,943     410,975     1,038,993     2,319,911  
                                 

Three months ended March 31, 2019

Category

  North American Transaction Solutions     International Transaction Solutions     Corporate Expenses & Eliminations     Total  

Salaries, benefits, taxes and contractor payments

  303,990     180,791     765,548     1,250,329  

Professional fees

    141,030       55,465       501,660       698,155  

Rent

    -       18,819       54,014       72,833  

Business development

    36,984       626       5,170       42,780  

Travel expense

    24,136       8,401       32,068       64,605  

Filing fees

    -       -       22,130       22,130  

Transaction losses (gains)

    -       (31,117 )     -       (31,117 )

Office expenses

    75,059       5,878       13,324       94,261  

Communications expenses

    37,958       31,350       23,427       92,735  

Insurance expense

    -       -       34,247       34,247  

Other expenses

    (2,720 )     3,192       43,436       43,908  

Total

  616,437     273,405     1,495,024     2,384,866  
                                 

Variance

Category

  North American Transaction Solutions     International Transaction Solutions     Corporate Expenses & Eliminations     Total  

Salaries, benefits, taxes and contractor payments

  244,636     (67,649 )   (214,827 )   (37,840 )

Professional fees

    (34,788 )     (6,574 )     (242,462 )     (283,824 )

Rent

    4,573       (1,986 )     (1,600 )     987  

Business development

    42,217       (609 )     (3,068 )     38,540  

Travel expense

    (19,428 )     16,722       23,564       20,858  

Filing fees

    -       -       (317 )     (317 )

Transaction losses (gains)

    -       188,128       -       188,128  

Office expenses

    2,697       1,090       14,873       18,660  

Communications expenses

    10,744       11,640       (3,419 )     18,965  

Insurance expense

    -       -       4,438       4,438  

Other income

    2,855       (3,192 )     (33,213 )     (33,550 )

Total

  253,506     137,570     (456,031 )   (64,955 )
                                 

Salaries, benefits, taxes and contractor payments remained relatively steady on a consolidated basis for the three months ended March 31, 2020 as compared to the three months ended March 31, 2019. This was primarily due to the Company's continued monitoring of operations and labor costs necessary to maintain or increase revenues, including a reduction in corporate expenses.

Reconciliation of Non-GAAP Financial Measures and Regulation G Disclosure

To supplement its consolidated financial statements presented in accordance with United States generally accepted accounting principles ("GAAP"), the Company provides additional measures of its operating results by disclosing its adjusted net loss attributable to Net Element, Inc. stockholders. Adjusted net loss attributable to Net Element stockholders is calculated as net loss attributable to Net Element stockholders excluding non-cash share-based compensation. The Company discloses this amount on an aggregate and per share basis. These measures meet the definition of non-GAAP financial measures. The Company believes that application of these non-GAAP financial measures is appropriate to enhance the understanding by the Company's investors of its historical performance through the use of a metric that seeks to normalize period-to-period earnings. A reconciliation of these non-GAAP financial measures with the comparable financial measures calculated in accordance with GAAP for the quarter ended March 31, 2020, and March 31, 2019 is presented in the following tables.

                   

 

  GAAP     Share-based Compensation     Adjusted Non-GAAP  

Three Months Ended March 31, 2020

                 

Net loss attributable to Net Element Inc stockholders

  (1,366,216 )   38,400     (1,327,816 )

Basic and diluted loss per share

  (0.33 )   0.01     (0.32 )

Basic and diluted shares used in computing loss per share

    4,117,643               4,117,643  

Three Months Ended March 31, 2019

                       

Net loss attributable to Net Element Inc stockholders

  (1,120,847 )   15,006     (1,105,841 )

Basic and diluted loss per share

  (0.29 )   -     (0.29 )

Basic and diluted shares used in computing loss per share

    3,908,872               3,908,872  
                         

Use of Non-GAAP Financial Measures

Non-GAAP measures should not be considered a substitute for, or superior to, financial measures calculated in accordance with GAAP. Non-GAAP measures exclude significant expenses that are required by GAAP to be recorded in the Company's financial statements and are subject to inherent limitations.

About Net Element

Net Element, Inc. (NASDAQ: NETE) operates a payments-as-a-service transactional and value-added services platform for small to medium enterprise ("SME") in the U.S. and selected emerging markets. In the U.S. it aims to grow transactional revenue by innovating SME productivity services using blockchain technology solutions and Aptito, our cloud-based, restaurant and retail point-of-sale solution. Internationally, Net Element's strategy is to leverage its omni-channel platform to deliver flexible offerings to emerging markets with diverse banking, regulatory and demographic conditions. Net Element was ranked as one of the fastest growing companies in North America on Deloitte's 2017 Technology Fast 500™. In 2017 we were recognized by South Florida Business Journal's as one of 2016's fastest growing technology companies. Further information is available at www.NetElement.com.

Forward-Looking Statements

Securities Exchange Act of 1934, as amended. Any statements contained in this press release that are not statements of historical fact may be deemed forward-looking statements. Words such as "continue," "will," "may," "could," "should," "expect," "expected," "plans," "intend," "anticipate," "believe," "estimate," "predict," "potential," and similar expressions are intended to identify such forward-looking statements. All forward-looking statements involve significant risks and uncertainties that could cause actual results to differ materially from those expressed or implied in the forward-looking statements, many of which are generally outside the control of Net Element and are difficult to predict. Examples of such risks and uncertainties include, but are not limited to whether the Company will be successful in executing cost savings and other alternative strategies and whether these measures will benefit the Company, its clients, sales partners and shareholders; what the ultimate impact of the COVID-19 pandemic will have on the Company and its operations, whether the Company will achieve further growth or achieve its goals and when the Company will reach profitability. Additional examples of such risks and uncertainties include, but are not limited to (i) Net Element's ability (or inability) to obtain additional financing in sufficient amounts or on acceptable terms when needed; (ii) Net Element's ability to maintain existing, and secure additional, contracts with users of its payment processing services; (iii) Net Element's ability to successfully expand in existing markets and enter new markets; (iv) Net Element's ability to successfully manage and integrate any acquisitions of businesses, solutions or technologies; (v) unanticipated operating costs, transaction costs and actual or contingent liabilities; (vi) the ability to attract and retain qualified employees and key personnel; (vii) adverse effects of increased competition on Net Element's business; (viii) changes in government licensing and regulation that may adversely affect Net Element's business; (ix) the risk that changes in consumer behavior could adversely affect Net Element's business; (x) Net Element's ability to protect its intellectual property; (xi) local, industry and general business and economic conditions; and (xii) adverse effects of potentially deteriorating U.S.-Russia relations, including, without limitation, over a conflict related to Ukraine, including a risk of further U.S. government sanctions or other legal restrictions on U.S. businesses doing business in Russia. Additional factors that could cause actual results to differ materially from those expressed or implied in the forward-looking statements can be found in the most recent annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K filed by Net Element with the Securities and Exchange Commission. Net Element anticipates that subsequent events and developments may cause its plans, intentions and expectations to change. Net Element assumes no obligation, and it specifically disclaims any intention or obligation, to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as expressly required by law. Forward-looking statements speak only as of the date they are made and should not be relied upon as representing our plans and expectations as of any subsequent date.

Contact:

Net Element, Inc.
Tel. +1 (786) 923-0502
Media@NetElement.com
www.netelement.com

SOURCE: Net Element, Inc

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