Nov 18, 2019

NETE: Another Quarter Being Cash Flow Positive

Current Investor Presentation

By Lisa Thompson



Net Element (NASDAQ:NETE) has been fine tuning its business over the past year, focusing on more profitable business and working to eliminate the cash burn and turn it to a positive to avoid raising capital and to start the process of paying off debt. This is designed to increase the valuation of the company, which is way below that of its peers. As the largest shareholder, the CEO Oleg Firer, has the most incentive to achieve this. This quarter Net Element again had positive cash flow of $250,000 in the quarter, down from the $641,000 in Q2, but still positive. This is the second quarter in a row of positive operating cash flow and is a meaning achievement for a company that had been cash flow negative its entire existence. We expect this could again be achieved in the seasonally strong Christmas quarter, and portends its improved results going forward.

Q3 2019 Results

While the company did not achieve revenue growth or manage to reduce reported losses this quarter, it did manage to reduce the cash burn--- which is one of its main goals. Total revenues in Q3 2019 were $16.8 million, compared with $17.2 million last year (down 2.5%.) North American sales increased 2.1% year over year to $15.9 million, while international improved sequentially to $896,000, but was down 46% year over year. North America had an uphill battle as Visa and MasterCard started to wind down certain merchant categories at the end of last year that had resulted in $350,000 less in revenues this year than last year. Taking those revenues out of both years, North America would have grown organically 4.5%.

Margins for North America improved to 15.8% versus 14.8% a year ago and 14.6% in Q2 2019. Management is focusing on selling higher margin services. It has seen success with its value added solutions that contributed $572,000 of net revenues in the quarter, (up 58% from last year) at gross margins of 39.5%. Value added solutions include the Netevia platform, Aptito, mobile POS, and Europay services. Although down year over year from the loss of a major customer, international sales increased 19.6% sequentially and margins increased to 25.8% from 22.9% a year ago, but were down from 39.0% in Q2 2019. The company expects international margin dollars to improve, but new customers are being brought on at lower than historical rates.

The GAAP and non-GAAP losses were $1 million versus last year’s $900,000. The non-GAAP loss per share was $0.24 per share compared with $0.23 per share last year.

On September 30, Net Element had $492,656 in cash, negative working capital of $808,000 and $8.2 million in debt up from $7.5 million last quarter. It had $9.3 million in available credit facilities. This quarter Net Element had positive cash flow of $250,000, but negative free cash flow of $157,000 after paying for commissions and equipment. This is the second quarter in a row of positive operating cash flow.

During the Quarter

On July 1st, Aptito began processing cryptocurrency payments for its merchants.

On July 23rd, Net Element announced it won Hyde Beach House in Hollywood, Florida as a client in partnership with VIP Systems as it continues to penetrate the hospitality industry. VIP Systems is a preferred technology integrator for Marriott International, Choice Hotels International, Simon Property Group, Hotwire Communications, Morgans Hotel Group, InterContinental Hotels Group, and Related Group. Net Element offers a turnkey hospitality solution that includes everything needed for hotels to accept payments.

On August 8th, Net Element launched its Netevia MasterCard®, an exclusively tailored business card for its merchants. This card allows merchants to save up to 44% on credit and debit card payment acceptance fees. Merchants can choose a percentage of card sales to be credited to the card instead of their bank account and use it for everyday business expenses. The funds are immediately available to spend, thus improving the businesses cash flow. The card also offers rewards.

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