via NetworkWire --
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, 2019
and provides business update.
Conference Call:The Company
will host a conference call on May 16, 2019, at 8:30 a.m. EST to
discuss first quarter 2019 financial results and business
highlights. The conference call can be accessed live over the phone
by dialing +1 (877) 303-9858, or for international callers +1 (408)
337-0139, and referencing conference code 5477529. It is
recommended that participants dial in approximately 10 minutes
prior to the start of the call.
The call will also be webcast live from
http://edge.media-server.com/m6/p/c7v4bkf9. Following completion of
the call, a recorded replay of the webcast will be available on the
www.netelement.com/en/ir website.
First Quarter 2019 Financial
Highlights
- Transaction processing volume of approximately $787 million, an
increase of 6.4% as compared to approximately $739 million for the
same comparable period
- Net revenue of approximately $15 million, a decrease of
approximately 6% as compared to approximately $16 million for the
same comparable period
- Gross margin of approximately $2.8 million or 18.5% of net
revenue, an increase of 16.7% as compared to approximately $2.4
million or 14.8% of net revenue for the same comparable period
- Operating expenses were $3.6 million, representing an increase
of approximately 5.9% as compared to $3.4 million for the same
comparable period. The primary reasons for the increase in
operating expenses were due to an increase in bad debt expense and
amortization
- Net loss per share decreased to $0.29, a decrease of
approximately 31% as compared to $0.42 during the same comparable
period
First Quarter 2019 Significant
Achievements
- Net Element subsidiary Aptito and HP entered into an agreement
to provide a modern best-in-class integrated POS solution for SMB
Market
- Net Element subsidiary Unified Payments is among the first
companies to achieve self-regulatory certification from the
Electronics Transactions Association
- Launched multi-channel blockchain-powered acceptance
application as part of its Netevia, future-ready payment acceptance
platform
“We are pleased with our first quarter results
and ongoing progress our team has made to improve gross margins
through use of scalable infrastructure and penetration of
value-added technologies,” commented Oleg Firer, CEO of Net
Element. “We remain focused on reaching profitability as we
continue to scale our business in the selected markets.”
Outlook
The global payments industry continued to
deliver healthy growth during 2018 and the first quarter of 2019,
with underlying transaction volumes demonstrating even greater
strength. We believe that new and disruptive technologies will
provide us the opportunity to differentiate ourselves from our
competition and continue developing and delivering innovative
payment solutions in 2019 and beyond.
We continue to believe that disruptive
technologies such as blockchain, IoT, biometrics payments and
artificial intelligence will play key roles in future commerce.
These technologies will encourage innovation through development of
value-added services and cater to merchants and their
customers.
We believe Netevia, our future-ready payments
platform, will increase the economic efficiency of all transactions
made within our ecosystem while serving as a framework and core for
a number of value-added services that can connect merchants and
consumers directly utilizing these technologies. Specifically,
Netevia Payments Platform delivers end-to-end payment processing
through easy-to-use APIs and complements Net Element’s ability to
perform in a multi-channel environment, including POS, e-commerce
and mobile devices and will enable the Company to perform as a hub
for disruptive emerging technology solutions.
Results of Operations for the Three
Months Ended March 31, 2019 Compared to the Three Months Ended
March 31, 2018
We reported a net loss attributable to common
stockholders of approximately $1.1 million or $0.29 per share loss,
for the three months ended March 31, 2019, as compared to a net
loss of approximately $1.6 million or $0.42 per share loss, for the
three months ended March 31, 2018. The decrease of approximately
$0.5 million in net loss attributable to stockholders was primarily
due to an increase in the gross margin for our North American
Transaction Solutions segment during the three months ended March
31, 2019 as compared to the three months ended March 31, 2018.
The following table sets forth our sources of
revenues, cost of revenues and the respective gross margins for the
three months ended March 31, 2019 and 2018.
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Three |
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Three |
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Months Ended |
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|
Months Ended |
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|
|
Increase / |
Source
of Revenues |
|
March 31, 2019 |
|
Mix |
|
March 31, 2018 |
|
Mix |
|
(Decrease) |
|
|
|
|
|
|
|
|
|
|
|
North American Transaction Solutions |
|
$ |
14,363,506 |
|
|
95.5% |
|
$ |
13,966,617 |
|
|
87.4% |
|
$ |
396,889 |
|
International Transaction
Solutions |
|
|
683,676 |
|
|
4.5% |
|
|
2,015,777 |
|
|
12.6% |
|
|
(1,332,101 |
) |
Total |
|
$ |
15,047,182 |
|
|
100.0% |
|
$ |
15,982,394 |
|
|
100.0% |
|
$ |
(935,212 |
) |
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Three |
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Three |
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|
Months Ended |
|
% of |
|
Months Ended |
|
% of |
|
Increase / |
Cost of
Revenues |
|
March 31, 2019 |
|
revenues |
|
March 31, 2018 |
|
revenues |
|
(Decrease) |
|
|
|
|
|
|
|
|
|
|
|
North American Transaction
Solutions |
|
$ |
11,768,738 |
|
|
81.9% |
|
$ |
12,064,072 |
|
|
86.4% |
|
$ |
(295,334 |
) |
International Transaction
Solutions |
|
|
491,410 |
|
|
71.9% |
|
|
1,554,262 |
|
|
77.1% |
|
|
(1,062,852 |
) |
Total |
|
$ |
12,260,148 |
|
|
81.5% |
|
$ |
13,618,334 |
|
|
85.2% |
|
$ |
(1,358,186 |
) |
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Three |
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Three |
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|
Months Ended |
|
% of |
|
Months Ended |
|
% of |
|
Increase / |
Gross
Margin |
|
March 31, 2019 |
|
revenues |
|
March 31, 2018 |
|
revenues |
|
(Decrease) |
|
|
|
|
|
|
|
|
|
|
|
North American Transaction
Solutions |
|
$ |
2,594,768 |
|
|
18.1% |
|
$ |
1,902,545 |
|
|
13.6% |
|
$ |
692,223 |
|
International Transaction
Solutions |
|
|
192,266 |
|
|
28.1% |
|
|
461,515 |
|
|
22.9% |
|
|
(269,249 |
) |
Total |
|
$ |
2,787,034 |
|
|
18.5% |
|
$ |
2,364,060 |
|
|
14.8% |
|
$ |
422,974 |
|
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|
Net revenues consist primarily of service fees
from transaction processing. Net revenues were approximately $15
million for the first quarter of 2019 as compared to approximately
$16 million for the first quarter of 2018. The decrease in net
revenues for the comparable period was primarily related to our
International Transaction Solutions segment which experienced
continued competition and economic challenges.
Cost of revenues represents direct costs of
generating revenues, including commissions, mobile operator fees,
card brands expenses, processing and non-processing fees. Cost of
revenues for the three months ended March 31, 2019 were
approximately $12.3 million as compared to approximately $13.6
million for the three months ended March 31, 2018. The decrease of
$1.3 million in cost of revenues for the comparable quarters was
primarily driven by the reorganization of assignments from our
International Transaction Solutions segment due to continued
competition and economic challenges in the selected markets. We are
working diligently to offset lost revenues.
The gross margin for the three months ended
March 31, 2019 was approximately $2.8 million, or 18.5% of net
revenue, as compared to approximately $2.4 million, or 14.8% of net
revenue, for the three months ended March 31, 2018. The primary
reason for the increase in the gross margin percentage was the
result of North American Transaction Solutions processing of
transactions utilizing our self-designated Bank Identification
Number (BIN) / Interbank Card Association (ICA), recurring
profitable cash flows from the portfolios acquired in the prior
year, and further acceptance of value-added services by the
merchants.
Operating Expenses
Analysis:
Operating expenses were approximately $3.6
million for the three months ended March 31, 2019, as compared to
$3.4 million for three months ended March 31, 2018. 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 amortization of approximately $0.9 million, primarily
related to the amortization of acquired portfolios and client
acquisition costs. Operating expenses for the three months ended
March 31, 2018, primarily consisted of selling, general and
administrative expenses of approximately $2.4 million, bad debt
expense of approximately $0.1 million, and depreciation and
amortization expense of approximately $0.7 million.
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. Net Element 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 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 three months ended March
31, 2019 and 2018 is presented in the following tables.
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Share-based |
|
Adjusted |
Three Months Ended March 31, 2019 |
|
GAAP |
|
Compensation |
|
Non-GAAP |
Net loss attributable to Net Element Inc. stockholders |
|
$ |
(1,120,847 |
) |
|
$ |
15,006 |
|
|
$ |
(1,105,841 |
) |
Basic and diluted earnings per
share |
|
$ |
(0.29 |
) |
|
$ |
0.00 |
|
|
$ |
(0.28 |
) |
Basic and diluted shares used
in computing earnings per share |
|
3,908,872 |
|
|
|
|
3,908,872 |
|
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|
Share-based |
|
Adjusted |
Three Months Ended March 31, 2018 |
|
GAAP |
|
Compensation |
|
Non-GAAP |
Net loss income attributable
to Net Element Inc. stockholders |
|
$ |
(1,610,847 |
) |
|
$ |
82,011 |
|
|
$ |
(1,528,836 |
) |
Basic and diluted earnings per
share |
|
$ |
(0.42 |
) |
|
$ |
0.02 |
|
|
$ |
(0.40 |
) |
Basic and diluted shares used
in computing earnings per share |
|
3,853,130 |
|
|
|
|
3,853,130 |
|
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Use of Non-GAAP Financial
MeasuresNon-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 ElementNet 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
StatementsSecurities 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 blockchain technologies will in fact play a
key role in future commerce in the payments industry; whether the
blockchain technologies will result in the creation of value-added
services for merchants and their customers; whether the Company’s
decentralized crypto-based ecosystem and its Netevia platform will
be successful; 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.
Contact:Net Element,
Inc.Media@NetElement.com+1 (786) 923-0502
Corporate Communications
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